Professional Documents
Culture Documents
Contracts
1) Introduction
1) Introduction
a. Definition of a K is hard to define.
i. Williston: A K is a promise, or a set of promises, for breach of which the law gives a
remedy, or the performance of which the law in some way recognizes as a duty
1. Here, the promise can be expressed, or implied, or coupled with other elements.
ii. A K is a legally enforceable agreement
1. but there could be moral obligation, or past consideration
iii. Macneil: the relations among parties to the process of projecting exchange into the future
iv. USS: a Contract as the total legal obligation created by a bargain.
2) Contracts distinguished from Executed Agreements
a. A K is executory in nature. It contains a promise or promises that must be executed, that is
performed.
b. The distinction between a barter and a K is not firm.
3) Freedom of Contract
a. In medieval England, K were not enforced with regularity.
b. In 19th century, ideas that K were unrestricted. And insisted on freedom of bargaining as the
fundamental requisite of progress.
c. 20th century, moved back a little. Protect the people and the poor.
i. Controlled by federal and state laws.
d. In modern day, many Ks are not negotiatiable. Individuals must sign adhesion Ks.
e. Most of K law is premised upon a model consisting of two alert individuals, mindful of self interest,
hammering out an agreement.
f. Here the process of entering into an adhesion K, is not of haggle and cooperative process but rather
of fly and flypaper.
4) Philosophical Foundations of K law.
a. The human will as sovereignty.
b. Moral compulsion
c. Private autonomy
d. Reliance
e. The needs of trade
f. Critical race theory
5) Scope, Relevance and Adequacy of K law.
6) Sources of K law
a. Most of K law is common law, embodied in court decisions.
i. Some legislative enactments bear on the subject.
b. Restatement 1st = Williston
c. Restatement 2nd = Farnsworth and Braucher
i. Drew on views of Corbin
7) The UCC
a. By 1967, was passed in all 50 states.
b. Article 2 deals with sale of goods.
c. The K provisions of Article 2 of the code make many changes in traditional K law.
d. Different rule for K for sale than other Ks.
e. Other Ks may adopt the UCC by analogy.
8) Classification of Contracts
a. Formal and Informal Contracts
i. Before in the old days, only a few Ks were considered formal K.
ii. Now, any K that can be enforced legally is a formal K
b. Void, Voidable and Unenforceable Contracts
i. When a promise is entitled to either a money judgement, an injunction or specific
performance because of a breach, the K is said to be enforceable.
ii. A K is void when is can not be enforced in a court of law.
1. More correct to say that no K has been created
iii. A K is voidable if one or more of the parties has the power to elect to avoid the legal
relations created by the K or by ratification to extinguish the power of avoidance.
1. Usually this occurs when the K was made by fraud, duress, or mistake.
iv. Unenforceable K are those which have some legal consequences but which may not be
enforced in an action for damages or performance in the face of certain defenses, like SOL
or Statute of Frauds (SOF).
c. Express and Implied K Quasi-K
i. When the parties manifest their agreement by words express.
ii. When the parties manifest their agreement by actions implied in fact, or implied
iii. K implied in fact Ks that have express and implied agreements to the terms of the K.
iv. K implied in law Quasi-K
1. EX:
a. If a doctor gives a child necessary medical care in the face of parental
neglect, the doctor may recover from the parents, in Quasi-K, the value of his
services
v. Normally, if there has been found that no K exists, but there was performance, quasiK
maybe used to settle the dispute.
2) Intent to Contract
1) Mutual Assent
a. Usually an essential prerequisite to the formation of a K is an agreement: a mutual manifestation of
assent to the same terms.
2) Objective and Subjective Assent and Intent
a. Mutual assent is ordinarily arrived at by a process of offer and acceptance. Under the objective
theory, whether there is assent is determined by asking what a reasonable person in the position of
one party would be led to believe by the words and conduct of the other party. This is usually a
question of fact. However, if reasonable persons can reach only one reasonable conclusion, it is a
question of law.
b. Has changed through the years
i. Early common law = objective
ii. Mid common law = subjective
iii. Now = objective
c. Now, we view that the party is charged with knowledge of a RP but also with what that party
knows or should know because of that partys superior knowledge.
d. EX:
i. Lucy v Zehmer: A makes offer to B with expressed terms but conceals the fact that he is
joking. This can be put to reasonable person test, and could be considered a contract
unless there was superior knowledge. on Bs part.
1. Q: Who decides if Zehmer is serious or not serious?
The jury. This is a question of fact.
2. HYPO: The K is formed at the latest when Lucy picks up the K and puts it in the
pocket. Nothing has changed. After a few seconds, Lucy tries to give $5 for the K.
Zehmer told Lucy of the joke. Lucy has not relied on this K after a few seconds after
he puts the K in his pocket. Does that matter?
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The K was formed. Therefore reliance is not necessary. We do not need reliance here.
ii. Problem 1: A owned a $200 harness which was stolen from him. In a boastful manner A
states that he will pay $2500 for the return of the harness. P recovered the harness and sues
for recovery?
1. if a RP knows the cost of the harness, he can not get recovery.
3) Must the parties be serious?
a. If a RP would conclude that A was serious, there is a K unless B knows or should know that A is not
serious.
4) Must the parties intend to be bound?
a. The parties needn't intend legal consequences to be legally bound, but if the objective evidence
makes it clear that they do not intend to be bound there is no contract.
b. Even if both parties did not know that they could be bound by the agreement, they are still legally
bound.
c. However, if both parties expressed the agreement is not binding, then there is no legal K.
d. Social obligations and in marriage, there is an assumption that no legal consequences can arise.
e. EX:
i. Problem: A and B have written agreement that stipulates that they do not intend any legal
consequences and that they will deal with each other honorably based on the standards of
their past business relationship. The Parties break off ties.
NO K. No legal consequences
ii. Balfour v Balfour
1. Husband who lives away from wife agreed to pay wife a specific monthly amount
while she lived I England b/c of sickness
An agreement is not a valid contract unless the parties intend that it can be sued
upon = intend legal consequences. Husband and wife do not usually make
agreements with intent of legal consequences.
iii. Problem: H is living with his wife in harmony. Before H leaves on a trip they evaluate her
financial needs and agree on $1000/month. A) Is there a K under normal circumstances?, B)
Is there a K if they stipulate We intend this agreement to be legally binding?, C) Is the
agreement binding if they are separated or not living in harmony?
a) NO, a K does not exist under normal circumstances do to policy considerations and usual
lack of intent to be bound by an agreement between husbands and wives living in harmony.
b) YES, A K exists if the parties manifested an intention to be legally bound.
c) YES, A K exists if they were not living in harmony.
iv. Problem: I invite A to my house on Sunday for dinner and she agrees to come. She shows
up and I am not there. A) Is there a COA?, B) May we make it a binding obligation?
a) no
b) yes
v. Problem: I invite A up to my house in the which is 200 miles away and she agrees to come.
When A arrives I withdraw the invitation. Is there a COA?
This is still a social engagement and there is no presumption of intent of legal consequences
by the parties. There is an issue of reliance here however, which may open the door for
recovery based on the doctrine of promissory estoppel.
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OFFER
Yes. The Dr. promised to have a certain procedure performed and he did not. This is
a breach of K. It is possible to make a promise that something will occur, and be
liable for it not occurring, even if you do not have control over it.
The court in this case allowed the promise to go to the Jury and the jury found that
the Doctor made a promise.
c. Statements of Intention Hopes and Desires and Estimates
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i. If A says to B, Im going to sell my car for $450., it is not an offer. It is a statement of
intent.
ii. If you paint my house, I will sell my house for $5000 offer
iii. Letters of intent are usually not offers.
iv. Statements of wishes, hopes, or desires, are usually not offers.
v. RP conclude that a person who is giving an estimate is not promising to do the job for the
price named, but thinks the job can be completed for a sum in that neighborhood.
d. Inquiry or invitation to make an offer
i. A to B: Will you sell my your property for $5000? not an offer
ii. B to A: I will not sell for less than $6000. not an offer, but inviting A to make the offer.
e. Advertisements, catalogs and circular letters
i. Advertisement: Sale! Normal $440, now $220 not an offer
ii. There is no QUANTITY.
iii. If first come, first served and quantity one per customer were written, then it would
mean that the ad was an offer.
iv. For an Advertisement to be held an offer, there must be a quantity of wares and a
language of promise.
v. Farnsworth states: a customer should not usually have reason to believe that the shopkeeper
intended exposure to the risk of a multitude of acceptance resulting in a number of contracts
exceeding the shopkeepers inventory.
vi. EX:
1. Leonard v PepsiCo
a. This is a television ad which advertised that by sending in 15 million points,
you can get a fighter jet. P said it was an offer.
Court ruled that a RP can not think this was real.
2. Carbolic Smoke Ball
3. Delta Shuttle we, (furnish, promise, offer, assure), (these four words are crossed off)
GUARANTEE a seat. Offer?
So seller ships the houses to the buyer. The seller is obligated to pay the
US the port charges. The actual port charges are $7,000. the seller
resists paying the port charges, then the US sues Briggs for the port
charges.
The question is: What port charges does the buyer owe? Does the buyer
owe the actual port charges or the estimated port charges?
If using common law, Toombs should have to pay the actual port
charges. Court uses the doctrine of equitable estopple. Then the buyer
has to pay only $2,000.
Here, the seller is more aware of the costs, and the costs are published
in a book, so the court says the seller should have known the real port
charges.
b. Lonergan v Scolnick
i. D put out an ad in a newspaper for the sale of land. P wrote to D
asking if he found the correct land. D wrote back saying he has and he
needs to act fast b/c D might sell it to someone else. P then sets up an
escrow agent for the sale of land. D then sold the land before P
notifies D of the sale.
D made no offer to P. P knew of others that wanted the land. P can not
accept b/c there is no offer.
h. Price Quotations Goods and Real Property
i. Goods
1. Usually considered not an offer.
2. However, it is dependent on the other language used in the quote
3. EX:
a. CASE:
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i. Fairmount Glassworks v. Grunden-Martin Woodenware: P asked D
for price on 1000 mason jars. D answered with detailed terms, price,
quote and for immediate acceptance. P said to enter order. D
responded that he could not fill order b/c he was sold out. Court held
that D made an offer even though it was termed a quote. Normally
the buyer makes the first expression of commitment (offer) to the
buyer. In this case the sellers quote was an offer b/c:
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a. Will you sell us Bumper Hall Pen? Telegraph lowest cash price
Response Lowest price for Bumper Hall Pen is $900. Not an offer. Does
not answer the first question.
Difference between this case and Green Jar is that P knew that D was
negotiating with other people.
i. Offer v Preliminary Negotiations
i. Preliminary Negotiation means any communication prior to the acceptance.
ii. The test is: whether a RP in the position of the P would conclude that the D had made a
commitment.
1. There may be differences of opinion in this test.
iii. Factors to consider
1. Whether the communication is and initial communication as opposed to an answer to
an inquiry. The language of the inquiry is important as well.
a. An answer to an inquiry is more likely to be an offer.
2. The words used. Are the words generally associated with promise or are they
noncommittal?
3. Are the terms detailed or are only a few terms included. Do they have quantity and
quality terms.
4. Selectivity of Communication is it clear that the party who sends the
communication is treating with other people with respect to the same matter?
5. Does the case involve real property or goods?
6. Relationship of the parties: husband and wife?
7. Surrounding circumstances: whether a physician is treating a patient under
emergency conditions or not
8. Usages of the trade, prior practices of the parties.
iv. EX:
1. D wrote the following letter to a number of seed dealers including P: I have 1800
bu. Of millet seed of which I am mailing you a sample I want $2.25 for a
hundredweight for this weed D said I accept your offer
No K. This is a circular letter and B as a reasonable person should have known that
A was not making an offer to everyone, and that he was only inviting offers. Even if
B didnt know that it was being sent to others, it was still an initial communication
by seller in a non-committal manner.
Even if it were an offer, Bs acceptance is indefinite.
7) Questions of Law and Fact
a. Usually
i. Juries fact
ii. Judges law
b. It is a question of law to interpret a writing record.
8) Intent to Memorialize & Effect of Duplicate Originals
a. If the parties reach basic agreement on a transaction but agree that they will not be bound unless and
until they sign a formal agreement, they will not be bound until that time. If they intend the future
writing to be merely a convenient memorial of their prior agreement, they are bound whether or not
such a writing is executed. Intent is often a question of fact.
b. Usually 3 possibilities
i. Parties state there is no K until signed in writing
ii. Parties state that there is a K before signed in writing and writing is only memorializing the
K.
iii. Parties have not manifested their intent.
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1. this is a problem.
2. Question involves the intention of the parties, which is a question of fact.
3. RSTMT 2nd said to look to the type of K
a. Amount of details
b. Usually written in K
c. Common or unusually K
d. Other factors.
4. If a RP in the position of the other party either knew or should have known that the
other party did not intend to be bound in the absence of a formal agreement, there is
a no K until a formal agreement is executed.
5. Also is there a K when everyone signs the K or when it is delivered.
a. Again back to the intention of the parties.
c. EX:
i. Case: Texaco v Pennzoil
ii. Texaco was charged with tortious interference in a deal between Pennzoil and Getty. There
was an apparent agreement between the two in which a memorandum agreement had been
reached that reflected the terms. Press releases were issued along with basic terms. Getty
then negotiated a merger with Texaco. Texaco claims that until the memorandum agreement
was approved, no agreement existed, and that they therefore had the right to negotiate a deal.
Issue is whether parties to an agreement intended to be bound by an unexecuted K is a
question of fact.
Rationale: The term agreement in principle was not in this case enough to show lack of
intent.
Pennzoil argued for 1, and lost. If Pennzoil argued for 3, then they might have won for a lot
less money.
9) Indefiniteness
a. Background
i. The more terms that are omitted, the more likely it is the parties do not intend to K.
ii. Traditional rule is that if the agreement is not reasonably certain as to its material terms,
there is a fatal indefiniteness and the agreement is void.
iii. In the end, it is the K that must definite, not the offer or the acceptance.
iv. Material terms include:
1. subject matter
2. price
3. payment terms
4. quantity
5. quality
6. duration
7. the work to be done
v. If the agreement is reasonably certain, it is enforced even though the K does not set forth its
terms with optimal specificity.
vi. Express terms = terms that the parties expressed in language. Written or oral.
vii. Implied in fact terms = not based on language. Conduct in the circumstances.
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b. The Common Law
i. Indefinite Purported Agreement on a Material Term
1. In other words: the term is vague. Vagueness of a material term
a. EX:
i. Ill sell you ___ for fair price. What is fair price?
ii. Tailor says, Ill make you a suit using nice fabric
iii. Promise to pay employee salary plus fair share of profits
iv. Promise to pay for a sumptuous living
v. Promise to build a first class theater
2. It starts as an interpretation problem, what do they mean by this language first
class nice sumptuous
a. The meaning might be clarified by the context of the writing itself.
i. tell by the rest of the language of the agreement
b. but if you can not tell by the writing itself: court could look to extrinsic
evidence
i. courts would consider extrinsic evidence (conduct) to determine what
it means
c. Courts might look to see how unfair would it be, to declare the whole thing
void
i. if there has been partial performance, then it might not be fair.
d. It could be cleared by an agreement later between the parties.
3. EX:
a. Case: Eckles v Sharman
i. Coach starts off with the warriors, then goes to the ABA team, LA
STARS, for 7 years. (start in 1968).
K said:
1) option to buy 5% of LA STARS for price to be agreed upon.
2) Pension undefined.
After going to Utah, he skips out after 3 years to go back to the
Lakers.
He is in breach, if it is a K. If the K is void for indefiniteness, then it
can no be breached.
Yes. By itself, it maybe a purport to agree. However, with the context of the
situation, the railroad might understand that they should build a station to
help Os hotel. Os intention is to get more business for his hotel.
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May look to other stations that RR has built to see what it is.
Since RR has built the RR already, then it is better to enforce the K, rather
than pay damages.
c. Is there an K to remodel in accordance with blueprints for $27,000, but the
blueprints do not state what materials are to be used?
No. This is not definite enough. When it is the quantity or the specs of a
building, that has been held to be indefinite if not stated.
Another way to look at it is if you told a second contractor to do the same
work as the first contractor, would the work be the same? If not, then it is too
indefinite to hold as a K.
d. S wants to sell land to B. Agree on everything but price. K?
No. Probably not. This is real land. Price is important.
e.
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Q: Does the employee have to show reliance on the manual?
Reliance is not required. In Lucy, Lucy knew it was a joke
without getting out of the bar, and yet there was still a K. you
do not have to prove reliance in order for there to be a K.
Offer, acceptance, and consideration is required for a K not
reliance.
iii. A offers to hire B for $52,000 payable $1,000 a week. Is there a K for
an entire year?
Probably not. It is inferred that without otherwise notice, hiring is at-
will.
iv. H is a lawyer which practices in a jurisdiction tht does not recognize a
COA for the abusive discharge of an at-will employee. H reports
ethical violations and was fired. The firm says that a lawyer has an
obligation to report information that raises a substantial question as to
another lawyers honest, fitness, . .. COA?
Yes. This is probably against public policy.
v. What if H wrote an article for the local newspaper that was against the
company and then he was fired?
Thats ok. PP does not protect freedom of speech.
iv. Where Parties Agree to Agree or Agree to Negotiate
1. Traditional rule is that an agreement to agree as to a material term prevents the
formation of a K
a. Two reasons:
i. Such an agreement leaves a material term too vague and indefinite to
be enforced
ii. It shows a lack of present agreement
2. Restatement 2nd and UCC believe: an agreement to agree carries with it an implied
promise to negotiate in good faith.
a. Failure to negotiate in good faith = breach of K
3. EX:
a. P entered into an arrangement with D whereby P obtained an option to buy a
piece of real property for the sum of $23,500 on payments and terms to be
negotiated provided the same is exercised by June 1. By May, P offered to
pay $5,300. D refused, because he changed his mind to sell.
Court said that there was a K here and Ps proposal would satisfy a RP,
therefore court forces D to sell.
b. Case: Joseph Martin Jr. Deli v Schumacher
i. P rented from D for 5 years with a K that said the rent for a renewal
period was to be agreed upon. D wanted 900 dollars for the rent. P
was paying 650 at the end of year 5.
Where the parties say they are going to establish it at a later time, the
courts can not say they will establish a rental term later on. Court is
not invited to fill in a term. There is no gap filling in the agreement
to agree cases.
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Court refuses to follow the UCC in a non-sale of goods case. This is a
real property lease. Certainty and predictability are hallmarks of real
estate contracts. Courts could apply UCC rules, but it is up to the
court to do such a thing. Here, the court is staying with the traditional
common law ideals.
1) No K at all
2) An agreement to negotiate in good faith in co-packing
agreement REMEDY limited to Reliance.
3) Intended to be bound to the co-packing agreement. This
would require the court to supply the terms that are missing.
In a sale of goods, UCC rules apply. UCC says: If the parties intend to enter
into a binding K, an agreement is still valid despite missing terms.
Here, all we have to ask is if the two parties intended to K.
Sale of goods: parties now only need to negotiate a few of the terms.
(quantity, price,) there are many default terms that if the parties do not agree
to, then the court can supply the gap fillers. This is only if the parties still
agree to sell even if they do not agree to all terms.
Common law rule: Even if the parties intend to be bound, you still needed
reasonable certainty as to all material terms.
2. A agrees to sell and B agrees to buy 1000 widgets. They agree on everything but
price. K?
Yes. UCC will gapfill. As long as they agree to sell and buy a certain amount, there is
a K under UCC.
3. A agrees to sell and B agrees to buy some widgets, the quantity to be agreed upon
from time to time. K?
No. Quantity and item HAS to be stated.
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10) Unilateral, Bilateral and Reverse Unilateral K and Some of Their Implications
a. The Classical Approach
b. An offer looking to a unilateral contract asks for a performance; an offer looking to a bilateral
contract invites a promise. The promise may be expressed in words or communicated by conduct.
An offer looking to a unilateral contract may not be accepted by a promise. Conversely, an offer
looking to a bilateral contract may not, except under an unimportant exception, be accepted by
performance. The offeree does not become bound when starting to perform the act requested by an
offer looking to a unilateral contract.
i. Every K has at least 2 parties.
ii. If only one party made a promise = unilateral K
iii. If 2 parties made a promise = bilateral K
iv. A to B: If you run in the Marathon and finish, I will pay you $1,000. offer to a
unilateral K. B must accept by running, no other manner.
v. A to B: if you promise to run in the Marathon and finish, I will pay you $1,000 offer to
a bilateral K. B must promise to run to accept the offer. If B started to run in As presence, it
would be implied in fact that B accepted. However, if A were not around, then there is no
acceptance.
vi. Also there could be a reverse unilateral K.
1. EX:
a. S has been Bs regular supplier of various component parts for machinery
manufactured by B. Lately, S has been unwilling to sell to B on credit terms.
B sends a message Will you ship us item for $5,000 each. We have
deposited $75,000 to your account in Geneva.
This is reverse unilateral K.
A performance invites promise. A regular unilateral K: a promise invites
promise.
vii. This is the idea that the offeror is the master of the offer
viii. 1st RSTMT said that if not stated, then offer is looking towards bilateral K.
ix. 2nd RSTMT says that any reasonable manner of accepting an offer, is fine.
x. EX:
1. Grandpa says to granddaughter: If you make Phi Beta Kappa, I will give you
$20,000.
Granddaughter can not accept by promise. This is only accepted by performance.
2. A says to B: If you promise to rake my lawn I promise to pay you $25. B starts to
rake in As presence. K?
B needs to give an expression to A that he is promising to rake the lawn. He can
either tell A, or by starting to rake in As presence, he is manifesting his intent.
Therefore there is a K. A promise does not necessarily have to be in words.
3. Q: A to B: I will pay you 100 dollars to repair my engine. Car mechanic starts to
work on the engine. (This is categories as beginning of performance) Is an implied
promise to complete the performance there?
NO, because it is unclear how big a job it would be.
4. Q: On Jan. 2, A promises B to pay $7,500 if B paints the outside of As summer
house within 2 weeks from Jan. 2. A further states that this offer is open for three
days. B makes no promise but beings to paint on Jan. 4. K?
When the offer is ambiguous, remember that the classical approach is that the K is
assumed to be accepted by promise. B did not paint in As presence, so A does not
know. The conclusion is that there is no K.
Q: If this work had been completed within 3 days of Jan second, could there be a K
and the painter notified within a reasonable time?
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Yes. But this is an EXCEPTION under common law. 1st RSTMT: if the performance
was rendered within the time the offer was open and notice is given, it is a K.
5. A to B: This agreement shall become binding only upon written acceptance by the
home office or upon commencing performance of the work.
Both offers to a bilateral K. Commencing has implied in it that the work will be
completed. K forms either by written acceptance or by starting the work.
If the word commencing was not there, then it would be both bilateral and unilateral.
The K would form at the end of the work.
c. The UCC
i. Background
1. 2-206 made extensive changes in the common law offer-acceptance.
2.
ii. Subsection 1(a)
iii. Subsection 1(b)
iv. Subsection 2
d. Restatement 2nd
11) Must the Offeree Know of the Offer?
a. If an offer looks to a unilateral contract, the offeree must know of the offer in order to accept. There
is some dispute as to when this knowledge must occur. If the offer looks to a bilateral contract, the
rule that the offeree must know of the offer may come into conflict with the objective theory of
contracts. If so, the objective theory prevails.
b. General Rule Yes
c. An acceptance has been defined as: a voluntary act of the offeree whereby the EE exercises the
power conferred by the offer and creates the K
d. In an offer towards a unilateral K, the EE must know of the offer before accepting.
e. Also, if A and B sends identical cross offers, there may be no K.
i. 2nd RSTMT adopts a rule that the identical cross-offers constitute a K despite the objective
theory b/c there is both subjective assent to the same deal and objective evidence of that
subjective intent.
f. Suppose A posts reward of lost watch. B finds watch, and then learns of reward. Can B collect?
i. 1st RSTMT: No. B must know of the offer before beginning performance.
ii. Modern view: it is sufficient that EE completes performance with knowledge of offer.
g. EX:
i. Case: State v Malm
1. There was a murder and attack of an individual. D, who was also attacked in the
same manner, provided information to leading to the arrest and conviction of the
man. The man was arrested. A couple days later, the governor offered a reward for
the crime. The man then confessed to the crime. The woman can not collect the
reward b/c she performed without knowledge of the offer.
ii. Q: A worked in a company. Company published a personnel manual promising that if any
employee had to be liad off, it would do so on seniority basis. A was 2nd most senior, but he
was still laid off. A testified that he did not see the manual and unaware of any company
policy. Does A have a COA against company?
FIND OUT ANSWER Question 47
iii. A finds lost article. A knows the owner and decides to return it. A went to owners house and
along the way, learns of reward offer. A returns article but does not mention reward. Later A
claimed for reward. Reward?
Common Law: Knowledge of the offer in the beginning of performance
Modern View: Sufficient that offeree completes the performance with knowledge of the
offer. So if A learns of offer while performing, it is ok.
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Here, A performed without mentioning the offer. Therefore we must look to As intent to
accept.
Subjective Intent: Manifestation is ambiguous. The ambiguity here is when you have
performance of a unilateral contract, there is no idea to know if there is intent to accept, it
could be intent to give a gift. (Lucy v Zehmer)
Objective Intent: Also, could treat this as an object matter. As long as you prove actual
knowledge (subjective) of the offer, then the intent to accept becomes objective, there is a
PRESUMPTION that if you render the performance requested, you are PRESEUMED to
intend to accept.
12) Warranties in a Box; Shrinkwrap; Clickwrap
a. Gateway is a direct seller.
b. EX:
i. Case: ProCD Inc v Zeidenberg
P sells its CD but changes 2 different prices for it. To regular customers, and to businesses. It
is the same CD. D bought the CD and used it in a business fashion. D said the terms of
agreement were not on the outside of the box, so therefore it can not matter. D used the CD
as a business but only paid a consumer price for it.
D accepted the agreement that was splashed on the screen when he installed the program,
but said it doesnt matter because the terms were not disclosed at time of sale.
We never said that the warrantee that benefits the customer does not apply.
The answer to this is: the warrantee that benefits to the customer is considered a
modification of an offer. So the customer when it benefits him/her, hell accept it just by
conduct.
When it restricts the use of the customer, when it is detrimental, it would require the
customers acceptance to the offer. If the customer rejects the terms, then he can bring it back
and return it to the manufacture.
Between catching the flu and using the smoke ball, P has a duty. Not until P catches
the flu, does D have to perform.
Remember that Flossey was an independent woman and wanted to live the way she
wanted. Therefore, it is more likely to hold that they were not living together in a
family arrangement.
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1. P sent D certain eel skins that were w/in the specification that D had set up a standing
order to accept. D never formally accepted the skins and there was no K between the
2 parties. There was a showing of prior course of dealing between the parties.
The court of dealing showed that D always paid for what P sent. Therefore silence is
acceptance, according to the prior course of dealing. D would be forced to notify P
that he didnt want the eel skins. By remaining silent, he accepted the K.
iv. Q: A to B: I sell 1000 jars at $85 each B says I want $82.50. Is there a K?
No. That is a counter-offer = rejection of the original offer.
v. Q: A makes an unsolicited offer to B by mail and states: If I do not hear from you by next
Tuesday, I shall assume you accept. B does not reply. K?
Yes and no. Depends on the intention of B. If later, A sues B, then no K. If B sues A, then K
vi. Q: As car is stuck, and B a tow truck owner comes by and begins to tow the car for A. If A
stands by and says nothing or does nothing, there is an implied in fact K. If B damages the
car, could he avoid liability by saying the act was gratuitous? No b/c he caused the
ambiguity by failing to mention his gratuitous intent, evidence of his subjective intent
should not be considered.
vii. Q: P and D are unmarried couple, had been living together. When the relationship ended, P
claimed D was contractually obligated to pay for her services in preparing his meals,
laundry, ect.
No. the idea of family relationship. Works for both people of blood relationship, as well as
for people living together, but without blood relations.
viii. HYPO: If youre sitting on your lawn, and someone comes up and starts to mow it. The
person is a professional lawn person and you sit there and say nothing and let him mow your
whole lawn.
They are making you an offer by conduct, by rendering conduct. Not a gift. And you are
accepting it by silence. The acceptance by silence works with (u take the services, with
reasonable opportunity to reject it and reason to know that compensation is expected)
There is an implied promise to pay for the reasonable value of the services. It is an
acceptance by silence and it creates a TOALLY implied in fact contract. Cause no one says
anything.
The K that arises is a reverse unilateral K. the offer is by performance. The acceptance is a
promise, a promise to pay, everything is silent. Acceptance by silence. With a reasonable
opportunity to reject the lawn services.
ix. P ordered shipment of 942 cases of shortning from Ds traveling salesman. This order was
went to D by salesman. 2 weeks later, P called D, and P was told the order had been
declined. Previous to this for 8 months, every order P placed with salesman resulted in a
completed K. Is there a K here?
No. Difference between whip case and this:
Whip: P sent D a whip. D usually took it and paid for it. But now claims silence. This was a
unilateral K.
Here: this is a bilateral K. theres offers exchanged.
x. A sends a book to B saying: If you wish to buy this book, send $30 within one week after
receipt hereof, otherwise notify me and I will forward postage for return. 1) B does not
reply and gives the book away 2) B puts away the book and waits for As messenger. 3) B
gives away the book, but writes back to A saying hell only pay $25 for it.
1) It is concluded that B has to pay the asking price. The reason is, had B not accepted the
book, what would have B had committed. (conversion) this is an exercise of dominion over
the book. By treating the book as ones own, youve owned it.
Does B have to pay the price in the offer, or only the RP of the book? Or does
unconsionability go in here?
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We dont want to assume that B is guilty of tort, and wed want to assume tht B is going to
pay for the book.
We are leaning backwards to find a K acceptance. We are violating a couple of principles
1a) We are deeming this to be a promise. That this is a promise to give away the book. Note
that this promise is not communicated to anyone.
1b) if you look at the traditional approach to this offer. This offer is not acceptable by a
promise. This is accepted by performance.
But this goes by the wayside, to find a K relationship between the two, rather than a tort.
2) No exercise of dominion. Leaving it on the shelf is not conversion. Therefore no K, no
tort.
3) Because he rejects the offer, you can not treat this as an acceptance. No matter how far
you lean back, you can not do this.
Therefore, the person committed conversion, and buyer can sue under quasi-K or
conversion, and the seller would get the reasonable value of the book.
However, we also allow the seller to sue under K theory, and then get the stated price for the
book because we dont want B to benefit from not paying the asking price of the book.
xi. B digs a well on As unused land and takes water which has no market value, no value to A,
and no damage to the land. A informs B, he will be charged $500 a day for each day he takes
water. Does B accept As offer?
The price being charged is unreasonable. And because of that, its treated as a tort, a rejection
of the offer.
Now A sues B under quasi-K or conversion for RV of water.
But the law doesnt allow to sue under K for the price, becase the price was set too high. If
the price is set manifestly unreasonable, then the seller is not given the option to sue under
K.
xii. In a bank card situation where they say: we can change this Agreement at any time. We will
mail you a new copy of the any changes by mail. You must notify us within 10 days, if you
dont agree to the changes, otherwise we assume you agree.
This works, because you originally had a signed transaction.
d. Revocation
i. Most obvious way of revoking an offer.
ii. A revocable offer may be revoked at any time prior to acceptance.
iii. General Rule Revocation is effective when received.
iv. Exception some states say its effective when sent.
v. The offeror can reserve the right to revoke the offer without notice.
vi. When an offer is made to the general public, the power of acceptance may be terminated by
giving equal publicity to the revocation.
vii. However, if the offeror knows of the offeree who is taking action on the offer, the offeror
must communicate the revocation to that person.
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1. if offeror makes offer in newspaper and offeree sends in information, instead of
revoking the offer by newspapers, offeror should send the information directly to
offeree.
viii. Also be terminated by reliable information from 3rd parties that the offer is no longer
available.
1. 1st RSTMT said this applied only to land
2. 2nd RSTMT said this applied to everything
3. EX:
a. S makes offer to A
S makes offer to B
A accepts S offer
when B learns of As acceptance, the offer has been rejected b/c of indirect
revocation.
critical that the facts are true and the information is from a reliable source.
e. Rejection Counter Offer
i. A counter offer is both a rejection and a new offer.
ii. But if the offeree manifests such intention, a it is possible to propose a counter offer that
doesnt reject the initial offer.
iii. EX:
1. A makes offer to B for $5000
a. B says: Ill pay $4800 counteroffer
i. B says: Ill pay $4800 A says: cannot reduce price B accepts K
1. because when A repeats the line, it is a restatement of the offer.
b. B says: Will you take $4800 counter inquiry
i. B then can accept.
c. B says: Your price is too high comment on the offer
d. B says: I accept but I would appreciate it if you gave me the benefit of a 5%
discount acceptance plus a request for modification of the K
e. B says: I accept but I still insist you drive a hard bargain grumbling
assent
f. Supervening Death, Destruction or Illegality.
i. The power of acceptance created by an offer is terminated by the death or destruction, prior
to acceptance, of a person or thing essential to performance of the L
ii. It is also terminated by illegality supervening between the making of an offfer and its
acceptance.
iii. EX:
1. Q: offer to work as a secretary. After accepting, the secretary dies. Therefore there is
no K.
2. Q: B offers to buy chemicals from S. While offer is open, new law says chemicals
are illegal. Therefore the offer is terminated, and S can not accept.
21) Acceptance Varying From Offer
a. The Common Law Rule
i. EX:
1. A makes a written offer to B to sell him Blackacre. B replies: I accept your offer if
you can convey me a good title. K?
Yes. a good title is implicit.
b. UCC 2-207
i. EX:
1. Case: Hill v Gateway and Klocek v Gateway
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a. These two cases involve the idea when a customer gets the computer, he has a
specific amount of time to accept the goods and terms or else he has to reject
it. If the customer accepts the goods, then the terms follow and he has to go
through arbitration.
In Hill, it is construed that the seller is making the one and only one offer.
The buyer is accepting it (by silence), and since the buyer did not reject it
within 30 days, it is set he accepted.
In Klocek, it is said that buyer made the offer, seller sends back out the item.
When B accepts it, the new term do not fall b/c of 2-207.
b. Case Specht v Netscape
i.
22) Effect of Part Performance on an Offer to a Unilateral K
a. Can an offer to a unilateral K be revoked or changed after the offeree has partially performed?
i. Three views
1. Classical: offer may be revoked at any time before completed performance of the act
requested by the offer.
2. Second and Obsolete View: A Bilateral K is created when offeree begins to perform.
3. Third and Prevailing view: the offer becomes irrevocable once offeree beings to
perform.
a. Offeree is not bound to complete the performance.
b. But performance must be completed within the time allowed or RT if not
said.
c. Remember: Offer is irrevocable after START OF PERFORMACE, mere
preparation is not enough.
d. Also if performance requires the cooperation of he offeror and such
cooperation is withheld, tender of part performance is the equivalent of part
performance.
b. Modern approach to Interpretation of Offers.
i. traditional approach (we are talking about manner of acceptance)
1. if it is an offer to unilateral K, we are looking if it can be accepted by performance,
or promise or both.
2. Traditional, only a single manner is invited, unless explicitly said otherwise.
a. Offer to a bilateral K can only be accepted by promise.
b. Offer to unilateral K can only be accepted by performance itself.
3. Therefore, most offers fall into one of these categories.
4. Very rarely was the offer indifferent
a. EX: you accept this offer by either performing the work or promising to do
the work.
ii. UCC and Second Restatement
1. More realistic. That offeror do not focus on manner of acceptance. Any reasonable
manner of acceptance is fine
2. Offeror is concerned with the bargain.
3. Tradition assumption is now reversed.
a. Those very rare categories, where both (performance and promise) can
accept, is now the most common
4. When a reasonable manner of acceptance is fine.
5. The idea is the offeror is considered indifferent to the manner of acceptance.
c. EX:
i. Case: Petterson v Pattberg
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1. D owed P money. P said If you pay it off totally now, Ill accept less money. D
went to Ps house and then knocked on his door, saying Im here to pay back your
money. P said, I revoke.
The dispute is: What is the performance?
3 views:
1) Completed act of payment (most tenable)
requires the cooperation of the person being paid. Tender money and take the money
2) Everything the paying person can do to pay. That is tender the money.
Q: What more do you need to do besides tendering the money, aside with the present
ability to do so?
You have to SHOW THE MONEY. This didnt happen b/c the door was still closed.
3) An Offer to perform, with the present ability to do so. (least tenable)
The Dissent says 3 is enough. The majority says 1 is necessary. The classical view is
what the majority said is necessary. Patterson v Pattberg goes with the classical view.
The Offer can be revoked anytime before full performance.
ii. Q: A says to RR, If you extend your lines to my property, I will pay your company $5000.
When RR extended the lines halfway, A revoked the offer. Should the RR continue to extend
its rails? Does RR have a COA for breach of K with A?
Key feature:
Tenable view: offeree is never bound to an unilateral K.
The only way that a K would exist is by performance.
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Remember that an option K is only created at the beginning of performance. What was
bargained here was that B should perform by selling As land. Not just advertisements, actual
sale. Since B did not start to sell As land, there is no option K, therefore there is no breach.
23) Time of Acceptance of an Offer to a Bilateral K
a. Parties at a Distance
i. Revocation and a rejection are effective when received.
ii. Acceptance, relies on the mailbox rule.
1. Applies even if the communication has been lost.
2. The qualification that the acceptance must be dispatched in a proper manner.
iii. Does not work when the offer prescribes the exclusive place, time or medium of acceptance
the offer controls.
1. 1st RSTMT: in the absence of contrary indications, the offer authorizes the means of
communication used in transmitting the offer and any other means customary at the
time and place received.
2. 2nd RSTMT and UCC: changed from what is authorized to what is reasonable.
iv. Despite the emphasis on reasonableness, the offeror remains the master of the offer and can
insist on a particular medium of acceptance.
v. If Offeree uses an improper medium of acceptance, then acceptance is only effective when
received, and not when mailed.
1. 2nd RSTMT exception: even if an unreasonable method of acceptance is utilized, it is,
nevertheless, effective when sent provided that it is seasonably dispatched and
provided it is received within the time a seasonably dispatched acceptance sent in a
reasonable manner would normally have arrived.
2. The same would go if the transmission were not property addressed.
3. Otherwise, the acceptance is effective on receipt.
vi. IF:
1. Rejection send, acceptance sent
a. Rejection received, acceptance received no K. the acceptance however is a
counter-offer.
b. Acceptance received, rejection received K
2. Acceptance sent, rejection sent, rejection received, acceptance received
a. Classical view no K
b. 2nd RSTMT K
c. Same thing would occur if acceptance was receive first.
3. Suppose B sends out acceptance by mail, then sends rejection by fax. A receives
rejection by fax, then sells car to C, then receives acceptance by mail.
a. Reliance would cover this. There is a K, but a non enforceable K.
vii. EX:
1. Case: Brackenbury v Hodgkin
Mom is owner of a home and is getting old. She writes to P saying that if you come
and help her, she will give P the farm after she dies. P moves and helps her. Mom did
not like P after they moved, so she sold the house to son. Son is trying to kick P out
of the house.
We are assuming moms offer was to a unilateral K.
1) Minority/Classical view: She can revoke before full performance. That is she can
revoke the offer.
2) 1st, 2nd RSTMT: Offer is non revocable after beginning of performance.
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Difference between unilateral K and option K
In a uni-K, itll become a K when accepted by full performance
Option K is that there is no full performance yet, but the offer has become
irrevocable. There is a condition that the performance be completed.
If the offer was ambiguous as to what the offer was to what type of K (either bilateral
or unilateral), then it is presumed to be bilateral.
Therefore, when D moved and took care of Mom, it could be implied in fact that D
promised to stay for the rest of Moms life.
2nd RSTMT would say any means of acceptance towards an ambiguous offer is fine.
So when D moved, it was a K.
If Petterson v Pattburg was the rule of law, the only way to argue for D is that when
they moved, it is the FULL PERFORMANCE of the offer, and the careing for the
mom is the condition precedent before D was to receive the house.
Prescribed means that the offeree MUST use a certain medium to accept.
If it is non prescribed, then
1st RSTMT say any that if the medium is authorized, then mailbox rule works
if the medium is unauthorized, then mailbox rule doesnt work
2nd RSTMT say that reasonable medium will work with mailbox rule provided it is
addressed and sent correctly.
Proper Medium:
R1d- any authorized medium or any customary medium works- this caused
conflict.
UCC 2-206(1) & R2d- Any reasonable medium in the circumstances. It is effective
when put out of the possession of the offeree. But offeror is still master of the offer
and may insist on any medium he wants.
Acceptance by mail is ordinarily reasonable for parties at a distance unless need
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faster mode.
Mail even proper where offer was by telegram.
Acceptance of offer made by mail, with a more rapid means is acceptable.
We use the law of instantaneous communication to govern, rather than mailbox rule.
As long as A does not hear, and its not As fault in not hearing, then there is no K.
also if A is at fault, and B knows A is not hearing, there also is no K.
If you apply mailbox rule, a K was formed. But most cases that apply the mailbox
rule apply it to determine which jurisdiction the law would be applied, not if there
was a K in the first place.
24) Mistakes in Transmissions by an Intermediary
a. If A wants to sell bike for $110, and tells a telegram to send it, but the telegram send it at $100 and
B accepts at $100, is there a K?
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i. Majority view, yes for 3 reasons
1. The telegraph company is As agent (not exactly true)
2. Better business conditions (debateable)
3. B had no reasons to suspect that A didnt intent to sell at $100.
a. Unless B had reason to know that the transmission was not correct, there is an
offer at $100.
ii. Minority View, no
1. The telegraph agent is a contractor of A and A is not liable for neg. on part of
contractors.
b. Once it is determined which party is to suffer a loss, perhaps they have case against the telegraph
company.
c. EX:
i. Q: S made offer to sell oranges at $2.60 a box. Transmission made error and said $1.60 a
box. B knew that oranges cost $2.30 a box. B buys 100 boxes. What results?
no K. B knew of the cost o oranges. A RP test in the position of B would make the offer
void.
Note: if the transmission said $3.60 a box and B accepted, then it would be good K b/c it
benefits S.
ii.
25) Option K Irrevocable Offers
a. What Makes an Offer Irrevocable
i. Option K is used as an irrevocable offer.
ii. One way of rendering an offer irrevocable is by the offerors acceptance of a consideration
in exchange for a promise to keep the offer open.
iii. An option may be binding even without consideration.
1. under old common law, if an offer was made under seal, it would be irrevocable.
iv. New York now has a law, saying that if the offer is in a signed writing saying it is
irrevocable, it is irrevocable despite the fact there is no consideration.
1. Same provision in the UCC
v.
b. Nature of an Option K
i. An option K is both a K and an offer.
ii. Once in effect, the ordinary rules of offer/acceptance applies
c. Termination of Irrevocable Offers
i. Introduction
1. irrevocable offer terminated by:
a. lapse of time
b. death or destruction of a person or thing essential for the performance of the
K
c. supervening legal prohibition of the proposed K
2. NOT terminated by:
a. Rejection
b. Revocation
c. Supervening death or incapacity of the offeror or offeree not essential for the
performance of the K
3.
ii. Lapse of Time
1. the offer is only good for a certain amount of time.
a. UCC law.
i. 2-205 Firm Offers
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1. under the UCC, the offer is irrevocable for the time stated and
for a RT but not more than 3 months.
2. Distinguish the power of acceptance with the power of
revocation
3. Only deals when no consideration is involved.
4. EX:
a. Offer to buy goods, irrevocable for 6 months on signed
writing.
The offer is irrevocable for 3 months, then it becomes
revocable. But buyer can still accept.
5.
b. NY general obligations law
i. This law covers everything else aside from goods.
ii. It covers items on a signed writing for the time stated, and if none is
stated, it covers it for a RT.
iii. Death or Destruction ect. and Supervening Legal Prohibition
iv. Revocation and Rejection
1. revocation does not terminate an irrevocable offer
2. Rejection
a. Traditional View rejection terminated an irrevocable offer
b. Modern view rejection should not terminate an irrevocable offer b/c the
offeree has paid a consideration for it.
i. However, if offeror had relied on the rejection, the offeree can not
accept it later.
v. Supervening Death of Incapacity of the Offeror
d. When Acceptance of an Irrevocable Offer is Effective.
i. No mailbox rule b/c the offeree of an irrevocable offer does not require this protection.
ii. Acceptance is effective upon receipt, unless the offer states otherwise.
e. EX:
i. Q: S to B: I will sell you real property for $5000 and not revoke for 5 days.
NOT irrevocable. There needs to be a payment for it to be irrevocable. A naked promise is
not binding. The option has to be supported by consideration.
ii. Q: A makes offer to B by mail which states that its open for 30 days:
Before B accepts, A calls and revokes. offer is revoked
the mailing said it is an irrevocable offer offer is irrevocable
mailing said it is a firm offer offer is irrevocable
mailing said that I must have your answer within 30 days means nothing
iii. Q: in June 1980, L agreed to lease certain commercial premise to T for a term of 10 years. A
clause of the lease gave T a right of first refusal to purchase the property during the term of
the lease. This clause provided that if L decided to sell the property and found a bona fide
purchaser ready to buy it, L would give T immediate notification of the terms of the
proposed sale. T then had the right for 30 days to purchase the property on the same terms as
those negotiated with the third party purchaser. On June 24, T received a letter from L
notifying T of the proposed sale to C, giving T 30 days to accept to purchase on the same
terms. On Julu 22, T sent out the notice of acceptance, which was received August 6.
Right of First Refusal:
2 things must happen before you buy:
1) L must want to sell
2) someone must make an acceptable offer thats accepted by L.
In an option situation, you have the first option of purchasing, and you have the security to
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know you can buy it.
But remember, this is an irrevocable offer, therefore mailbox rule DOES NOT APPLY.
Therefore too late on the acceptance.
IV Consideration
1. Introduction
a. Consideration is the glue that binds the parties to a K.
b. Donative promises generally are not enforced.
i. Historically, there has been a way to enforce donative promises by the use of the seal
c. Now donative promises are enforced maybe under promissory estoppel.
d. A gatuitous promise, made in a commercial relationship may be enforced.
e. Lack of consideration is not ground for avoiding an agreement that has been fully performed.
f. Common law usually requires that promises be made for consideration if they are to be binding.
g.
2. What is Consideration?
a. The Promisee Must Incur Legal Detriment
i. The promissee must do or promise to do what the promisee as not legally obligated to do.
ii. The detriment may be give by a person other than the promisee and run to a person other
than the promissor.
iii. Legal detriment to refrain from doing something that you are legally obligated to do, or if
you are doing something affirmative, doing something you are not legally obligated to do.
b. Detriment Must Induce The Promise
i. The detriment must induce the promise.
ii. The promisor must have made the promise because the promisor wishes to exchange it, at
least in part, for the detriment to be incurred by the promisee
iii. The promisor has manifested an offering state of mind looking to an acceptance rather than a
gift making state of mind.
c. The Promise Must Induce the Detriment
i. The promise must induce the detriment. This means as we have already seen that the
promisee must know of the offer and intend to accept.
ii. The promise must induce the promisee to exchange the promisees conduct for the promise.
1. thats why the offeree must know of the offer and manifest an intent to accept
d. The essence of consideration is legal detriment, that has been bargained for by the promisor, and
exchanged by the promisee in return for the promisors promise.
e. EX:
i. Q: A to B If you paint my house according to my specifications, I promise to pay you
$5,000. B performs. A is the promisor and B the promisee.
B has incurred legal detriment. B has performend an act (painting) that B was not legally
obligated to perfom It is a reasonable conclusion that the promisor was exchanging a
promise to pay for the act of painting and that the offeree painted knowing of the offer and
intending to accept.
ii. Q: A promises B that A will sell and deliver a set of books to B if C pays $150 for the books.
C pays, but A does not deliver. Can B sue?
C is invited to accept the offer. Note here that the promissee and the offeree are different.
The Promissee (B) did not suffer any legal detriment
C did suffer and therefore is the offeree. Legal detriment is always suffered by the offeree.
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Under American Law, third party can sue.
Under British Law, only the offeree can sue.
b. Case:
6. Of Sham and Nominal Consideration
a. Small Consideration for an option or guarantee K (consideration can either be paid or not paid)
i. Majority view does not equal consideration
ii. Minority view does equal consideration
iii. 2nd RSTMT A promise to be a surety for a performance of a contractual obligation
made to the oblige is binding if the promise is in writing and signed by the promisor and
recites a purported consideration. this is for option contracts.
b. Small considerations for real K
i. 2nd RSTMT and Majority View no K
ii. 1st RSTMT Should be allowed (this would take place of the seal)
c. EX:
i. Q: D gave property to P and stated that it was a gift. D agreed to continue to pay off the
mortgage on the property. At the same time, one of Ps brothers gave P a dollar which she
gave to the father.
Q: What happens if D didnt make a contractually binding promise to pay off the mortgage?
Then D doesnt have to pay. The owner has to pay. But if she doesnt pay the mortgage, and
the owner doesnt pay the mortgage, then the bank will foreclose on the house.
Go through:
A) did P suffer legal detriment. Yes. a dollar
B) Did P bargain for the dollar? No
C) Was dollar given for the promise? No.
Suppose: in consideration of a dollar paid to me, I promise to pay off the mortgage.
This is sham consideration, and therefore the 2nd RSTMT doesnt apply. 2nd RSTMT only
applies to option K.
ii. Q: Rcorp owned a restaurant. S is supplier. D is the principal shareholder. D said For an in
consideration of $1 paid by S I hereby guarantee to S any indebtness of Rcorp to the extent
of $10000.
At the time, R was not indebt, but later became indebt for $5000. Is D liable?
What if R was already in debt of $5000?
This is a guarantee K.
Majority view, sham consideration is never ok.
Under the 2nd RSTMT, sham consideration is ok for guarantee contracts for a fair or
reasonable amount of time.
Q: suppose he said, I will pay, if you hand over a release to me, and she hands over
a release, here is a slight argument to be made, that he is bargaining not for the
claim, but only for the piece of paper.
And if thats what is really being bargained for, then you dont have to worry if the
claim is valid or not, so you only have to think that the piece of paper is the actual
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bargain.
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vi. Case 6: D in exchange for Ps promise to do certain work promised P that P would receive
1/3 of the receipts of Ds dairy. Prior to this arrangement, P had been working for D on a
daily basis under there was due P the sum of $17.15. P received the $17.15 and signed that
this was received in full of all accounts and demands to date.
1. If the last performance is a separate/distinct liability, then payment of an admitted
liability is not consideration to discharge the separate and distinct liability.
2. This is like saying there is a new K for the new performance.
vii. UCC 3-311 revised, covers AAS by check.
1. The offer of AAS must be conspicuous
a. Conspicuous it is so written so that a RP to whom it is to operate ought to
have noticed it.
b. New York has not adopted the revised version of the UCC.
i. Under New York, creditors can cash the check and still sue for the
balance.
viii. New York General Obligations Law and UCC 2-209 (1)
1. under the NY statue, it says that you dont need consideration in NY for a promise to
modify or discharge an obligation. What is required is a SIGNED WRITING.
a. But signing the check when cashing it, is not considered a signed writing.
(this occurs in cases 1 and 6)
2. So in NY, although the UCC will not work, the NY general obligations law will
work.
3. Therefore, AAS does not work in NY, b/c it is not a signed writing.
4. but if Creditor wrote to D on a signed writing absolving D of his liability, under the
NY statute it will be absolved.
5. NOTE: Under NY, if you promise something to do something in return for past
consideration, it can be binding, provided it is in a signed writing and that the writing
has expressed the past consideration.
Under COMMON LAW, 2 doesnt mean anything b/c you can just make
another K to modify the first K.
So if S told B he has 15 days to return the book, this is valid. B/c of 2-209(1),
there needs no consideration for modification of a K.
But under UCC 2-209(2), if B and S made the original K in a signed writing,
the only way it can be modified is if B and S are merchants and each signed
another writing modifying the parts.
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b. Case: Kibler v Frank Garrett and Sons
i. P did work for D. P sent bill to B for $826. D sent check to P for
$444. In fine print on the back of the check, it said PIF. P cashed the
check w/o seeing the PIF clause. D alleges A&S. P sues for balance
due alleging lack of notice of offer of accord. Before a debt may be
extinguished by A&S, there must be a GF dispute. The dispute here
was not known to P.
The check had payment in full written on it, but it was too small for it
to hold
Also, the guy said, your bill is too high not I will not pay more
than this. Therefore there is no offer of accord.
x. UCC 2-209 (4) waiver
1. A waiver can be retracted by the same person who made it. So you see the retract
ability of the seller, unless it would be unfair for seller to retract it.
if B was returning books always on the 12th, S can not go back and sue B but must
allow reasonable time for B to return then later retract the waiver.
12. Problems arising in Bilateral K
a. Consideration in Bilateral K
i. The promise in acceptance is not the consideration, but the actual promised performance that
is the true consideration in a bilateral K
ii.
b. Mutuality of Obligation
i. Introduction
1. It is actually mutuality of consideration that is needed for a bilateral K.
ii. Unilateral K and Mutuality
1. No need for mutuality of consideration in a unilateral K.
2. offeree is never bound to do anything.
iii. Voidable and Unenforceable Promises and Mutuality.
1. a voidable or unenforceable promise is can be consideration for a counter promise.
a. EX:
i. An infant contracting with an adult. Although the infant has a
voidable K on his part, is still consideration on the adults.
2.
iv. Illusory Promises
1. an illusory promise is an expression cloaked in promissory terms, on closer
examination, reveals that the promissor has not committed to any act or forbearance.
a. EX:
i. when I feel like it
2. However, remember that the parties are free to contract as they like. So the 2nd
RSTMT has allowed the parties to give nominal consideration for option K.
3. EX:
a. A promises to pay $100 if B rakes lawn
i. No problem here.
b. A promises to pay a pre existing liquidated debt of $100 if B takes lawn
i. This is a void bilateral K. As promise is NOT illusory. This is a real
promise but pre empted by a pre existing duty.
c. A promises to pay B $100 to rake the lawn if I want to
i. That means its an illusory promise. If B accepts, it is a void bilateral
K.
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d. Case: Ridge Runner Forestry v Ann M. Veneman
i. Both sides had illusory promises in their K.
ii. Therefore it was no K.
e. Case: Miami Coca Cola Bottling Co v Orange Crush Co.
i. D agreed to give P exclusive right to sell crush in a certain territory.
The agreement was a perpetual license. P agreed to sell, bottle ,and
use best efforts. P could terminate at any time. D terminated. Court
found lack of MOO b/c promise by P was illusory. UCC does not
apply b/c most of case has to do with license agreement and only
small part is sale of goods.
B/c P can cancel at anytime, that makes it issusory and therefore the K
is void. But whatever Orange Crush did do, that can be terms as a
successful unilateral K forged out of a bad bilateral K.
v. Consideration Supplied by Implied Promise
1. Wood v Lucy, where a person must use reasonable diligence when otherwise the
promise might seem illusory.
2. UCC adopts this in 2-306 in output/requirement K where parties must use best
efforts.
3. 2-309 (2) states that a K that provides for successive performances but is indefinite
in duration is valid for a RT and may be terminated at any time by either party
4. 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 with notification is invalid if the operation would be unconscionable.
a. EX:
i. Suppose there was a 5 day notice written in.
1. Is that notice reasonable?
a. If yes, then it is ok
b. If no, then that term is striken, and that RT is put in.
ii. Suppose there was no notice written in. no time written down.
1. We assume that a RT for notice is required.
iii. Suppose that it says no notice is required.
1. This is invalid if the operation would be unconscionable.
2. if it is unconscionable, then RT is used,
3. If not unconscionable, then the UCC doesnt address that issue
and it goes to common law = void K.
a. Perillos view is that a promise should not be rendered
illusory simply b/c of a right to terminate.
iv. COMMON LAW requires notice, otherwise it is an illusory promise.
5. Basically 4 points:
a. An agreement that is silent to duration is valid, but terminates after RT.
i. Also may be terminated by reasonable notice. (good faith notice)
b. If the agreement provides that it may be terminated at any time reasonable
notice will still be required.
c. If the agreement states that it may be terminated at any time without notice
the issue is unconscionability.
i. If unconscionable, then term is stricken and RT is substituted.
ii. If not, then also think about consideration problem.
d. If time is specified (like 5 days) there might still be unconscionability
problem b/c unconscionability is judged at the time of termination (unlike 2-
302)
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vi. Are Conditional and Aleatory Promises Illusory?
1. Conditional promises are those like if it rains tomorrow
2. EX:
a. Case: Mezanotte v Freeland
i. P bought Ds land on the condition he can obtain satisfactory
financing.
This is a good contract, b/c it implies good faith that P will try to
obtain satisfactory financing.
vii. A Void K is not necessary a Nullity
1. forging a good uni K out of a bad bilateral K
a. Suppose A owes B $500. A makes deal with B saying A will pay off within
next 6 months if B doesnt sue A. B doesnt sue A , but A doesnt pay off B.
now B can sue A on As promise to pay off B, b/c although the bilateral K is
void (b/c of pre existing duty to pay off the money), it is treated like A
offered B a unilateral K. If you dont sue me for 6 months, I will pay B
performed, and therefore there is a valid K.
13. Requirements and Output K
a. Introduction
i. Requirements K B promises to buy whatever they need from S. S promises to sell
whatever B needs
1. Quantity Term is Bs requirements
2. B has the discrestion in this K
ii. Output K B promises to buy whatever S produces. S promises to sell whatever S
produces.
1. Quantity Term is Ss output
2. S has the discretion in this K.
b. Validity of Requirements K
i. Old Thought invalid b/c of no consideration
ii. Modern Thought Valid b/c buyer and seller say they will only deal with each other
iii. UCC 2-306
1. (1) the language does not apply to downward variations in quantity. The only thing
that would apply to is maximum quantity.
i. This idea is that B does not have any requirements. B can not be
forced to buy.
ii. But also B has a good faith measure to buy.
b. the buyer doesnt have to order anything as long as its in good faith.
c. B and S both have advantage in their respective K
2. (2) Exclusive dealing K
a. Both parties have same obligations, which is best efforts.
iv.
c. How much is a Requirements Buyer Entitled to Demand
i. At CL, 2 views
1. B only gets normal requirements
2. B gets actual requirements
3. Under common law, an estimate has no effect , except if made in bad faith, then it
becomes a maximum for the seller to provide.
ii. Under UCC
1. Limited to Bs good faith requirements
2. the estimate
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a. the agreed estimate is to be regarded as a center around which the parties
intent the variation to occur
b. if there is no estimate or maximum stated in the contract, the buyer may only
demand any normal or otherwise comparable prior requirements.
3. B and S can agree to a maximum number of quantity to buy or sell.
iii. EX:
1. Case: Canusa Corp v Lobosco
a. D was working to collect newspapers. But D could not get enough newspaper
material. Court found that D did not use good faith in the K, that is, did not
take time to separate the newspaper from the trash, and therefore breached of
the K.
2. Case: Texas Gas Utility Co v Barrett
a. D contracted to buy gas from P. P was req to provide ways and means for
the provision of the gas but assumed no obligation as to quantity and quality
of gas. D refused to pay based on void bi-k theory of lack of MOO. TC
found for D. Reversed on grounds that P had obligation to provide and,
maintain facilities and equipment for the supplying of gas. This was not an
illusory promise by P b/c they were bound to provide what was available.
d. Diminution or Termination of Requirements
i. Can a B go out of business?
1. CL Different views:
a. B is free to change his business
b. B is held liable if he changed his business in bad faith
c. If B went out of business, it had to respond in damages
ii. UCC views:
1. B may go out of business in good faith
iii. Buyer has the good faith obligation to promote and sell the goods.
iv.
e. Non-exclusive Requirements K
i. Can be found as a requirements contract
ii. Usually requires prior dealing, usage of trade, comparable dealings with others, and past
performances to come up with obligations.
14. Must all of the Consideration be Valid
a. If A promises to paint for B, and B in exchange says, I will either give you $100 or I will pay back
the money I owe you, the K is void b/c B did not supply consideration for his promise.
i. 2nd RSTMT: if the chose of the alternative promises are in the promisee, then all of the
alternative performances are detrimental.
b. If A said I promise to give you my car if you promise to pay me the debt of $500 you owe and
paint my fence. The new detriment is enough to support both promises.
c. EX: (Non Competition Clauses)
i. Central Bank Agency v Ingram
1. This is a case about non competition clauses.
the Clauses must be reasonable in 3 elements:
1) Scope
for example if it collection agency, and accounting, and marketing. .ect. . .
2) Geography
This was for the entire US
3) Time
This was for 2 years.
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15. One Consideration will Support Many Promises
a. Q: D promised P that if P continued to deliver specified kinds of merchandise to Ds brother, D
would pay for all purchases, both past and present.
Here, D is responsible for all the items delivered. New consideration is enough to support old
consideration.
b.
16. Afterthoughts on Consideration
Under the UCC, there needs to be good faith in dealing with each other. Therefore a modification in bad faith,
trying to extract more money, is not in good faith and hence is void.
BTW: under NY LAW a promise based on past consideration and it is in a signed writing and the past
consideration is expressed in the writing. (NY LAW)
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Changes from 1st RSTMT to 2nd RSTMT
1) reliance does not have to be definite or substantial in character
2) C is empowered to limit recovery to just as required. EX: If the promise was for $15,000, and P lost $2,000 in
reliance. Only $2,000 may be awarded by C.
3) Provides for contingency of reliance by a 3rd party on a promise
4) Charitable subscription or marital settlement is binding w/out proof that promise induced action or
forbearance.
Also, once general contract wins the bid and then tries later to force the subcontractors to lower their bids, the
general contractor is not entitled to PE.
IX. Unconscionability
UCC 2-302
Earlier law doctrine of unconscionability is a defense towards equitable relief (for injunction)
Some case law says: that if you have very bad substantive unconscionability, you might have unconscionability.
HYPO: Suppose you go to a store and find a computer for 10 times the amount of cost, is there unconscionability?
There is substantive aspect,
b/c you are paying a lot
There is not procedural aspect
b/c you have a right to not go to the store or go somewhere else.
Interpretation
9) Introduction
a. Interpretation could mean two things
i. Either construction or interpretation
b. Now, we dont take into account the difference between the two.
c. Ask two questions
i. Whose meaning is to be given to a communication?
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ii. What evidence may be taken into account in applying this standard of interpretation?
d. The thought is that although the parol evidence rule may bar some forms of evidence that is used to
create an integration, interpretation is another matter.
e. So the same piece of evidence that was barred for the parol evidence rule, may be used to interpret
the integration.
10) The Plain Meaning Rule and Ambiguity
a. Definition if a writing, or the term in question, appears to be plain and unambiguous on its face,
its meaning must be determined from the four corners of the instrument without resort to extrinsic
evidence of any kind.
b. It is for the court to say whether the meaning is plain or is thr some sort of ambiguousness.
c. This is the old rule and now the UCC, 2nd RSTMT seem to go away from this rule
11) Willistons Rules
a. Interpreting Integrations
i. Willison doesnt follow the plain meaning rule but he wouldnt admit all types of extrinsic
evidence and lays down different rules if the writing was/was not an integration
ii. His standard is what a reasonably intelligent person acquainted with all the operative usage
and knowing all of the circumstances prior to and contemporaneous with the making of the
integration would attach to the integration.
iii. Williston would exclude what the parties said to each other about meaning, and what the
parties subjectively believed the writing meant at the time of agreement.
iv. Therefore the standard of interpretation may result in one that conforms to the intentions of
neither party
b. Interpreting Non-Integrations
i. The meaning that the party making the manifestation sould reasonably expect the other party
to give it.
ii. If A says something to B, the meaning of what A said depends on what a reasonable person
in the position of B would conclude what A meant. Also the subjective knowledge of A at
that time also counts
iii. So in the case of unambiguous non integration, all extrinsic evidence is admissible except
evidence of subjective intention.
iv. But if the integration is ambiguous, then even subjective intention can be introduced
v. EX:
1. Peerless ship case. S and B had a K where S was going to sell to B some cotton on a
ship named Peerless. S thought it was one ship. B thought it was another.
Under Willisons approach, the question is whether one party knew or should have
known of the ambiguity and the other did not
2. if neither party had known or had reason to know, then there is no K.
12) Corbins Approach RSTMT 2nd UCC
a. Under Corbin, even if there is an unambiguous integration, all relevant extrinsic evidence is
admissible on the issue of meaning, including subjective intention and what the parties said to each
other.
b. In the Peerless case:
i. They agree tht if the parties meant the same ship, there is a K bcased on tht meaning, and tht
if both parties were blameless or equally at fault, there would be no K. Corbin, is willing to
allow the court to weigh relative fault. If one of the parties is more guilt than the other, the
court should apply the meaning of the party who is less at fault.
c. Corbin would say, the K exsts in accord with the meaning of the promissee could rely upon,
provided the promisor had reason to foresee that the promisee had reason to attach this meaning.
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d. Usually, it will provide for the Reasonable expectation of the parties, like when the case where the
burglary required visible marks of forced entry.
13) Aids to Interpretation; Rules of preference
a. The old rule is that if there is an integration, is to disallow parol evidence.
b. But the modern idea is to allow the evidence to aid in interpretation.
c. The writing should be interpreted as a whole and no part should be ignored.
d. Also course of performance, course of dealing and trade useage are used in determining the intent.
COPCODTU
14) Deciding omitted terms
a. If a term is omitted from the K, then the judge will try to make a reasonable assumption based on
the two parties of what they would decide
b. Parol evidence will be admissible to determine if the parties had expressed any intention on the
matter.
c. So using good faith and reasonable notice ect, courts try to imply some criteria.
15) Questions of Fact or Questions of Law
a. Normally, parol evidence is for the judge to rule on.
b. However, if there is extrinsic evidence, then this is a question of meaning thats left for the jury.
16) Parol Evidence Rule and Interpretation
a. Williston was scared of the interpretation part undermining the parol evidence rule.
i. Therefore he kept the interpretation to a minimum.
b. Corbin believes that interpretation and parol evidence can be kept separate. But this is not true.
17) Course of Dealing, Course of Performance and Usage.
a. Common law lumps the 3 together, but the UCC has specific definitions of the 3.
b. Course of dealing as a sequence of previous conduct between the parties to a particular transaction
which I fairly to be regarded as establishing a common basis of understanding for interpreting their
expressions and other conduct
c. Course of performance involves conduct after the agreement has been made 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
d. Usage of trade as 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.
e. Early common law, trade usage has to be very specific.
f. The UCC doesnt say this and allows this to be very large, only against unconscionable K and its
clauses.
g. Once a trade usage has been proved, the question remains whether the parties are bound by it.
h. The general notion is that a party who is or should be aware of it is bound. Once a trade useage is
proved, it can be used to the issue of meaning and also to add a term to the agreement.
i. However, UCC says that an express term and usage of trade an course of dealing shall be
construed wherever reasonable as consistent with each other; but when such construction is
unreasonable, express terms control. . . 1-205(4).
Chapter 11
1) Relationship of Conditions to Offer and Acceptance
a. A bi-K arises when offeree makes a promise requested by the offeror.
b. Then questions relating to the performance of the K arise and conditions may occur.
c. This doesnt occur in an offer to a unilateral K
d. If you walk across a bridge, Ill give you $1000. Walking the bridge creates the uni-K and is both
an acceptance and an express condition precedent to As duty to pay.
2) Definition of a Condition
a. A condition is defined as an act or event other than a lapse of time, which unless it is excused,
affects a duty to render a promised performance.
b. 2nd RSTMT an event, not certain to occur, which must occur, unless its non-occurrence is
excused, before performance under a K becomes due.
c. Perillo an act or even, other than a lapse of time, which unless the condition is excused, must
occur before a duty to perform a contractual promise arises or which discharges a duty of
performance tht has already risen.
3) Classification of Conditions
a. Two ways to classify
i. One classification is based on the time when the condition event is to happen in relation to
the promisors duty to perform a promise.
ii. Another is based on the manner in which the condition arises, that is, whether it is imposed
by the parties or created by law.
4) The Time Classification
5) Conditions Precedent
a. A condition precedent is an act or event other than a lapse of time, which must exist or occur before
a duty to perform a promise arises.
b. If the condition does nto occur and is not excused, the promised performance need not be rendered.
i. EX:
1. A has promised to pay $100 to B if a speciiced ship arrives in port before a certain
day. As duty to pay does not arise unless and until the ship arrives. If it doesnt
arrive, A doesnt pay.
c. This condition precedent can occur in two ways.
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i. Condition precedent after the formation of the K
ii. Condition precedent prior to the formation of a K.
d.
6) Concurrent Conditions
a. These exist where the parties are to exchange performances at the same time.
i. EX:
1. S agrees to sell and B agrees to buy a certain book at a fixed time and place. In the
absence of an agreement to the contrary, payment and delivery are concurrent
conditions. As a result, if B fails to tender the price and S must make conditional
tender of the book, or show that tender is excused, to put B in default.
b. So the parties must perform before they have a claim.
7) Conditions Subsequent
a. Is any event the existence of which by agreement of the parties discharges a duty of performance
that has arisen.
i. EX:
1. An insurance company promises to pay up to 1M to the insured if a fire occurs and if
the insured files proof of loss within 60 days of fire.
2. The occurrence of the fire and the filing of the proof of loss are the conditions
precedent to the insurance companys performance.
3. Now, suppose that if the insurers obligation to pay is discharged if the insured fails
to sue within one year of the filing of the proofs of loss and the insured didnt sue
within that time.
4. Therefore, that is a condition subsequent and that discharges a duty which has arisen.
b. The burden of proof changes.
c. The party who wishes to sue on a promise has to burden of proving that the condition precedent
attached to that promise arose, otherwise there would be no breach of that promise.
d. Therefore in the insurance example, the insured would have to prove that fire occurred and proof of
loss was given within 60 days.
e. Sometimes the condition precedent is shifted to a condition subsequent b/c one side has more facts
than the other.
8) The Other Classification of Conditions
a. Expressed conditions are created by agreement of the parties
b. Constructive conditions are imposed by law to do justice.
c. Conditions implied in fact are treated as an expressed condition. They are gathered from the terms
of the K as a matter of interpretation.
9) Express Conditions and Promises Compared
a. While a failure to perform a promise, unless excused, is a breach, failure to comply with condition
is not a breach.
i. EX:
1. if A says to B Walk across the bridge, and Ill give you $100, B walking across the
bridge is an express condition precedent to As obligation to pay. If B doesnt fully
perform, A will not be obliged to pay.
ii. One can not be liable for a breach of K, unless one breached a promise.
1. if A says to B Promise to walk across that bridge and Ill give you $100 and B
promised, non performance results in a breach and A can sue for damages.
b. Court perform the interpretation that a particular language is promise rather than condition b/c
otherwise it might be a forfeiture.
10) Conditions Compared to Time References
a. A general contractor agrees to pay a subcontractor as money is received from the owner.
b. The subcontractor completes his work but the owner fails to pay.
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c. The question is whether this is an expressed condition or merely sets the time of payment.
d. This is a question of interpretation and different courts have ruled differently on this matter.
e. Modern view is that this is only sets out a reasonable time.
f. Same thing with Ill pay you when able. It only sets out a RT before payment is required.
g. if, on the condition that, subject to, provided creates conditions.
11) Language of Condition may Imply a Promise
a. If A and B sign a deal, that A would sell a house to B if he can find suitable mortgage, B is promises
to use good faith to try to secure a loan. Also there is a condition, that unless B secures the loan,
there either is no K, or A doesnt have a duty to perform.
12) A Promise may create an Implied or Constructive Condition
a. Modern View A promise may be an implied or constructive condition.
13) Constructive Conditions and Implied in Fact Conditions
a. Courts prefer to find constructive conditions rather than implied in fact.
b. Now, implied in fact conditions are limited to those situations involving cooperation.
i. EX:
1. A can not perform, unless B performs first. Therefore Bs performance is an implied
in fact condition to As duty to perform.
14) Constructive Promises Omitted Terms
a. When parties fail to cover a term, the court, in the interests of justice, may supply a term
b. A wrote a book and sold the right to use the book to B as the basis of a play. Then movies were
invented. The court constructed a promise that A would not grant movie rights, as that would
destroy the value of the license to B.
15) Distinguishing between Express and Constructive Conditions
a. Express Condition must be strictly performed
b. Constructive Condition must be substantially performed.
c. It is very hard to determine sometimes if it is constructive, or expressed or ect.
i. EX
1. A is the owner in possession of a vessel in England. In a bilateral K, A agrees to
charter the boat to B in the US. The vessel to sail on or before the 4th. The boat
sailed on the 5th.
2. If this is an expressed condition, then B doesnt have to accept the vessel. The
expressed condition must be strictly complied with. Also A is liable for breach of K.
3. if this is a promise, then the question is whether this breach was material or
immaterial. If it is material, B would be free to not proceed but also could sue for
total breach. Or B can elect to proceed and sue later for partial breach.
a. If the breach is immaterial, then B has to continue and later sue for partial
breach.
4. This also can be both an expressed condition and a promise, and then that would
have the same results as the expressed condition.
5. Assuming constructive condition
a. if A were to sue B, the question is whether A had substantially performed.
b. If B were to sue A, the question is whether As breach was material or
immaterial.
Constructive Conditions:
1) Constructive Conditions operate as gap fillers to set the order of performance in a bilateral K.
2) Usually, it is that performance is at the same time.
3) But if one performance is rendered over a period of time, then you dont pay, until the work is done,
a. This can be changed either via statute or via parties bargaining power.
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4) Different types of breaches
a. When you have no right to suspend or cancel.
i. 1st RSMT immaterial
ii. 2nd RSTMT immaterial
b. When you have a right to suspend and after a while, it becomes a total breach.
i. 1st RSMT immaterial
ii. 2nd RSTMT Material
c. When you have a right to suspend and cancel.
i. 1st RSMT material
ii. 2nd RSTMT material
5) Cases:
a. Monroe Street Properties:
i. Where P and D were both to deposit money and stock in an account. D didnt do it, but
neither did P. So there was a failure of condition on both ends, and therefore there is no
breach of K.
1. you have to say, I was ready willing and able to perform, to put the other party in
breach.
2. EX:
a. Peerless case, b/c B said he meant Oct ship. But B never came and showed up
to pick it up. S can only put B in breach, if S had ability to tender his
performance.
b. Jacob and Young v Kent
i. Where D build a house for P and that P sued b/c the pipe used was not the one specificed.
1. P sues for the all the costs to rip out walls and put in new pipe.
a. Remember about substantial performance, that D built the entire house
already.
b. Show that substantially, everything was performed. If P were to sue, then the
only difference is the quality of the pipe from one to the other and its
nominal.
2. Dissent says this breach was willful.
a. Willful could mean =
i. Intentional,
ii. Neg.
iii. Innocent,
iv. gross neg.
b. Cardozo believes that a bad faith willful breacher can never show substantial
performance.
c. Walker v Harrison
i. D gets P to build a sign for D. P was to clean the sign. D complained that P didnt clean it
enough. D cancels the K.
1. Held that D breached the K. P not cleaning was not a material breach. So when D
canceled the K, that was a breach of the entire K.
2. Remember that b/c P had performed most of his dutues, D probably cant even
suspend performance
3. Also under the UCC, D may be able to pay someone to come clean it and bill P later.
(problems 18+19)
4. Note: acceleration clause of all damages to be paid.
d. KG Const. v Harris
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i. D was working for P. P told D to get insurance and to perform in a workmanlike manner. D
knocked over Ps wall. Costs $3400. P elects to continue, but later D wants to get paid. Then
D cancels the K.
1. because of the damages to the wall, the general contractor can deduct that from the
next progress payment.
6) UCC rules:
a. 2-301
i. General obligation of the parties, that is S is to deliver and B to accept.
b. 2-513
i. That B can inspect the goods.
c. 2-601
i. That if the goods fail to respect or conform to the K, that B can accept or reject them.
d. 2-606
i. Tells you the 3 ways B can accept the goods
1. says they are good.
2. fails to make an effective rejection after time to inspect
3. does any act inconsistent with S
e. 2-608
i. After B has accepted, B can revoke the acceptance.
1. uses the substantial impairment test.
f. 1-201 (3) (11)
i. That the K is bigger than the agreement. Includes COD, COP, TU
g. 1-203
i. Always an obligation of good faith on both sides.
h. 2-508
i. S has a right to cure if the time for performance hasnt expired yet. S has to notify B of the
attempt to cure and to do so within the time of performance.
1. gives S an unqualified right to cure, as long as the cure is made in the K time for
performance
2. allows a further reasonable time, for a substitute tender even after time for
performance expires, as long as it is within a RT
i. 2-601
i. Perfiect tender rule.
1. apples to specially manufactured goods as well.
j. Cases:
i. Bartus v Riccardi
1. Where P goes in and orders a model A 660. Store gives him model 665. P tries it out,
says its no good. Store then wants to give P an old model.
a. Yes. The store can try to cure the breach
b. Here, B refused to cure, therefore it is a breach by repudiation.
ii. AB Parker v Ford
1. Where P buys a ford and theres problems. He sues.
a. Held, that P needs to notifiy ford of the problem first before suing. 2-607.
b.
7) Quasi-K relief:
a. Were not talking about here is a party who has a right to cancel the K and does cancel the K.
i. EX:
1. O did not pay in advance. Work comes before payment and owner justifiably cancels
the contract. Can contractor get some money out of it even after materially breaching
it?
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ii. Cases:
1. Lancellotti v Thomas
a. P and D had a K were P was to pay down $25000 or so to start a new
business. Later, P decided to not to, and then decided to quit.
i. Sue in quasi K for restitution.
1. 3 views:
a. Yes allow restitution, but deduct the money suffered by
D.
b. No. Breaching party gets to recovery
c. Yes, if the breach isnt willful. UCC view.
ii. Corbin likes the recovery, b/c it penalizes the party who has
performed more.
8) Divisibility
a. Grab from the problems
9) Independent promises
a. If a Ds promise is independent, then P doesnt have to comply with any promises or condition to
enforce it.
b. EX:
i. Promise to build a house for owner. Owner pays at the end. If builder doesnt build, owner
can sue.
1. builders promise to build is independent
ii. Employment non competition contract
1. if its independent, employee must still follow it.
iii.
27) Intro
a. Sometimes a party must perform even though the condition did not occur. This is b/c the condition
is excused.
b.
28) Prevention, Hindrance, or Failure to Cooperate
a. What is wrongful conduct?
i. EX:
1. Grandfather asked nephew to take care of him and when grandfather dies, P would
get the house. Grandfather forced P out of the house with a gun. Later grandfather
dies and P sues.
2. P recovers b/c P was prevented from performing his services. Therefore the
constructive condition of Ps performance is excused.
a. But suppose grandpa was just abusive and drunk. And perhapse this risk was
assumed under the K. then there may be no recovery.
3. 2nd RSTMT has a but for test, to determine the causation.
ii. EX:
1. H and W enter into a pre nup agreement where W pays H $20,000 if H out survives
her. H kills W. Can H recover?
2. 1st RSTMT asks would H outlive W anyways?
3. 2nd RSTMT asks that H has to prove his actions didnt substantially contrinute to
the nonoccurance of the condition.
iii. EX:
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1. Suppose Ps right to a brokerage commission from vendor was on the closing of
title. Vendee defaulted, but vendor took no action. Can P sue vendor?
2. no. vendor duty to cooperate doesnt not extend to a law suit.
3. however if vendor told the buyer to leave and sign a mutual retraction, then P has a
COA against vendor.
iv. EX:
1. P and D agreed to buy/sell a house. D didnt have title to the house, but said to P he
would buy it at an acution. At the action, P outbid D and bought the house
2. this is considered wrongful.
3. D now is excused from conveying the title, and also has a COA against P for dmages
of the breach of K.
v. EX:
1. P entered into a K with D for steel. D failed to deliver and says that P bought out all
the supply of steel. P contracted with two other parties for steel that D was to buy. D
wants to excuse of condition, however, the court didnt give it to D.
b. Cases:
i. Cntrell Waind v Guillaume Motorsports
1. D agreed to lease to B with option to buy. If broker closes before August 1, owner
pays the fee. After August 1, the owner doesnt pay. Owner tries to leave the country,
ect. .to get out of paying.
a. This is considered a breach of good faith and calls it wrongful prevention.
This excuses the closing of the title on August 1.
29) Waiver, Estoppel and Election.
a. Introduction
i.
b. Estoppel Defined
i. In its traditional form, equitable estoppel applies when a party
1. misrepresents or conceals a fact
2. on which the other party justifiably relies
3. injuriously
ii. Also must show that the party knew of the falsehood and wanted to represent it.
iii. A promise is said to be something that can form the basis of equitable estoppel.
1. EX:
a. If promissor says Ill accept a late payment, and then promissee pays later,
promissor can not hold promissee that he paid late.
b. The promise is enforced, even though there is no consideration for it.
c. Waiver and Election
i. A waiver is generally defined as a voluntary and intentional relinquishment of a known
right. This is not very true.
ii. There are waivers contemporaneous with the formation of the K, wavier after formation of
the K, but before failure of condition and waiver after failure of condition (election).
iii.
30) Waiver at the Formation of the K
a. This could either be a waiver or it could be a parol evidence problem.
i. EX:
1. insurance company says that the policy is void if the same property is covered by
other insurance and an authorized agent waives this condition by a statement
contemporaneous with the issuane of the policy, the issue is one of the admissibility
of evidence of this promise under the parol evidence rule.
ii. EX:
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1. Franchiee was presentd by franchisor with a 30 day termination agreement. At first,
Franchiee didnt want to sign it, but later the other party gave oral assurances that
Franchiee would receive fair treatment.
2. Court allowed this evidence on a theory of waiver. Under parol evidence, that
evidence may be disregarded.
31) Waiver after formation of the K
a. 3 important rules about this:
i. A waiver of a material part of the agreed exchange is ineffective. Only an immaterial part
can be wavied
1. EX:
a. A to sell to B a car for $1000. A can not waive the payment of $1000.
ii. The waiver may be withdrawn or modified if the withdrawl or modification does not operate
unfairly.
1. EX:
a. A is to complete a structure for B at a certain date. Time is of the essence. B
waives this certain date, and but later reinstates it. This is ok, as long as A
didnt change positions.
b. And even if there was reliance by A, a new reasonable limitation can be set
by B.
c. Also, even if B didnt set a new time limit, performance within a reasonable
time is still required.
iii. The waived condition must be solely for the benefit of the party waiving it.
b. A waiver differs from a modification b/c modification requires mutual assent and consideration. A
waiver is usually unilateral in character. Also a party can withdrawal a waiver, while a modification
can not be unilateral withdrawn.
c.
32) Waiver after failure of Condition: Election
a. If a party excuses a condition after failure, that is called an election.
i. EX:
1. A promises to charter a vessel to B in the US. B gets an expressed condition
precedent that the ship would leave at a certain date. A didnt get the ship off and
therefore the condition has failed. Since this has not been performed, B can terminate
the K and sue for damages. OR B can waive it and continue onwards with the K.
2. or if a contractor is late on the building of a building, the owner can excuse the
lateness and continue onwards with the building of the house.
b. Once a party elects to continue after a failure of condition, the election can not be retracted.
c. Election can be made by a promise or conduct. Conduct is that the nonbreaching party either
continues to perform or allows the other to perform.
d. Majority View Election can not be withdrawn even if the other party has not relied on it.
e. Minority View Election can be withdrawn.
f. Can the non breaching party elect to perform? That is promise to pay $$$ for an uncompleted
house?
i. Suppose contractor is to build a house for owner. It was not substantially performed. Owner
moves into the house.
1. here, there is still an action for total breach as the moving into the house is not
considered a right to refused to pay
ii. If owner promises to pay the contractor, then owner must pay it all but then have a COA for
partial breach.
g. FIGHURE THIS OUT.
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h. In a case of repeated elections, that is accepting late payments, it has been held that repeated late
payments will not prevent the owner from insisting on fulfillment of the condition precedent to the
net progress payment.
i. Also the no waivier clause doesnt have too much effect, as its boilerplate.
j.
33) Effect of Election on Damages
a. In the case of a material breach, aggrieved party may elect to continue and sue for partial breach.
i. EX:
1. If a building contract contains a promise to finish by Jan 1, then failure to do so is a
material breach. Owner can elect to continue, and builder can finish within a RT.
Then owner can sue for the delay.
b. UCC request that a buyer give notice of the breach or be barred from any remedy. Notice is required
even if the S is aware of the breach.
Also it permits a renunciation of damages without any consideration provided that the renunciation is
signed and delivered by the aggrieved party.
34) Giving Incomplete Reasons for Non-Performance
a. Ordinarily, a party is not required to give reasons for rejecting or objecting to the other parties
performance.
b. But is someone gives one reason and the other party thinks they are exclusive, then the party who
gives that reason can not bring up any more reason
c. So if an owner lists all the defects in construction and a contractor cures these defects, the owner
can not claim the contractor did not substantially perform.
35) Excuse of Conditions involving forfeiture
i. Sometimes a court will excuse the failure of condition to prevent forfeiture. This can happen
when it is an express condition.
ii. 1st RSTMT:
1. A condition may be excused without other reason if its requirement
a. Will involve extreme forfeiture or penalty
b. Its existence or occurrence forms no essential party of the exchange for the
promisors performance.
iii. 2nd RSTMT adopts same rule, but uses disproportionate forfeiture.
iv. Courts will try to balance the equities, taking into account the ethical position of the party
and the injury suffered by the other party.
1. EX:
a. P entered into a K with D to buy real property for $$$. Option could be
exercised at any time but not later than April 1.P was to pay $10,000 every
month for a while to keep the option open. The money was late by one day
one time.
b. Court held that this condition was excused, otherwise there would be
forfeiture.
2. This example contained a late payment, rather than a late exercise of option. Those
cases are usually not given relief from forfeiture.
36) Other Bases for excusing Conditions
a. Can be excused if it is contrary to public policy, unconscionable, or if there is no duty to read the
particular provision
b. Also impossibility.
37) The Satisfaction Cases
a. Introduction
i. These relate to the relief from forfeiture.
ii. But they also add that a K calls for personal satisfaction or only reasonable satisfaction.
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b. Satisfaction of a Party to the K
i. If an artist were to paint a portrait of the person, then this is a satisfaction of a personal
nature.
ii. But usually, if there is any ambiguity, then the interpretation calls for a objectively
satisfactory interpretation.
1. When there is satisfaction to a party, the courts group the cases into two categories:
a. Those which involve taste, fancy or personal judgment
i. EX:
1. paint a portrait.
ii. Here, the person can reject the work in good faith and this is absolute.
b. Those which involve utility, fitness or value, which can be measured against
a more or less objective standard.
i. Here, the performance must be Reasonably satisfactory and if the
promisor refuses the performance, then the rejection is subject to
review.
2. However, courts have refused to give personal satisfaction of work that usually
doesnt require personal satisfaction. (like painting of a barn)
iii. Involve a balance between free to contract and the results which would involve forfeiture or
unjust enrichment.
iv. Also, good faith must always be exercised, and that the dissatisfaction must be actual and
not merely simulated.
v.
c. Satisfaction of a third party
i. In construction contracts, it is quite common to have a provision in the K expressly
conditioning the owners promise to make progress payments on the personal approval of an
architect or engineer.
ii. Generally, there is an expressed condition precedent on their approval. Strict compliance is
the rule.
iii. However, if it can be shown that the expert acted in bad faith, then maybe that condition can
be excused.
iv. P has to show that D was honestly satisfied and still didnt want to pay.
v. EX:
1. CASE: Nolan v Whitney (NY law)
a. Shows that if the expert acted in bad faith, you can still excuse that condition.
2. Western Hlls v Pfau
a. Where D was going to buy and develop land from P. D knew that the city
wasnt going to put in sewer lines, so D exploited that in the final satisfaction.
i. Court said that D can not use this knowledge for exploitation and
profit. D didnt use good faith, therefore can not recover.
b. Van Iderstin co V Leather
i. Where the sell of eel skins. Had to be approved by a third party. Third
party acted in bad faith
1. held that third party can act in bad faith. Partly b/c this is a
sale of goods and they can resell these items later.
Waiver
1) Bad definition waiver is a voluntary and intentional relinquishment of a known right.
2) 2nd RSTMT waiver is a promise to perform despite a non occurrence of a condition. This promise can
be made before the condition is to occur, or after the condition is to occur.
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3) Remember that you can only waive non essential parts of the contract, which is for the benefit of the person
who waives it.
a. However, there are times when you can waive a material part.
i. EX:
1. Owner asks builder to build a 3 story house. Builder only does 2 stories. Owner says
Ill take it anyways.
2. Owner can waive the last story, but owner can still sue for partial breach.
3. or owner can withhold entire payment sues for material breach.
4) Waivers are manifested by:
a. Words,
b. Conduct
c. Allowing others to proceed with performance
d. Acceptance of defective performance.
5) Under UCC 2-607(3)(a), B must give notice of the breach to the S before he can sue for damages:
a. EX:
i. A contracts for the sale of apples Apples arrived at Bs place rotten. B throws them away. B
doesnt talk to A, b/c hes so pissed. Later sues.
1. B accepted the goods by failing to object within a RT. Also B didnt give notice to S.
Therefore when B sues S, thats thrown out, and S sues B for the price of the apples,
B has to pay.
ii. Under common law, no need to give notice. But under UCC, there is a need.
6) EX:
a. Insurance company requires a written notice of claim within 30 days. Person submits it 32 days.
Insurance company can waive it. (this is called an election)
i. If insurance company tells the person before the 30 days, that theyll accept it after the 30
days, thats called waiver before failure of condition.
b. Franchisor and EE sign an agreement where it says this can be terminated by OR anytime within
30 days. Given oral assurance that it is not going to be upheld.
i. This could be a question of parol evidence. But it also can be a question of waiver
contemporaneous with the formation of the contract.
ii. You can even ask for estopple, where EE relies on the promise.
c. Shipsview v Beeche
i. This was the bridge cleaning contract.
1. Idea is that in a real estate contract, time is not of the essence, unless it is stated. this
can also be withdrawn.
Conditions of Satisfaction
1) you have to see subject to the approval of or subject to the satisfaction of
2) These are expressed conditions.
3) Then ask
a. Personal satisfaction?
b. Or satisfaction of a reasonable person?
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39) Abuse of Rights
a. Malicious Motive
b. Exercise of a right is unreasonable and without any legitimate Interest
c. The right is Exercised for an Illegitimate Purpose.
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c. Suppose that B didnt buy another car, and told S that the K was cancelled.
And also assume that S rebought the car back.
i. Some authorities say there is still a K.
ii. However, UCC would say that when B told S the K was cancelled, it
was cancelled.
d. Suppose instead of selling the car, S told B that he will not deliver the car. B
buys a new car.
i. Bs duty to the K is discharged, but B also has a COA on the K.
2. EX:
a. D agreed to employ P for the lead in an opera. Later P got sick and didnt
know of the time of return. D hired a new lead. Later P is ok, and sues D.
Jury says this is ok.
i. The prospective inability to perform was justified. This is usually
justified on how serious the prospective inability was.
b. Things like this also apply to sale of land where the title has defects.
iv. Also insolvency might be considered prospective inability to perform.
1. LOOK MORE ON THIS 491-492 in hornbook
b. UCC and 2nd RSTMT
i. UCC 2-609 introduced that where a party to a K manifests a serious prospective inability or
unwillingness to perform, the other party may make a demand for adequate assurances of
due performance.
ii. This section provides 3 remedies,
1. the aggrieved party is permitted to suspend performance and
2. is entitled to receive adequate assurances
3. failure to supply adequate assurance may create an anticipatory repudiation and give
rise to all of the remedies available for such repudiation.
iii. 2nd RSTMT adopts a similar rule, but doesnt require the demand for assurance to be in
writing.
iv. So the aggrieved party must first demand for an assurance, unless the prospective
unwillingness can be characterized as repudiation.
1. LOOK MORE ON THIS 494-495 in hornbook
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ii. Second response is to urge or insist that the other party perform, urging the retraction of the
repudiation.
1. here, even if the injured party urged retraction, the injured party can still change
position later or cancel the contract later.
iii. Can the injured party still elect to continue?
1. earlier cases say yes.
2. modern cases say no, as there is a duty to mitigate damages
a. EX:
i. A wants B to build a bridge. A repudiates. B still builds the bridge.
3. The UCC says that one can wait a RT for someone to retract the repudiation but
afterwards, there is a duty to mitigate damages.
b. The other party then can:
i. Cancel the K
ii. Change positions
iii. Sue for breach
iv. Suspend performance
v. Urge retraction
1. once you change position, the other party can not retract.
2. 1st RSTMT says this.
3. 2nd RSMT also says if you cancel the K, the other party can not retract.
vi. Ignore the repudiation and coninute, (however, there is no longer mitigation of damages)
vii.
viii. Cases:
1. Drake v Wickwire:
a. Where S and B were buying property. And one party says I am resisting
pressure to close and the other party treats this as a repudiation.
i. Held: this is not a repudiation. They jumped the gun.
2. Cohen v Kantz
a. Where S and B were buying land and B found out some defects in title which
were curable. Didnt tell S and just canceled the K.
i. S sued and said B repudiated. B says that the title had defents.
1. held for S, b/c B shoulda told S to cure it. If S cant cure, then
cancel the K.
9) An exception: Unilateral Obligations
a. No action will lie for the present or anticipatory repudiation of a unilateral obligation to pay money
at a future time or future installments
i. EX:
1. if B says to A, if you walk across the bridge, Ill pay you $100 one year from now.
A walks and B repudiates his obligation. A can not bring an immediate action for the
$100.
2. the same would be true if the agreement were bilateral and A had performed.
ii. EX:
1. A lends B $12,000 and B promises to pay $1000 per month starting one month from
the making of the loan. Before B has to pay the first $1000, B repudiates.
a. Majority of the courts only allow A to sue for $1000 after the $1000 is due. A
can not sue for the total $12000.
i. Here, 2 factor must be in play
1. P has completely performed
2. P is entitled to a fixed payment of money
b. Now, debtors put in accelerations clauses
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i. UCC authorizes these provisions if the creditor deems himself insecure, and permits
acceleration by a creditor at will.
10) Another Exception: Independent Promises.
a. A and B enter into an employment K for 5 years. A the employee, promises not to compete for 3
years after termination of the employment. This is considered independent. Even if B repudiates the
K, A still has to perform that independent promise.
b. However, many courts use other ways to get around this, by public policy, artful interpretation, ect. .
.
Impossibility/Impracticability of Perforamnce
1) Case:
a. Taylor v Caldwell
i. Music hall burned down. The Destruction was without fault of either party.
1. Court analogies this to a personal services contract. Recognizing the idea here, is that
there is an implied condition that the music hall will not burn down.
2. the later cases, says that the parties didnt plan for this, and therefore it is impossible
to perform. The parties never though about this situation.
3. if the music hall set the fire, there is no defense.
4. if the performance set the fire, itll be called wrongful prevention
b. Supervening illegality
i. Eastern Airlines v McDonnell Douglas Co
1. P was to buy airplanes from D. The Gov. was at war and then took the planes. If D
were coerced, then there is the defense available.
2. remember that if you assumed the risk, you dont get recovery when it doesnt.
happen.
a. Here, there were things that were excluded ejusdem generic but there is the
cause of including but not limited to
c. Supervening illegality
i. For the UCC, there are 4 points that have to be proven:
1. there has to be a contingency, or a supervening event which makes performance as
agreed impractable.
a. The word impractable is not a creation of the UCC, it is common law.
2. the non occurance of the event is a basic assumption on which the K was made
3. this resulted without the fault of the parties seeking to be excused
4. the parties seeking to be excused did not assume a greater obligation.
a. That is assumption of the risk.
i. See the American Trading Production Corp.
1. The court here didnt even get past the first question as listed
above.
2. treated this as an alternate route.
3. 100% incrase is not impractability.
2) UCC
a. 2-613
i. This is like like the music hall case, but the gods are destroyed.
1. EX:
a. If I sell a car and it gets destroyed before it gets to buyer.
b. 2-614
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i. This is like the American trading case.
ii. When the manner of performance is n longer availibale.
c. 2-615
i. General doctorine is here.
ii. No breach if it is impossible. Only recovery is under doctrine of divisibility. And if not
divisibility, then goto restitution.
3) Impractability
a. Something is impractable if it is harmful to ones health.
b. Has to be many many times the actual cost.
4) Putting repudiation and impossibility together:
a. EX:
i. De la tour repudiates on May 11, and P brings suit. P then suffers accient and loses both legs.
P can not show that he would be willing and able to perform but for the repudiation.
1. Therefore no recovery.
ii. Suppose D gets really sick on June 20. They were to leave June 1.
1. Only recover for the 20 days.
iii.
5) Frustration
a. The 4 elements are the same except for the first.
i. It is a supervening event defeats or substantial frustrates a prties principle purpose in
entering the K.
1. EX:
a. Krell v Henry
i. P contracted with D so P can watch the king get crowned.
1. no K b/c it has been frustrated.
ii. There is even more reluctance to find frustration than impossibility.
iii. EX:
1. 407 east 61st ST. v Savory
a. Where P was to park the cars for D. and D was to get 10% of the profits. And
D is to shut down b/c losing money.
i. Says frustration that no point in operating a losing business.
Damages:
1) 3 main interests,
a. Expectation
i. This is the usual damage. Puts P in the position as if the K as fulfilled.
b. Reliance
i. P is restored to the position P was in before the creation of the K.
c. Restitution
i. P gains whatever D has gained via this contract.
2) Hawkings v McGee
a. You have, the damaged hand, the original hand, and the 100% good hand.
i. Expectation
1. difference between damaged hand and 100% good hand and all pain and suffering
above the normal pain and suffering
ii. Reliance
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1. difference between damaged hand and original hand and all the pain and suffering
incurred and doctors fees
iii. Restitution
1. just the doctors fees.
3) Note: under the UCC, if B accepts goods which are non conforming, he still has a COA for damages.
4) For a breach of K, there would be either
a. Compensatory damages
i. Expectation,
ii. Reliance
b. Nominal damages
c. Punitive damages
5) For EXPECTATION DAMAGES
a. E = loss in value to him + (other losses) (cost avoided)
b. EX:
i. S and B were to build a house for $100000. B was to spend $90000 in building the house. S
repudiates. B can sue for $10000 for expectation damages. 100000-90000
ii. If B already spent $30000 in building the house, and none of it was salvageable, then B gets.
100000 60000 = 40000
c. The loss in value is supposed to be the loss in value of the party suffering damages. Sometimes, the
loss in value is hard to prove:
i. EX:
1. Suppose owner and contractor have a deal where contractor breaches. How are we to
determine the damages to owner?
a. The value of the house to him is hard to prove: ex, happiness and ect. . .
b. Alternative is to show how much someone else would have to pay to
complete the house.
c. If that is too high, then we goto the market value.
i. That is the difference between the house promised and deliverd,
(Jacob and young = nominal difference)
ii. EX:
1. Emery case:
a. Where P and D had a K were D was to remove soil and
replace it. Didnt do it. P sues for putting the soil back.
i. Court here didnt look at if the alternative to do
it was too high. Court didnt look too much into
this.
d. UCC expectation damages:
i. S has 2-703
ii. B has 2-711
iii. It is important to know whether or not the goods have been accepted by B or not.
iv. In the category where the goods were sent and accepted, S can sue for the price.
v. If the goods havnt been accepted, then S sues for the market difference
1. EX:
a. S sells a car for 20000. B repudiates. S says market value is 3000. S gets that
money, whether or not S actually sells the car.
2. Same HYPO, but now S repudiates, and the cost of the car has gone up to 23000. B
gets 3000 in damages.
e. Remember, that you still dont get attorneys fees, so youre never back in the same situation as you
are after the K.
i. Exceptioin
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1. statutory
2. K could provide for reasonable attorneys fees
3. S - B B2
a. S fails to deliver to B. therefore B fails to deliver to B2. B2 sues B and wins.
B can sue S and include the cost of litigation with B2. but Bs cost of
litigation with S can never be recovered.
6) Mitigation of damages
a. There is
i. Avoidable consequence negative
ii. Avoidable consequence affirmative
1. problem 8
iii. Avoided consequence negative
1. thats as if I went out and got a job to mitigate damages.
b. EX:
i. Ballard case:
1. Where company breaches the K and P sues. It is up to the company to prove that P
could have taken other jobs in the mean time and therefore could mitigate damages.
a. In this case, P proves the K, and what he is to be paid.
b. The company proves that P coulda got another job and therefore try to reduce
the damages.
c. However, an independent contract never has to mitigate damages, as one contractor can build more
than 1 building at a time.
d. Hadley v Baxendale
i. P had a mill. The crank broke. Gave it to D to get it repaired. There were delays. P sues for
lost profits due to delay.
ii. There are two rules of K damages:
1. one that arrises naturally and is according of the breach itself
2. or that is reasonable to suppose to have to be in the complemplation of both parties at
the time when they made the K.
iii. It is very important to know that this is at the time when the K is made
e. Types of damages:
i. General
1. the damages you are deemed to have suffered even if you dont suffer it.
a. EX:
i. Selling the car for $20000 and get damages, and later dont sell the
car.
ii. In this case, the natural damages would be the difference in price of 1
day shipping and 4 day shipping.
ii. Special or consequential damages
1. UCC says 2-715 for B, and 2-710 for S.
2. Could also be characterized as affirmative avoidable consequential damages.
3. they have to be proved, and you have to show that they have to be anticipated at the
formation of the K.
4. when you see this ask:
a. are these foreseeable?
b. Could they be covered by assumption of risk?
c. Are they proximately resulting from the breach?
5. EX:
a. Actor who suffers publicity loss
7) Reliance Damages:
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a. EX;
i. Case: Gruber v SM News Co.
1. P made greeting cards and there was a K with D where D was to sell Ps cards. D
didnt want to sell them and breached.
a. P has to prove the K and what P would have made with reasonable
certainty provided that D used reasonable diligence.
i. This was impossible to measure. P can not show how successful or
unsuccessful these cards would be. First time making cards. No past
performance to base it on.
ii. This means that P can not recover on expectation damages.
b. Here, P has no idea if these cards are going to be successful or not. So P can
not prove damages. So P asks for reliance
c. Suppose that it cost P 20000 to make the cards, and that if D were to sell
them, D would only sell 15000. This is a losing contract. When P sues for
reliance, P wants the 20000. D then has the opportunity to show that this is a
losing contract, and that P should only get 15000.
i. But D can not do it here, b/c the damages are hard to find as to
reasonable certainty
d. So P gets 20000 minus mitigation of damages (Firesale of the cards) (2000).
2. But note that this puts P right before the agreement. So if P had the plates creates
before the agreement, the cost of those plates can not be included in the reliance.
b. REmemebr still about the 3 types of damages
i. General
ii. Consequential
1. Hadley (mill crank shaft)
iii. Incidental
Restitition
1) Not available for all breaches
2) Only when there is a material breach and the other party wants to cancel, then maybe theres restitution.
3) Case:
a. EX:
i. Oliver v Campbell
1. Where a lawyer was to perform for a guy for 850 dollars. Actual retail worth is about
50000. Guy fires the lawyer right before the end of performance. Lawyer sues for
restitution for the reasonable value.
2. Held: no restitution b/c the lawyer substantially performed and the only obligation in
the K was payment by the man.
ii. HYPO:
1. Suppose a guy was to build a wall. Owner fires the guy after 2/5th completion..
Suppose the serives cost 5000. Contract was for 850.
a. Exceptation: loss in value is 850. the cost avoided is 3000. so ZERO recovery
b. Restitution: P spent 2000 so far. So P would prove 2000. D then proves this is
a losing K. And that P woulda lost 4150 if he did the K. Therefore ZERO.
(2000 4150)
c. Restitution: there are 3 views:
i. We should pro rate the 850. 2/5 of 850 is the recovery.
ii. 850 is the high point. Any recovery up to 850. You can prove higher
than 850 if you want.
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iii. 850 is looked at just evidnce., you can prove RV and let the court/jury
award what you want.
iv. (2-3 are majority views)
2. going back to the case:
a. you want the client to fire at any time, so therefore maybe 2 is the best view
for lawyer/client relationship
4) There is a right of restitution in the case of non performance, however, if if there is an election or if there is
a partial breach, there is no restitution.
a. 373 of RSTMT (look this up more)
5) Anther ex:
a. Suppose S and B had a K where S was to sell some land for 100000. B repudiated. The land value
went up to 150000.
b. S wants the broker fees back and sues for 6000 in reliance.
c. B argues that since the land went up, that S is already better than before the K was made.
d. Some jurisdictions say that S can recover, others not.
6) UCC case:
a. Where S is to sell goods for 10000. B breaches. Market value is 7000. S manages to sell for 8000.
b. S sues for 3000. B says that S managed to sell for 8000.
c. Authorities are split on this as well.
Punitive Damages
1) Idea is that theyre generally only available if someone suffered bodily injury or if it is a tort
2) Patton v Mid Continental Systems
a. Where P was to give D an exclusive area and D was to use Ps credit cards.
i. Posner says that if you give punitive damages, itll screw up the efficient breach.
3) EX:
a. A has K to sell machine to B for 10000. B values it at 12000. C values it at 18000.
i. Posner says let A sell it to C, and pay B 2000 in damages.
ii. Critique: Why let A profit? B can profit too.
iii. England:
1. Allows restitution on this type of claim
iv. US
1. Doesnt allow, b/c B didnt benefit A of the 8000 dollars.
Liquidated damages:
1) case:
a. Wassenaar v Panos
i. There is a stipulated damages clause. Employer terminated the K 21 months before the
conclusion of K.
2) Rule
a. Did the parties intend to provide for damages as a penalty
b. Is the injury caused by the breach one that is difficult or incapable of accurate estimation.
c. Are the stipudated damages a reasonable forecast of the harm.
3) Types of damages recoverable:
a. Consequential damages
b. Permanent injury to professional reputation
c. Loss of career development opportunities
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d. Emotion stress.
4) Traditional test:
a. It looks at the situation at the time of contracting, looking forward to the prospect of breach and if it
is reasonable from the time of contracting.
5) Modern test:
a. UCC 2-718
i. This has to be reasonable in light of the actual harm or anticipated harm.
ii. EX:
1. Suppose P didnt lose even one day of pay and managed to get a better job b/c of Ds
breach.
a. If the damages were reasonable at the time of contracting, they are still
enforceable, under both modern and traditional view.
b. 2nd RSTMT says that if it is clear no harm sufferd, then no recovery
6) Shotgun Clause, or BlunderBuss Clause
a. This is a liquidated damages clause that gives the same amount of money for breaches both big and
little.
b. If it were one amount, under traditional view not valid
c. Under modern view could be valid.
7) Distingh between limited liability and liquidated damages provision
a. Limited liability the only remedy is an exchange of products. Or exclusion of consequential
damages
b. These are all valid unless they are unconscionable.
8) Also, just b/c there is a liquidated damages provision, you can still go for specific performance.
9) Make sure it is not a penalty. If it is a penality, that clause will be thrown out.
Specific Performance:
1) Case:
a. Laclede Gas Co v Amaco
i. Amoco breached and P sued for specific performance. Denied. Appeals court reversed b/c P
cant find another supplier which is as attractive as this one.
b. NIPSCO v Carbon Coal
i. Posner case, talks about if specific performance not efficient. Ect. ..
2) Granted when:
a. Hard to find alternative option
b. When the item is unique (like a piece of land)
3) Think about
a. Size of project
i. If a court orders that a construction is to continue, the court will be the foreman to make sure
everything is going well.
b. If the K is definite enough to be granted nice and tasteful railway station
4) Defenses:
a. Impossiblilty or impossiblilty in fact
b. Unconscionability
c. Unclean hands
d. Laches
i. Defense when there is an unreasonable delay casusing harm to D.
Statute of Frauds
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1) Anytime you see a writing requirement, youll see something called a statute of frauds:
a. Terminology
i. If a K is voered by the SOF, that means its withint he SOF and subject to the rules.
ii. Otherwise the K is outside of the SOF.
b. Sufficient Memorandum
i. The K itself doesnt have to be in writing, but there needs to be some written evidence of the
K.
c. If you dont satisfy the statteu, you have to take the case out of the statute:
i. Promissor estopple,
ii. Exceptions to the writing requirement
d. If the K is within the SOF and there is no sufficient memo and there is no docrotine to take it out of
the SOF, then the K is in the SOF and therefore. . .
i. It is either void
ii. Or unenforceable majority view.
2) Termination provisions:
a. EX: 2 year contract where both parties have a right to terminate with 30 days notice:
i. The majority view the termination provision doesnt affect the SOF. still is in the SOF
ii. Minority view says that this takes it out of SOF (like alternative performances)
3) Alternative prerformacne
a. EX: I am to work for you either for 2 years at 2 hours a day, or for 6 months at 8 hours a day.
i. Majority view within the SOF
ii. Minority view not within the SOF
iii. NY view NY follows the minority view, unless the D is stuck in a long term K. Then the
K is back in the SOF defense.
1. EX:
a. Employee quits. Boss sues. Employee would be stuck in a long term K, gets
the defense.
b. (get a real example)
4) If one promise is within the SOF, then both promises are:
a. A promises to pay $40000 to B upfront if B works for 2 years.
i. This entire K is under the SOF.
5) Memorandum
a. In general, the function rquire a signed writing requirement as evidence of a K.
b. 3 basic functions
i. Channeling
1. separates what is enforceable and what is not
ii. Evidentiary
1. it does help to provide evidence of K
iii. Cautionary
1. encourages parties to be more careful in drafting.
c. Questions occur when this is a signed offer by one party.
i. If could be if the party that is being charged signs the writing.
d. Also the signature doesnt necessary have to be at the bottom.
6) Case:
a. Crabtree v Elizabeth Arden Sales
i. Whether more than one doctument can be used to combine into an SOF
1. answer is yes. between memo and paystub, that is enough to determine the fact the K
has a writing element and satisifies the SOF.
2. if there are internal referesess between the two writings, they cn be liked to one.
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ii. NOTE:
1. D can try to attack the memo. D can say that the K was actually for 1.5 years instead
of 2. Then D is trying to say that the writing is not an embodiment of the K.
2. the parol evidence rule can be used to stop D from attack the memo. But remember,
only if the memo is a full integration can the parol evidence rule be used.
7) Doctrines which take the case out of the SOF
a. Full performance on one side
i. If there is full performance on both sides, there is no SOF issue
1. full performance on one side:
a. majority view out of SOF
b. minority view NY rule: still in the SOF.
ii. Part performance doesnt take it out of the SOF
iii. Promissory estopple can take it out of the SOF.
1. 3 possibilities. (from easy to hard)
a. A party agreed to sign the memo
i. Reliance on the party to sign the memo.
b. Reliance on a modification of the K where there is no signed writing
i. Problems 15-17
c. Reliance on the initial unenforceable K within the SOf.
i. McIntoh case
1. where employee was to move to Hawaii.
a. Lets say the K was formed at the telephone call. This K
is in the SOF.
b. here, restitution doenst work, b/c no benefit conferred.
c. The reliance is a better recovery.
8) Case:
a. Klewin
i. P is a construction manager. D wants to build real estate. D does a 120 million dollar project
of which P gets a %. After phase 1, D doesnt like P and wants to fire him.
1. if this K is within the SOF, then P loses.
2. but even if it is out of the SOF, P still has to prove the K and the breach and damages
and ect.
ii. we look at this K and see that although the construction would take 2-10 years, we ask, is it
possible for this to be complete within a year.
1. the answer is yes.
a. but if you had an employment K where it was to run for 2 years, theres no
way that can run actually in 1 year.
b. Erhlich v Diggs
i. There is a right to terminate at any time. Where P and D had the record contract where P
was to get a certain %.
ii. Since D had a long term K to pay P the monies, this puts it back in the SOF. NY is looking at
the fact that the records might sell and the performer has no way to cut off that obligation
and therefore the performer is stuck with a long term K.
iii. Therefore under majority view, under SOF. Minority view says its not in the SOF.
X Disney
1. X has a K to sell land to Disney. This sale makes Ys property less valuable.
2. X is the promisee. Disney is the promissor.
3. Here, Y is not in privity n the K. Y has no right to sue.
b. Dutton v Poole
i. Daughter
Father Son
ii. Father wanted to sell some land to give the $ to the daughter. Son says, dont sell the land,
and I will give the daughter $. Father dies and son doesnt sell the land.
iii. Court says that this is a family relationship, and we will enforce this for moral reasons.
iv. 1st RSTMT calls this a donee beneficiary case.
c. Lawrence v Fox
i. Lawrence
Moon Cleaveland
ii. Moon sells hay to Cleaveland, Moon owes money to Farley. And Cleaveland promises both
parties that he will pay Farley.
iii. The difference between this and Dutton case is that there is a promise by Cleaveland to both
parties
e. Vrooman v Turner
i. Bank
C D
ii. Bank lends money to A. A gives back a bond and mortgage on real property. The bond is the
promise to pay and the mortgage means that the bank can foreclose on the real property.
iii. B can sue A for any loss from the property.
iv. A sells the land to C but C doesnt assume the mortgage. C then sells the land to D, and D
assumes the mortgage.
v. When B sues D, D says that C never assumed the mortgage and therefore there is no privity
and B can not sue D.
vi. Since there is no promise, bank can not sue.
vii. Both RSTMT disagree with this. This is the law in about half the jurisdictions.
f. Seaver v Ransom
i. Niece
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ii. Wife Judge
iii. Where Wife wanted to give some $ to her neice and the judge says Ill do it. Later he dies
without giving the $.
iv. Says this is ok to sue b/c this is like the Dutton v Poole case.
g. Lucas v Hamm
i. The persons receiving the $ from a will
a.
b.
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