Fall Semester 2010

CONTRACTS: CARABALLO 2010

**EXAMDAY**firstsentencetowriteonexamforeveryquestion
Theapplicablelawis[restatementcommonlaw,orUCCArticle2]andthentell
why
1. Seven types of questions that can be asked
b. Has there been an agreement or a promise?
c. Once you have decided there is a possibliyt that there was an agrmt/promis was
there ANY reason that this agrmt or poirmse should be enforced by the courts?
(LEGALLY ENFORCEABLE)
i. (a)+(b) = K
d. What are the terms of the contract (if theres an agreement)what did the ppl
agree to??
e. Did any of the two people do exactly what she agreed to do
i. once you know theres an agreement---no reason not to enforece and
youve figured out the terms you determine with the fact pattern if one
party did not act
f. Is there any excuse as to why they did not perform?
i. Look at fact pattern and see if there is any reason the law wouldnt require
them to do it
ii. One party doesnt perform to what they agreed to do for some reason
g. What are the legal consequences?
i. Breach of contract
h. When do ppl who did not themselves make a contract have rights or duties under
a contract they did not make
i. Example: insurance contractif you die, you pay the money to your
family
i. ***any combo of these questionsneed to know what law to use
HowDoyouDecideWhichLawApplies?
a. UCC ARTICLE 2 Sale of goodslegislature has enacted Article II in 48 states
i. Tangiableyou can touch feel and see it
ii. Moveable
iii. Anytime anyone buys or sells goodsthat is covered by article II
b. Common law ONLY
i. Buying a house/property
ii. Employment agreement
c. What about a combinationservice and goodsPredominant Factors TEST
i. Someone is going to Paint your house: you pay for the labor and the paint
ii. ASK: what is the more important part of the contract??
1. Here you are paying primarily for the SERVICES
2. Nowapply an All or NOTHING TEST
3. More important part is the labor-COMMON LAW

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iii. Sale of a car but want it washed and waxed first---whats the most important
part, the sale of the car
iv. NOTE: no states have adopted revised article 2but it is aroundONLY
FOLLOW CURRENT ARTICLE 2
v. Article 2A: Lease of goodsLooks like article 2
*Note: teachers test what they teach in classuse the cases that we have covered in class, show
that this problem is similar or different than what we have covered in class

IfcantfinditintheU.C.C.Article2
o MUSTSAY:SectioninArticle1ofUCCthatallowsustousethecommonlawto
supplementtheU.C.C.
2206doesntgivethedefinitionofanofferwehavetousecommonlawdefinition
ofoffer
determinewhoisofferorandofferee,lookforoffer,thenlookforconsideration
mutualassentandacceptance
Restatement2ndofContracts(RESTATEMENTSOFCOMMONLAW)
1. a. No state legislature has enacted the
restatement, no judge has adopted the
restatement
ii. NOT THE LEGISLATURENOT COURTS
iii. Made just by lawyers and random ppl
j. At times it Restates what the law isreflects the majority law
k. Other times it does not tell you what the law ISit tells you what the ALI people
THINK it should be
l. MOST IMPORTANT: PROMISSORY ESTOPPEL Restatement 9
i. Overtime 9 has influenced courts
m. On an exambefore you say anything about the RESTATEMENT on an exam
always discuss the CASES from class first (if it is not Article 2 UCCie: not sale
of goods)
UCC:
1-103: if something is not found in the UCC allows us to use the common law to
supplement
Definition of goods 2-105: all things which are movable at the time of identification
to the K for sale
DefinitionofTransactionsthisisNOTdefinedforus,foratransactiontofallinto
article2itmustsomehowapproximateanexchange

Sources of K Law
I. Common Law:
a. stare decisis and precedent
b. Where we will bring up our case law
II. Statutory Law: (binding authority)
a. The Uniform Commercial CodeThe Code (UCC )
i. Used for goods: things movable at time of sale
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III. Secondary Sources: (court isnt bound by this)

a. Restatement (Second) of Contracts: (R2 )
i. Advice to courts on what common law should be
Know the VocabularyPrecision of Language on Exam
Checklist of 7 Terms
i. Difference btwn an agreement and a contract
1. Contract can be LEGALLY enforced
ii. Difference betwn bilateral and unilateral
iii. Difference of language of condition and language of promise
iv. Delgation and Novation
v. Difference between types of money damages
1. Expectation
2. Recission
3. Restitution
vi. Excusing the contract
1. Frustration
2. Impossibility
vii. MOST IMPORTANTLY
1. Statute of Frauds
2. Parol evidence rule

CONTRACTS
1. DEFINITION OF CONTRACT: (RESTATEMENT 1): a promise or set of promises
for the breach of which the law gives a remedy, or the performance of which the law in
some way recognizes as a duty
a. A binding promise: (a commitment to do something or not do something)
b. A legally enforceable promise
2. FREEDOM TO CONTRACT:
a. You, subject to illegality and duress, are allowed to enter into an agreement for
anything that you want even if it stupid through a contract. What you cannot do is
enter into a contract where you are making someone ELSE look stupid.
Promise for a promise: bilateral
Promise for an act: Unilateral

CHAPTER 1: INTENT TO CONTRACT: OFFER AND

ACCEPTANCE
I. FIRST ASK: Is there an Agreement? (MUTUAL ASSENT):
***Takes the form of OFFER and ACCEPTANCE
***In real life we cant normally tell which is which

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Courts take an OBJECTIVE APPROUCH, the reasonable person is an OBJECTIVE

approach
1. MUTUAL ASSENT = OFFER + ACCEPTANCE + REASONABLE CERTAINTY
a. for a contract to be formed, the parties must reach mutual assentthat is, they
must both intend to contract and they must agree on at least the main terms of
the deal.
b. Objective manifestations (what people do and say) of INTENT by both parties
to be bound (seeks to enforce what parties themselves agreed to)
i. Reasonable person standard: what a reasonable person in the position of
the other party would have thought the first party intended, based on the
first partys actions and statements. Not the subjective state of mind
(parties are not mind readers)
c. 3 categories of Ks (find mutual assent in different ways)
i. EXPRESS:
1. must have proof of all elements of Kmutual assent to the terms
of the K is actually expressed through an offer and acceptance
ii. IMPLIED-IN-FACT:
1. must have proof of all elements of a Kshown by surrounding
circumstances, including the conduct and declaration of the parties,
that make if inferable that there was mutual assent
a. ex) Stepp v Freemanguys with the lottery tickets
iii. 3. IMPLIED-IN-LAW:
1. court created Ks used as a tool of equitythey are NOT Ks
because there is no mutual assent. Doesnt require proof of all the
elements of a K
d. LUCY v. ZEHMER (VA, 1954)
i. Mutual Assent
ii. Lucy offered $50K for Zehmers farm, K written on napkin, Zehmer
accepted but then claimed he was bluffingtrying to pull one over on
Lucy. Try to say it was just a JOKE! Court held: there was a legal and
binding K
1. RULE: If a persons words and acts, judged by a reasonable
person standard (objective), manifest an intention to agree, it is
immaterial what may be the real but unexpressed state of his mind.
2. OBJECTIVE MANIFESTATION OF INTENT
e. STEPP v. FREEMAN (Ohio, 1997)
i. Mutual Assent
ii. Group of coworkers bought lotto tickets at certain times; Freeman (group
leader) kicked Stepp out of the group without telling him (which was

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against implied rules) they won the lotto and Stepp wanted in. Court
held: There is an implied-in-fact Stepp couldnt be kicked out until he
was informed that he was out of the group
1. RULE: In an implied-in-fact K, assent is demonstrated by the
surrounding circumstances, including conduct and declaration of
parties
a. Look to manifestation of the agreement terms, which can
be implicit as long as they are clear to all those involved
II. THE OFFER
1. RESTATEMENT DEFINITION OF OFFER (R224):
a. an offer is a manifestation of willingness to enter into a bargain so made as to
justify another person in understanding that his assent to that bargain is invited
and will conclude it
i. UCC 2-206: Offer: doesnt provide a definition for offer, therefore under
article 1 of UCC we can supplement common law
Stage 1: IS IT AN OFFER???
a. Initial Communication: one of the two ppl says something to the other, sends an
emailetc. LOOK AT THE FACT PATTERN
* ASK Was this an offer? CONTENT of What was Said
3. Offer is a manifestation of commitment
4. Once you have found thisWas this first communication a
commitment
5. I will sell you this, I will offer you a job
6. In Determining if there WAS a commitment:
a. What exactly what was said?
i. It is not necessary terms of the deal need to be
spelled out for it to be an offer
ii. Missing terms do not disqualify an offer
iii. While it is ok for terms to be missing, Need to
watch for disqualifying: is anything important that
is missing vague or ambiguous
1. Ie: Agreement for employment that does not
state salaryjust says fair salary
2. This is a problem because how would the
court decide damages
*LOOK at language of First Communication
o If you see the word fair appropriate or reasonable tell the professer that the
communication is too vauge and it might not be an offer because it is too vauge to be
enforced. Issue presented by facts

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Also: in the first comm.. to deteremine offer, we watch for requirements Ks

a. Example: I offer to buy some bricks from you for 5 dollars a pound (TOO VAGUE)
b. I offer to buy 10 lbs for 5 a lb--fine
c. I offer to buy all the bricks that I need, I will exclusively buy from you if I can get
them for $5/lb.
No specific commitment, but it is a commitment
It is the commitment of exclusivity.
3 WORDS to look for of a REQUIREMENTS CONTRACT
1.ONLY --I will buy only from you requirements
2.SOLELY
3. ALLI will buy all
These are all real offers of requirements contracts
LOOK at the Setting of where the First communication takes placeWhat was the
Context???
a. Something in a law office, more likely to be an offer than a bar
2. PRELIMINARY NEGOTIATIONS:
a. RULE: Parties may negotiate toward closing a deal without the risk that a jury
will think that some intermediate document is a contract, and without fear that by
reaching a preliminary understanding they have bargained away their privilege to
disagree on the specifics
i. PFT ROBERSON, INC. v. VOLVO TRUCKS NORTH AMERICA,
INC.[Roberson (operates fleet of trucks) began negotiating a fleet
arrangement with Volvo to draft a master agreement but nothing was
signed. Roberson is trying to enforce an email between the two as a
contract. Volvo claimed it was still in negotiations because terms were not
finalized. Court held: The email was not a definitive offerit was still in
negotiations on certain terms.]
b. RESTATEMENT (R2 26) Preliminary Negotiations: a manifestation of
willingness to enter into a bargain is NOT an offer if the person to whom it is
addressed knows or has reason to know that the person making it does NOT
intend to conclude a bargain until he has made a further manifestation of
assent
3. STATEMENT OF OPINION OR INTENTION:
a. Lawyers are not supposed to guarantee resultsif a lawyer does then they make a
K and can be sued for damages
4. SOLICITATIONS:
a. DEFINED: Advertisements are NOT offersthey are invitations to make
offers, they are intended to get you to come into the store and make an offer to
buy something. You are the offeror and the store is the offeree.

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b. EXCEPTIONS: An advertisement for the sale of an article, which is clear,

definite, and explicit, and leaves nothing open for negotiation is an offer,
acceptance of which will create a binding K
i. LEFKOWITZ v GREATER MINNEAPOLIS SURPLUS STORE,
INC. [Store advertises $1 furs (worth $139.50) in the newspaper (first
come, first served)the price is explicit and leaves nothing open for
negotiation, which constitutes an offer. P claims it is an offer, D claims it
was an invitation.Court held: Ad was an offer formed a K of sale. There
was sufficient mutuality of obligation (mutual promise btwn 2 parties to
perform an action in exchange for performance on part of other party)]
REMEMBER: ADVIRTISEMENTS: ARE (generally)NOT OFFERS
o Avertisements are invitations to MAKE offers
o An ad in the paper: selling an antique MG for $2000you go to them and said I will
buy your MG for $2,000
o Here, you have made the offerhe can accept if he chooses to
Lefkowicz (rose to the level of an offer)-exception!!!
5. WRITTEN K TO FOLLOW:
a. An enforceable K does NOT require a piece of paper entitled contract
most oral agreements are enforceable in our law
i. However, a writing that expresses the exact terms if of critical importance
to the parties
1. A writing is sometimes required by law: statute of frauds issue
2. Sometimes, parties do not intend to be bound until a writing was
executed
b. LOOK AT INTENT OF PARTIES (words/actions in context of circumstances)
i. RULE: If either party intends not to be bound in the absence of a fully
executed document, no binding contract will be formed
c. CONTINENTAL LABORATORIES v. SCOTT PAPER CO. [Reps from
Continental and Scott entered into negotiations concerning a potential supply and
distribution agreement. Conference call between parties. Continental alleges call
was final and binding. Scott says that putting K in writing was a condition
precedent to their performance. Court held: No binding K formed because not
enough evidence to show Scott intended to be bound by oral K]
d. RESTATEMENT:(R227).ExistenceofKwherewrittenmemorialis
contemplated:commentc listoffactorswhichmaybehelpfulindetermining
whetheraKisconcludedeventhoughanticipatedwritingisneverexecuted

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i. whetherthecontractisofatypeusuallyputintowriting,whetheritneeds
formalwritingforitsfullexpression,whetherithasfewormanydetails,
whetheritiscommonorunusualcontract,whetherastandardformof
contractiswidelyusedinsimilartransactions,andwhethereitherparty
takesanyactioninpreparationforperformanceduringthenegotiation
(justifiablereliance)
SECOND STAGE: What happens after the offer was Made.leads to the next stage
o 3 Things can happen that kill the offer (really 5 if you include rejection and nonoccurance of term)
ALSO CALLED TERMINATION OF THE POWER OF ACCEPTANCE
RESTATEMENT: an offerees power of acceptance may be terminated by:
a. rejection or counter-offer by offeree,
b. lapse of time, or (if not stated then reasonable amt of time)
c. revocation by the offeror, or
d. death or incapacity of the offeror or offeree
e. in addition, an offerees power of acceptance is terminated by the non-occurrence
of any condition of acceptance under the terms of the offer
viii. One person committing is merely an offer
1. SOMEONE CAN DIE! The offers die with the person, but if either person die
over
TERMINATION OF OFFER BY DEATH
f. Death terminates an offer automatically
i. RESTATEMENT: An offerees power of acceptance is terminated when
the offeree or offeror dies or is deprived of legal capacity to enter into the
proposed contract
BASIC RULE: offers die with youcontracts DO NOT die with you unless you are required to
be alive to fulfill it
2. LAPSE OF TIME: If you make an offer and the time lapsesthen the offer is
terminated
a. R2 41. Lapse of Time
i. Offerees power of acceptance is terminated at time specified in offer (if
no time, then at end of reasonable time)
1. Reasonable = question of fact (look at circumstances)
b. REASONABLE TIME = QUESTION OF FACT (R2 41. Lapse of Time)
i. LORING v CITY OF BOSTON [City places an ad in the paper offering
a $1000 reward for aid in the conviction of an arsonist; years pass, there is
a fire, and plaintiff wants the reward. City claims the reward is no longer
being offeredsignified by the fact that there hadnt been any new ads in
years. Court held: there had been a reasonable lapse of time the citys
offer had ceased to exist before the plaintiffs accepted it/acted upon it] A
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party cannot collect a reward offered years earlier, during a civic

crisis, if the crisis has passed. (even though normally unilateral offers
need to be revoked)
ii. Reasonable time must depend on the circumstancesthink, for example,
if the good is perishable/food item, a reasonable time changes.
iii. An offer of reward is proposal of unilateral K (it is a unilateral offer) and
does not become a K until acted upon by the performance of the service by
the other, which is the acceptance of such offer and constitutes mutual
assent=
c. LAPSE OF TIME CAN BE A WAIVED RIGHT
i. PHILLIPS v MOOR [Negotiations over sale of hay. Moor would pick up
hay from Phillips. Moor offered to pay certain price and Phillips agreed.
Prior to Moor picking up hay, hay was destroyed by fire. Moor refused to
pay. Phillips sued for damages. Moor claims: offer was not accepted b/c
time had lapsed due to delay. Court held: under the circumstances, Moor
had the right to retract on account of delay, but he did not avail himself on
such a right. (2 days had passed since Moor received acceptance to his
offer when hay was destroyed). Therefore, the sale was completed and the
hay was the property of D. It was the intent of both parties that the hay
had been sold, D was told that all he had to do was send a man to haul it
it was his fault that it was not in his possession at the time.
ii. Also would ask: Who bears the risk of loss (look at context or K)
1. Lapseoftimeisawaiver=intentionalrelinquishmentofaknown
right(gaveuprighttoclaimlapseoftime)
1. The person takes too long to respond
a. If you do not say anything 10 yrsnope. Offers cannot
last forever
2. REVOCATION OF AN OFFER:
REVOCATION BY OFFEROR
Offers are revocable at any time prior to acceptance UNLESS they are option Ks
or firm offers (Dickson: notice of revocation is critical)
RULE: Thereisnorequirementthatanexpressoractualwithdrawalofthe
offerismandated(indirect/implicitnotificationissufficient).
iii. ToconstituteaK,thetwomindswereatone,atthesamemomentoftime.
Therewasanoffercontinuinguptothetimeofacceptance.(ifnot
continuingoffer,thenacceptancemeansnothing)
iv. DICKSON v DODDS [Revocation by offeror. Dickinson gave Dodds
until 9AM on Friday to accept; before Friday, Dodds heard that Dickinson
had offered the land to other people. Dodds went to Dickinsons house to
accept, but was told that Dickinson had sold the property to someone else.
Court held: Dickinson could get out of contract because it was nudum
pactum (naked promise) and not binding (offer until acceptance) he had
effectively manifested revocation of the offer before Dodds accepted it
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(doesnt have to be express/actual withdrawal); the option to keep open

wasnt supported by consideration.]
Offeror changes their mindLAW PROFESSOR FAVORITE.
a. Person who has made the offer unambiguously changes
their mind and communicates it to the other person
i. The offermaker is the only one who can revoke
ii. The Other person can say NO: but that is not a
revocation
iii. If an offer has been made for the sale of property
and before the offer is accepted the person who
has made that offer enters into a binding
agreement to sell the property to someone else
and the first party receives notice that the
property was sold to another person, can he after
that make a binding K by the acceptance of the
offerNO.
iv. They just need ACTUAL knowledgewould be
sufficient if they are selling the property to
someone else
b. Look for 2 things/Facts
i. The Offeror must UNABMIGUOUSLY indicate
1. Must be clearnot well I dunno if I want
to sell
2. Can be not by wordsbut by conduct
a. Lets say he sells the car to his
neighborthe offer has been
revoked through action
ii. It must be communicated to the offereein a
reasonable manner from a reasonable source
1. So if he tells his wife he doesnt want to sell
his carnot communicated
ix. Situations where Offers CANNOT be revoked4 types
1. Option: an offer PLUS a paid for promise not to revoke, to hold
the offer open for an extended period of time
v. Ex) I will sell you blackacre, and you can pay to keep the offer open
OPTION Ks and FIRM OFFERS = irrevocable
1. Option: Common lawyou pay for the right to keep the offer
open
2. Firm Offer: UCC (transaction of goods) does not need
consideration (pay for it) instead, to keep offer open must satisfy
elements
vi. OPTION CONTRACTS = irrevocable offer through COMMON
LAW, give him consideration, something to keep the offer open

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1. GENERAL: offeree has given the offeror an extra payment (or

some other form of value) in return for a promise to keep the offer
open for a certain time and irrevocable during the option period
a. offeror may not revoke during the option period because
offeree has paid to keep option open
b. a rejection or counteroffer by the offeree (the one who has
the option) does not necessarily terminate the offer you
have paid for right to keep the option open
c. offer is kept open for what parameters set (can exceed max
3 month rule of UCC because common law applies here)
vii. UCC 2-205. Firm Offers = irrevocable offer through UCC
1. An offer by a merchant to buy or sell goods
a. Merchant a person who deals in goods of that kind,
professional in business, might be based on specialized
knowledge
2. in a signed writing (any Symbol etc.)
3. with assurance it will be held open and
4. is irrevocable, with no consideration, (NOTE : at common law
you NEED consideration)
5. during the time stated and if no time stated then for a reasonable
time, but no more than 3 months. (You cannot write Open for 8
months no, open still only for 3.
a. However, if one PAYS to keep the option open for 6
monthsit stays open for 6 months(BECOMES
COMMON LAW OPTION K)
2. FIRM OFFER RULE Article 2 UCC (only for sale of goods):
Cannot be revoked even if there was not payment for a promise not
to revoke.
a. SALE OF GOODS
b. Only applies when the person is a merchant (in some kind
of business)
c. MUST BE PUT IN a SIGNED WRITING
d. Ex: You are looking at a car, car dealer says, 20,000. You
say I need 3 days to think about it. Car dealer says: I
promise that you can buy this car for the next 3 days for
20,000. You are not paying anything to the dealer. He puts
it in writing and signs
***What is really the difference (payment) Written agreement by a
merchant
3. WHEN THE CONTRACT HAS BEEN RELIED ON--Where
the offer has been relied on in a way that was reasonably
foreseeable.RELIANCETHIS makes the offer Irrevocable
(cannot revoke after)
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Example: General contractor is trying to convince a property owner to

hire the firm to build an office building. Subcontractor AC guy says I
will do the AC for 250,000..Sub has made an offer. NO acceptance
yetbut there is a commitment by the sub. The General Contractor
relies on this and thinks that he can put the
exceptions principles of equity
a. reliance interest: you (offeror) have taken an action that is
detrimental to you because you reasonably relied on
something that someone else (offeree) said or didevokes
reliance which leads to equity
4. Unilateral Contracts: one that results from an offer that requires
completion of performance as acceptance
a. Ex) 10,000 to paint a house.but he says, this offer can
only be accepted by you painting the house. What if you
start painting and then say
b. NO ONE REALLY DOES THIS.
c. You can accept only by FINISHING the work, not by a
promise/commitment
d. Offer to enter into a unilateral contract
e. If there has been an offer to enter into a unilateral
contract and performance HAS begunofferor
CANNOT revoke
f. The Brooklyn Bridge problem is also a unilateral K
situation
ORIGINALLY: UNILATERAL K (Williston): An offer to enter into a unilateral K may be
withdrawn at any time prior to performance of the act requested to be done
(TRADITIONAL VIEW), when you see that person approach, you can say I revoke no
matter how brief the interval of time is
viii. PETTERSON v PATTBERG [Pattberg owned a mortgage on Pettersons
estate. Pattberg said would accept less if pay early. Petterson comes to pay
off debt and Pattberg says its too late and withdrew offer. Pattberg
unilateral K: manifest acceptance through performance of act (tendering
the $$). Court held: Court gets into a discussion of what it means to
tender money ultimately holds that the offer was withdrawn before it
became a binding promise. Full performance is when Petterson offered the
money and it was accepted
1. TENDER = offer to perform
a. Common Law: more then offer to pay, must be exact
amount due in cash
b. UCC 2-511: can pay through any legal means under the
circumstances, including check, unless the deal is a cash
deal

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ix. MODERN VIEW OF UNILATERAL K things have changed since

Patterson
1. Full performance is still required in unilateral K BUT implied is
the idea that the offeror will ALLOW the offeree to fully perform
a. Once partial performance begins, the offeror must allow
the offeree to fully perform (rationale is fairness)
i. By beginning the requested performance there is
created an option (dont think of in terms of
irrevocable) RATHER, offeror is being told you
must allow offeree to perform
2. Court should have applied R2 45 Option partial performance
is LIKE consideration (like paying for offer to remain open)
**EVERY fact in an exam fact pattern is importantit is not just in there randomlytake
note of it. LOVE THAT FACT.
III. STAGE 3: THE RESPONSE TO THE OFFER (might be ACCEPTANCE, might be
rejection)
*Askis it an acceptance or was it some form of direct/indirect rejection
1. acceptance = the offerees manifestation of assent to the offer (once assent takes place,
you have a K)
a. The moment of acceptance: fixes the terms of the K to those agreed upon in the
offer
i. Offeror is the master of the offer, offeree has the power to bind
Example: you must send me a letter to accept, I dont like email.
In most instances the offeror does not SAY how to accept. If you are sent an
offer by email, then you can accept by emailcommon sense
Whatever is reasonable under the facts
Example: if you get an offer by fax and the price of the good is constantly
fluctuatingyou would not want to send a letterMUST BE DONE IN A
REASONABLE TIME
a. Typicallythe way that you accept in the real world is flexible
a. You can accept by performing or saying I accept.
2. OFFEROR=MASTEROFTHEOFFER mayprescribeasmanyconditionsor
termsofthemethodofacceptanceashemaywish,including,butnotlimitedto,the
time,place,andmanner.
a. PROCD v. ZEIDENBERG [Z buys computer software box mentions
additional terms inside, but doesnt state them explicitly. Z argues that he
agreed to the contract upon purchase; ProCD argues that terms were abundantly
clear when Z used the product, and he was also made aware that if he didnt agree

CONTRACTS 13

to the terms he could return the product for a refund. Case is about when there
is acceptance, and therefore agreement, is made. Court held: Shrinkwrap licenses
are enforceable contracts. Z knew what he was doingterms were reasonable and
not unexpected, and were made abundantly clear before he used the product. K is
not made when the buyer pays for the product, but rather when he agrees to
the terms/uses the product. Offeror (vendor here) = master of an offer: may
invite acceptance by conduct, and may propose limitations on the kind of conduct
that constitutes acceptance]
3. MANIFESTING ASSENT IF YOU ACCEPT!!: accepting an offer = manifestation of
assent to the terms in a manner invited or required by the offeror in the offer
a. **SEE PROBLEM 12 for METHODS OF ACCEPTANCE examples of
application** recognize there is a conflict and provide justification
i. If method you use to accept is faster than method used to offer, that could
be reasonableit it is slower it may not be, here you need to pick on
side/idea and argue for it. Could argue that a telephone IS an immediate
responsebut it does not conform to what was asked
ii. theofferunambiguouslyindicatedbylanguageifacceptable,please
writemeimmediatelyhowever,Hamlinsmethodofacceptancewas
faster
1. Ifemphasisthewordwritethenphonecallcouldnotbe
enough(NOK)
2. Ifemphasisthewordimmediatelythenphonecallcouldbe
enough(wehaveaK)
iii. Youcanalsoacceptbyjustshippingthegoodsbutpursuantto2206,
youshouldnotifythebuyerthatyoushipped
iv. Ifhewritesyouanoteandsendstheothercigarsheisreallymakinga
COUNTEROFFERhereifyouaccept,youdosoatyourownrisk,if
not/wanttorejectshipthemback.
b. RULE: If an offer contained in a purchase order is unambiguous in inviting
acceptance only by the signature of the offeree, no K exists until the purchase
order is signed accordingly b/c offeror is the master of the offer.]
i. BEARD IMPLEMENT CO. v KRUSA [Krusa signed purchase order for
a new combine, Beard didnt signbut purchase order said This order is
subject to acceptance by dealer with a space for a signature. Krusa
revoked; Beard argued the purchase order was the acceptance of their
offer. Court held: that the purchase order is the offer that invited
acceptance only by signature, not the acceptance.
c. Corbin: if offerror specifies no mode of acceptance, the law requires no more
than that the mode adopted shall be in accord with the usage and custom of men
in similar cases

CONTRACTS 14

i. FUJIMOTO v. RIO GRANDE [Employees threatened to quit the

company; company offered them 10% of the net profits if they stayed
put in writing and mailed to them, no mention of requirement that they
sign and return the agreements. When they quit one year later, company
refused to pay because no signature. Employer was the offerorclaims
offer wasnt accepted. Service K common law applies Court held: the
bonus was offered in exchange for their not quitting. Employees
manifested their assent by continuing to come to work after
threatening to quit since the letters didnt specify requiring a signed
acceptance, the only acceptance the employer could have expected is for
their employees to keep coming in] RULE: Return of an executed K to
the offeror is not necessary to make the K binding upon the offeror]
4. SILENCE AS ACCEPTANCE
a. UCC: Both the Course of Dealing AND the Course of Performance can lead us
to believe that silence can be acceptance
i. determined by a jury CAN GO EITHER WAY B/C JURY DECIDES!
1. Course of dealing and usage of trade: The previous acts take
precedent over words deals with reliance and numerous separate
Ks
2. Course of performance: when one K deals with multiple
occasions for performance
b. RESTATEMENT 69: Acceptance by Silence or Exercise of Dominion
i. Silence = acceptance when:
1. Offeree takes benefit of services w/ reasonable time to reject and
reason to know compensation is expected
2. Offeror has stated that silence will be interpreted as mutual assent
3. Previous dealings or otherwise, arises out of business practice.
ii. An offeree who does any act inconsistent with the offerors ownership
of offered property is bound in accordance with the offererd terms
unless they are manifestly unreasonable. But if the act is wrongful
against the offeror it is an acceptance only if ratifed by him.
c. RULE: Whenapersonstandsinsilenceandseesvaluableservicesrendered
uponhisrealestate,suchsilence,accompaniedwiththeknowledgeonhis
partthatthepartyrenderingtheservicesexpectspaymentisevidenceofan
acceptanceofanagreementtopayforit.Must be confident that person
wanted the services before we can assume their silence was acceptance
i. DAY v. CATON Acceptance: Silence as Acceptance [Day builds a wall
on his property, on Catons property, believing there is an express
agreement between the two that Caton will pay for the cost. Court
held: Silence may be interpreted as mutual assent (acceptance by silence)
building the wall was an implicit offer, and in that context, Catons
silence was an acceptance. All Caton had to do was tell Day he didnt

CONTRACTS 15

agree to the building of the wall, but instead he said nothing and then
profited from its existence] IT WAS HIS FAILURE TO SPEAK
ii. Qui tacet consentire videtur: he who quietly sits and reaps the benefits,
gives rise to K , and will then pay
1. K implied in law OR K implied in fact?
a. K implied in law forced on parties by court (regardless
of actual intention) to avoid one party being unjustly
enriched at expense of other
b. K implied in fact K intentionally created by parties
(typically by conduct) and is enforced just like an express
K
c. In this case could make argument for both: Since it went
to the jury it was implied in fact HOWEVER, all the
elements for implied in law were there
iii. Find:
1. Was there a benefit
2. Was it received?
3. What were the circumstances/was there the intent/idea to be paid,
4. JURY makes these determinations
5. KNOWLEDGE OF OFFER: must know about an offer in order to accept it
a. EXCEPTION: when reward is being offered by a governmental entity, you do
not need to have knowledge that a reward was offered
6. MOTIVE:
a. A question of motive is irrelevant if you have knowledge of the reward
HOWEVER, you cannot get a reward when the information was extracted from
you The whole idea is that you voluntarily give the info and you know about
reward
7. MODE OF ACCEPTANCE:
a. **look at INTENT of offer and the facts/circumstances of each case**
b. UNILATERAL K: a promise is exchanged for an act or forbearance to act
i. There is no consideration and no K until the performance is received.
ii. An offeror may withdraw the offer before there is performance.
iii. The offeree is then NOT obligated to perform
c. BILATERAL K: a promise in exchange for another promise
i. Once you have an exchange of promises = K
d. EXAMPLE:
i. If you mow my lawn on Saturday, I will give you $100
CONTRACTS 16

1. UNILATERAL K: if you say I promise, and offeror says I am not

looking for your promise. Only performance of act will constitute
acceptance
2. BILATERAL K: If you say I promise and offeror says nothing
in situation where should have spoken, silence means acceptance
e. RESTATEMENT(R231):Whenisitnotclear,thereisapresumptionthat
theofferistoenterintoabilateralK (NOTE:thisisbecauseitisnotalways
easytodeterminewhetherofferorrequestanactORapromisetoact)
i. DAVIS v JACOBY [Davises agree to move to California to care for sick
aunt and uncle in exchange for money from the willthey make plans to
leave, but before they do the uncle dies do they still get the money?
Davises argue this is a bilateral contract, and that their intention to
perform/promise to perform was sufficient acceptance argue that offer
would and did induce reliance. If Unilateral: no K because uncle died =
revocation. If Bilateral: then there is a K because they fulfilled promise to
perform
1. Court held: There is a presumption that the offer was bilateral K
and the Davises displayed acceptance by fully performing their
part of the K. Look to intent of offer and the facts and
circumstances
2. TheKwasformedthemomentCaroandhusbandwrotetheletter
andsaidwearecomingdownthatwaswhentheyaccepted.You
gowiththepresumptionthatitwasabilateralK.
3. Bilateralisalwaysfavoredbecauseitprotectsbothparties
(Williston)
d. Sometimes you accept through starting to perform
RESTATEMENT (R2 45) Option K Created by Part Performance or Tender
i. **Prof doesnt like use of word OPTION here (SEE BELOW FOR
EXPLANATION) Any unilateral K where partial performance has
begun creates an option K partial performance creates a duty to
ALLOW the completing of the performance.
1. The offeree has the OPTION to complete the performance or
not complete. The offer becomes irrevocable because of the
partial performance.
2. Dissent in the Patterson Case
1. If you start to do it and the person can see youthan that type of notice is fine
2. If you are in another stateyou had better give that person notice that you started to
paint the house
3. Use common sense
4. Modern Rule: unless the offer says it must be accepted through performance,
than any form of reaonsble acceptance is fine
CONTRACTS 17

ii. MARCHIONDO v SCHECK [Scheck contracted with real estate broker

to find a buyer; Broker went out and found a buyer but it was later than
time limit and after revocation.
iii. Note: The broker had an AGENCY relationship with the seller, which
allowed him to go out and find a buyer (AN AGENCY
RELATIONSHIP gives you the power to contract)---Broker finding
the buyer is a UNILATERAL offer
iv. (Procuring the buyer is only partial performance, completing performance
required selling of house) Prior to buyer accepting, seller revokes the offer.
Court held: that part performance of a unilateral contract results in a
binding contract with a condition for full performance by the offeree
what is partial performance is question of fact for jury
v. 2 Ksbuyer seller, seller and agent
vi. Once partial performance is begun pursuant to the offer made, a
contract results (K with conditions or option K)
vii. Negotiate a deal with the idea in mind that EVERYONE is out to screw
each other
viii. It is possible in some situations that a unilater offer cannot be revoked
until the other side is given an opportunity to FULLY perform
e. UCC 2-328 Sale by Auction:
i. In an auction, where a bid is made while hammer is falling, the auctioneer
may use his discretion to reopen bidding or declare it closed
ii. 2 types of auctions:
1. Offers without reserve: seller is offeror, bidder if offeree
a. you are going to sell for whatever bids are offered after
auctioneer calls on article or lot, that article or lot cannot be
withdrawn unless no bid is made within a reasonable time
2. Offers with reserve: bidder/buyer is the offeror
a. sellers have the right to refuse sale if dont like bid
auctioneer may withdraw goods at any time until he
announces completion of sale
iii. in either type of auction, at any time, the bidder may retract his bid until
auctioneer announced completion of sale but this does not revive any
previous bids
iv. if seller procures a bid on their own behalf and there is no knowledge that
it was with reserve then buyer may avoid the sale OR take the goods at
last good faith bid
3. RISK OF LOSS
a. UCC2509.RiskofLoss:Risk of loss passes at different times depending on
whether a party is a merchant or not; also determined by other factors such as
possession or the parties agreement
b. Philips: when all the terms of the sale have been agreed upon, including receipt
by vendee, risk of loss passes to vendee

CONTRACTS 18

c. THE MAILBOX RULE: that an acceptance is effective as soon as the

acceptance is deposited in the mail.
i. MORRISON v THOELKE [Offer by D to purchase Ps property. P sent
acceptance via mail but before receipt called D and rejected offer.
Acceptance was then received. P claims: acceptance is complete upon
receipt. D claims: K is complete upon posting of the letter of acceptance
Court held: Having posted acceptance, a valid K was formed.
Acceptance takes place at the earliest point the parties have mutual
assent, aka when it was dropped in the mailbox]
ii. NOTES ON MAILBOX RULE:
1. Williston: it is immaterial that the acceptance never reaches its
destination
2. If you call someone and tell them no K and as a result the other
person enters into a new K and screws themselves then you can
claim RELIANCE as a defense (see problem 28)
3. MAILBOX RULE = a default rule
a. It is used when there is no language in the K as to how the
offer will be accepted
b. BUT if you are dealing with an option K, it is accepted
when received not when posted
THE MAILBOX RULE : what you will see on the exam
1. Two people are trying to make a deal at a distancenot in the
same ROOM, doing it far awayDEALING AT A DISTANCE
2. They are using methods of communication that involve
delaystime lapseDELAYS IN COMMUNICATION
3. The communications are inconsistentwhen did a particular
communication become legally effective?
*This rule is TOTALLY arbitrary! We just need rulesrules that are easy to
understand and administer. Adjust business practices to these rules.
Basic Rules:
1. Most communications are legally effective only when they are
received.
a. Ex) If you make an offer Monday and then send a letter on
Tuesday saying I revoke. Letter is received on Friday. Offer
Revoked on Friday.
2. Acceptances are in effect when they are sentDoes not even matter if
the letter never arrivesacceptance is in effect.
a. You can revoke an offer but not a K.
b. Offers are like caterpillars you can revoke, you cannot revoke
a K.
c. The offeror is the master of the offerif do not want
mailbox rule can say that offer is only valid upon receipt

CONTRACTS 19

Rejection: painfully direct in real life..but not on the exam must look for indirect
rejection --- 4 forms TERMINATION BY COUNTEROFFER AND THE BATTLE OF
FORMS
COMMON LAW If offeree makes a COUNTEROFFER terminates the offer
1. Counter-offers: if he offers to sell you his car for $500, thats an offer, you respond,
I will buy it for $400.
a. Next you must tell on exam that counter-offers operate as rejections
b. This has the effect of terminating the offerkills the offer
c. No such thing as born again offers.it is gone, never coming back
d. You cant mess with stuff thats deadyou cannot revive the dead offer
e. Thus if you call back and say I will pay the 500, thats a new offer
2. Conditional Acceptance: word I accept is actually used, but it goes on and screws
everything up. I accept on the condition that it passes inspectionyou just rejected
the offer
a. It is indirect rejection
b. Kills the offer as well
c. Looking for the words On condition that
d. If
e. I accept Provided
f. I accept so long as
3. Mirror Image Rule (COMMON LAW): in order for a response to be an
acceptanceit must look exactly like the offer. No terms may be ADDED or
CHANGED
a. In common law contracts only
b. Applies only for sales that are NOT the sale of goods
c. Not an acceptance: acts as a counteroffer
1. Then 2 ways to accept counteroffer
a. Counterofferee accepts the counter offer
b. Or they perform
d. Example: Landlord signs a lease, tenant has not yet signed. If the tenant
signs the lease it becomes a K. But before you sign the lease you write in
Pets are permitted you have added a provision. Common law would say
this is NOT a contract. YOU REJECTED
e. MIRROR IMAGE RULE: offer and acceptances must matchIf
acceptance tried to add new terms not already implied by the offer then it is a
counteroffer.
f. EXCEPTION: except with reference to option Ks
i. LIVINGSTONE v EVANS [Evans offered to sell land to Livingstong
for $1800. Livingstone responded saying send lowest cash price will
give $1600. Evans responded cannot reduce price. Livingstone then
sent acceptance. Evans refused claiming Livingstone terminated offer
with counteroffer. Need to decide what cannot reduce means
Court held: Ps rejection was a counteroffer and terminates original

CONTRACTS 20

offer. HOWEVER, Ds response was a renewal of the original offer

and P can bind D to his acceptance.] MIRROR IMAGE RULE
4. BATTLE OF THE FORMS UCC 2-207. Additional terms in Acceptance or
Confirmation
a. Battle of the formsan extreme example of courts filling in gaps with regard
to remedies, because parties dont often read or understand the other partys forms
i. ONLY USED FOR ADDITIONAL/DIFFERENT TERMS
1. Questions to ask: Are you in the UCC (transactions of goods)? Are
there additional terms?
b. 2-207 (1): PART ONE IS THE MOST CRUCIAL PART--a definite and
seasonable (means timeliness) expression of acceptance (or a written confirmation
which is sent within a reasonable time) operates as an acceptance even though it
states terms additional to or different from those offered or agreed upon Fact
sensitive (seasonable depends on what the good is) (ESSENTIALY: NO MORE
MIRROR IMAGE RULE shift from common law where this would be a
counteroffer) UNLESS acceptance is expressly made conditional on assent to
the additional of different terms.
i. Begins with oral or written exchanges that may or may not form a contract
1. If there is no express acceptance, or there is a proviso (if offerees
acceptance is made conditional on an offerees assent to
additional/different terms) TAKES YOU TO 2-207(3)
2. If there is a contract with acceptance that has additional/different
terms, but no proviso TAKES YOU TO 2-207(2)
c. ANALYSIS of subsection 1: (going in because something additional/different)
i. 1. Is there a K?
1. YES, there is a K (no proviso) We have acceptance that
contains additional terms but there is no proviso go to
Subsection 2: (2 rules)
a. Are both parties merchants? (USE 2-104 a merchant is
a person who deals with goods of the kind involved in
the transaction or who otherwise, by trade or
profession, represents that he ahs skill or knowledge in
regards to the goods.)
i. NO at least one party is not a merchant: invoke
first rule
1. Prof calls: automatic exclusion rule: the
additional terms are to be construed as
proposals for addition to the contract the
additional term does not get in, unless
accepted
ii. YES both merchants:
1. automatic inclusion rule (subject to
a,b,c): between merchants such terms
become part of the K unless:

CONTRACTS 21

a) Offer expressly limits acceptance

to the terms of the offer (by offeror,
who is master of the offer)
b. b) they (additional terms) materially
alter the offer (test generally used for
terms that materially alter offer is
one of surprise or hardship); or
i. (OFFICIAL COMMENTS (p 28)
a.

(4)examples of typical clause

which would normally materially
alter the K and so result in
surprise or hardship if
incorporated)

Lack of Warranty
A clause which guarantees
deliveries which are greater
or lesser leeways than
normally allowed
iv. Reserving seller the power
to cancel upon buyers
failure to meet any invoice
v. Requiring complaints that
are made in a timely
manner shorter than
customary or reasonable
c. c) notification of objection to them
has already been given to is given
within a reasonable time after notice
of them is received idea that you
object to term within reasonable
period of time
2. NO we do not have a K but there is a PROVISO Is there
conduct, in spite of writings (look at conduct)? (WAS THERE
PERFORMANCE)
a. YES: (people are acting like there is a K) go to
Subsection 3:
i. If you have two writings that do not indicate
existence of K BUT there is conductthen look at
writing and anything they agree on we hold them to,
anything they do not agree on we bring in the rest of
the law (we supplement their agreementwith gap
fillers from UCC: code tells us how to come up
with this); if not in code 1-103 says we can look to
common law
1. Ex) if dispute arises around delivery 2308: absence of specified place for delivery
b. NO: (no conduct, nothing has happened) GO HOME
ii.
iii.

CONTRACTS 22

i.

You have two people who say there is NO K and

there is NO CONDUCT

d. DIFFERENT TERMS
i. Majority Rule: knock them out (if you have different terms) if you see
an offer which treats a certain issue in a certain way and you have an
acceptance that treats the same issue in a different waythen you cross
them out
1. And whatever the issue that it was intended to be dealt with you
look at the code to fill the gaps
a. **Prof doesnt really like this view**
ii. Minority Rule:
1. Under official comment 3: tells us to refer to subsection 2 treat
different terms like additional terms
a. If both merchantsautomatically included unless a,b,c
b. The theory that it could have been a Printers Error
*Depends on where you practice
e. COMMERCE v BAYER
f. [MM sends purchase order that has arbitration clause. Bayer sends invoice with
terms and conditions and a PROVISO.
g. There is a fire and MM want to sue Bayer and its insurers.but
h. Reminder:BayerwantstoenforceMMsarbitrationclause.
i. Bayeralsoconditionstheacceptanceontheproviso.(Bayersaidtheywouldnot
entertheagreementotherwise)
j. Rule:Bayerdoesntgetthearbitrationterm,sincetheyneverexpresslyaccepted
andwerealwaysundersubsection3.
k. Bayertriedtoarguethatwhenin3youcoulduseideasinpart2,butcourt
rejectedcantbeinboth.
i. HERE:Theacceptanceisexpresslyconditioned(asitwashere),andthe
formexchangedoesnotcreateacontract,andyougotoSubsection3.
1. ThereisnoKbutpartiesactedliketherewasone,conduct
Subsection3:whatevertheyagreeonweholdthemto,whatever
theydonotagreetowefillthegaps.Sincearbitrationclause
wasntonbothforms,itisthrownout.(wecannotjustaddcrap
fromSubsection2)
2. NOTE:IfyoumakeaverbalK,formedbymutualagreement,youcannotsaythatyou
donotandanywrittenconfirmationafterthatcannotuseanyprovisotoavoidthepre
formedK.(SeeProblem31)
a. 2207:canbeappliedwhenthereisonlyoneform(doesntsaytheremustbe
2forms)
i. KLOCEKvGATEWAY[Courtheldthatpurchasingthecomputer
formedthecontract.(buyeristheofferorgeneralruleinconsumer
cases)HefoundadditionaltermsinsidetheboxAFTERHE

CONTRACTS 23

PURCHASED(arbitrationclauseinstandardtermsandconditions
agreement)buthedidnthavetoagreeb/ccontractwasalreadyformed
ii. *DidthepartiesformtheirKbeforeorafterthevendor
communicateditstermstothepurchaser?
1. Undersubsection1:wehaveaK
2. Subsection2:aretheybothmerchants?
a. NO:Pisnotamerchanttherefore,autoexlusionrule:
additionalordifferenttermsdonotbecomepartofthe
agreementUNLESSpartiesPEXPRESSLYagreedtothem
(silenceisnotacceptance,justbuyingandusingisnot
acceptance,sincetherewasnoclickwrapyouhadtoclick
throughbeforeuse)
3. HERE:GatewaydidnotprovethatPexpresslyagreedtothe
terms,hejustpickedupboxnoevidenceisprovidedthat
GatewayinformedtheP.ofthe5dayreviewandreturnperiodas
aconditionofthesalestransaction
4. ThefactthatGatewayshippedthegoodsatallmeanstheydid
notcommunicatetheadditionalattachedtermsatalltotheP.
anddidnotgivehimatimetoobject
5. CourtcitesProCDbutinthiscasethecourtisnotpersuadedthe
wayoftheProCDcourt(rejectsthatthevedoristheofferor).Says
thattheconclusionisnotsupportbystatueofKansasorMiss.Law
andthatprovidednoexplanationforitsconclusionthatthevendor
isthemasteroftheoffer
3. ATCOMMONLAW:anychangethatdiffersfromtheofferisacounteroffermirror
imagerule
4. MirrorImageruleatUCCisjustanimpedimenttoKformationmovesawayandsays
thatitisstillaKwithadditionalanddifferenttermsifwhatyouwanttodoismakea
counteroffer,languagehastorisetothelevelthatyouarenotenteringintoaKunless
yourtermsareaccepted(CONDITION)(from2207)
V. INDEFINITENESS:
1. As a general rule, no mutual assent exists and thus no K is formed unless the
agreement of the parties is sufficiently certain (things could come upcheck v cash,
uncertainty)
2. Mutual Assent = parties must have an agreement in such a way that the terms are
mostly certain
3. WHAT IS THE INTENT!
4. GAPSINANOFFERARENOTFATAL ASLONGAREYOUFINDTHE
EXISTENCEOFAGREEMENT(lookattheINTENTofparties)
a. Looks like offer and acceptance, but upon closer examination, not so sure
look at the construction/intepretation of the contract

CONTRACTS 24

i. Courts will fill gaps, even gaps intentionally left open by the parties
provided that the parties give courts the tools to fill the gaps. Not
always easy to determine when parties have been specific enough.
1. Walker: NO intent to be boundonly have an agreement to
agree,
2. Rego: an intent to be boundneed to determine if term was
intededcan fill the gaps with common business practices
3. Certain gaps are NOT FATAL
ii. THE UCC
1. UCC 2-305. Open Price Term :just because dont agree on
price, doesnt mean it cannot be settled WE CAN FILL IN
THE GAPS
a. did they INTEND to agree? if they did then the fact
that there are gaps left open is NOT FATAL, we can fill
in the gaps
2. UCC 2-208. Absence of Specified Place for Delivery
a. The fact that they left out a term is NOT fatal under the
UCCif we find they intended to agree and we have a
way to fill in the gap (UCC says it is the Buyers place
of business, or could be home)
iii. COMMON LAWless likely to fill in the gaps, but if you find an
INTENT to contract and there is a reasonable way to fill in the gap
then you probably can
5. UCC helps interpret what parties have committed themselves to doing
a. Usage of trade: meaning the custom within any given industry 1-205
b. Course of dealing: meaning the parties conduct in past contacts with one
another 1-205
c. Course of performance: meaning what the parties do while performing this
one K (common law calls this practical construction) 2-208
6. WALKER v KEITH
7. *Here we needed a definite price or a WAY TO FIGURE OUT THE PRICE
8. [Reminder: Lessee given option to renew lease, but price of rent not agreed upon for
parties to agree later.
9. NOTE: consideration for the option was most likely paid in the agreement to rent
10. Rule: If a material term of the contract is not agreed upon, and the agreement
leaves no reasonable method for filling this gap, the contract is unenforceable.]
AGREEMENT TO AGREE no intent to be bound, need to have a definite
price or a way to FIGURE OUT THE PRICE.say use comparative business
conditions, but we dont know what this is(One party could claim local
conditions, one could claim national)

CONTRACTS 25

11. Policy: the court should not extend their powers to establish contract rights
that the parties themselves did not define/never agreed to do(Courts should
not write their own concept of what they think would constitute a proper K)
12. REGO v DECKER: **WE ALWAYS FOCUS ON INTENT: the key is finding in
unambiguous terms that or what the parties intended to agree on, or if they intended
to agree at all.
13. Court here goes after intent and finding of mutual assentkey is finding (in
unambiguous terms) what the parties intended to agree.
14. [Reminder: Tenant leasing property under a lease with an option to buy. When he
attempted to exercise this option, the lessors informed him they had already sold it.
Lessors argue that the terms of the contract were too indefinite to be enforceable.
Court disagrees.
15. Found an INTENT TO BE BOUNDthey didnt mention the term but based on the
usual business ways of dealing, the court can fill the gaps. As long as parties give
some guidance and reasonable expectations are clear, the courts will fill gaps of
contract and enforce them, if there is the intention to be bound and the assent to
be bound then the courts should fill in the gaps in Ks to ensure fairness where
the reasonable expectations of the parties are fairly clear in order to keep K.
a. Many times except for large Ks or Ks of adhesion, Ks are very skeletal
because it takes too much time or money to produce something more
specific, which is disprop. To the value of the actual transaction to the
party
16. ON THE OTHER HAND: the court should NOT impose on a party an
performance to which he did not probably would not agree toif the gap in an
agreement manifests failure to reach an agreement rather than just a vague one,
or where gaps cannot be filled with confidence that the reasonable expectations
of the parties are being fulfilled, then specific enforcement should be denied for
lack of reasonable certainty.
17. We are a PRO-K society, let it be saved rather than destroyed.
Review: 2-305: No price? If the parties intended to conclude/be bound by K, could still have a
K (have to argue based on facts what the intent was)
2-308: Does no place for delivery kill the K? No, k still exists. Unless it was otherwise agreed
on, the place for delivery would be the sellers place of business
2-311: 1) an agreement for sale which otherwise is sufficiently definite to be a K, is not made
invalid by the fact that it leaves particulars of performance to be specified by one party

CONTRACTS 26

2)Unless otherwise agreed on the specifications of the assortment of the goods are the buyers
option and except as wothewise provided in the specifications or arrangements relating to
shipment are at the sellers option
3)Where such specification would materially affect the other partys performance but is not
seasonably made or where one partys cooperation is necessary to the agreed performance of the
other but is not seasonably forthcoming, the other party in addtion to ALL OTHER REMEDIES
a) is excused for any resulting delay in his own performance; and
b) may also either proceed to perform in any reasonable manner or after the time for a
material part of his own performance treat the failure to specify or to cooperate as a breach by
failure to deliver or accept the goods.
Ex) if buyer says he wants to order 100 widgets, of which the sale will be composed of some of
widget A and some of B and he never specifies how many of eachthis does not have to be
fatal.
-if the time comes to perform, seller can still give him the widgets
-if A costs more than B, though, it would not be reasonable for the seller to give the buyer 900 of
A and 100 of B, thereby incurring a huge profit for herselfwhat would be reasonable would be
to say 500 of each.
-OR if she does not want to perform, she can seek remedythat this failure to specify as a
breach and sue that this is a failure to accept the goods.

CHAPTER 2: CONSIDERATION
1. a device the law created in order to determine which agreements the court will enforce
and which they will not (some right, interest, profit, or benefit accruing to one party, or
some forebearance, detriment loss, or responsibility given suffered or undertaken by
another)
5. Bargained for detriment
6. No masterbation in contractsit takes 2
7. It is a basic element TO make the K BE LEGALLY BINDING ON THE
PARTIES
What words do you need to use in your Consideration Answer?
a. Need to use the wordsBARAGAINED FOR.
b. Find the promise-breaker.
c. Ask: what did the promise-breaker ask for in return? If she asks for nothing, it
is not consideration
d. Watch out for Past consideration---promise for something already done
e. Pre-Existing Duty Rule: need new consideration for common law, not for
UCC (if it is something you already have a duty to do)
**You have someone doing or forebearing from doing something
I. The Basic Concept:

CONTRACTS 27

1. Definition: Consideration = some quid pro quo must be given for the promise by the
promisee
a. A true K will have at least one promise which will typically be exchanged for
something else
i. First find a promise- then find out why the promise has been made? And
what the promise is seeking?
1. LOOK AT INTENT BEHIND THE PROMISES
b. ELEMENTS:
i. Quid pro quo: can be furnished by anything that was either a detriment
to the promisee or a benefit to the promisor
1. Detriment to promisee: any relinquishment of a legal right
(example: the act of payment or promise to pay = consideration)
a. Immediate act: (doing or giving something)
b. Forbearance: (refraining from doing something)
c. Or partial/complete abandonment of an intangible right
2. Benefit to promisor: receiving that money
ii. The parties must have BARGAINED FOR EXCHANGE of the promise
for detriment
1. RESTATEMENT (71) to constitute consideration, a performance
or a return promise must be bargained for (consideration is what
each party gets out of the K)
a. something is bargained for: if it is sought by the promisor
in exchange for his promise and is given the promisee in
exchange for that promiseone was induced by the other
2. the performance may consist of:
a. (a) an act other than a promise, or
b. (b) a forbearance (what the nephew does below), or
c. (c) the creation, modification, or destruction of a legal
relation (ex, putting or adding someone into your will)
iii. **the key is ENFORCEABILITY promises are about commitments
and Ks are about the exchange of promises**
iv. NO one cares WHY you want them to do what you want them to do, it
does not matter what the person gets out of it, dont think of it in an
intellectual way
c. GIFTS = NOT enforceable b/c no bargain for exchange
i. 3 requirements for a gift to be complete: (ownership is transferred):
1. intent to make a gift
2. acceptance of gift
3. delivery of gift
d. BENEFIT AND/OR DETRIMENT = GOOD EVIDENCE THAT THERE
WAS A BARGAIN

CONTRACTS 28

i. HAMER v SIDWAY [Uncle promises nephew $5000 if he refrains from

drinking, using tobacco, swearing, and playing cards or billiards from
money until he is 21.
ii. He does what is asked, writes his uncle and tells him and his uncle syas he
will give him the money when he is old enough
iii. Uncle dies, estate refuses to give it to him, nephew sells the debt someone
else sues in his namegoing after money (Nephew claiming that this was
a unilateral K and he performed!)
iv. Defense tries to claim that the K was formed w/out consideration, nephew
independent would have benefited form those actions w/out uncles
promise. (unless the promisor benefits, the K was w/out consideration)
v. Normally we think every K has 2 sides, quid pro quo something for
something, but it does not always WORK that way
vi. HOLD: K was enforceable WE DONt CARE what the uncle got out of
itall we care was that the Uncle Bargained for it. (to find the
consideration here, we look to the intent of the parties!)
1. Rule: If a person gives up a right that is valuable to them (even if
that right is something that causes the party to benefit like in this
case) (forbearance) in a bargain for exchange then there is
consideration, regardless of whether the promisor benefits or not
(if you give up a right that is meaningless, however, there is NO
consideration)
a. waiver of any legal right at the request of another party is
a sufficient consideration for a promise (Nephew had a
legal right to drink, fuck around etc. but he gives it up
because of his promise, this was his BARGAIN)
b. Suffers a detriment (defense then argues that nephew
benefited from this, but you can give something up and
still get a benefit)
2. promises in a social context there is a presumption that
promises that are exchanged in social context do NOT have legal
consequences
a. doing something you are already supposed to be doing is
not a detriment
2. SUFFICIENCY AND ADEQUACY OF CONSIDERATION
a. COMMON LAW courts would look at SUFFICIENCY (value) of the
consideration, but NOT the adequacy (quantity) of the consideration
i. sufficiency: the offered consideration must be something that has
value in the eyes of the law (valuable consideration from Hamer
something of the benefit to the promisor or detriment to the promisee.
Later is enough, but if you have both excellent!)
1. Court look at: what is exchanged has legal value (that what is
being exchanged is real)

CONTRACTS 29

ii. adequacy: quantity of the amounts exchanged COURT DO NOT

CARE ABOUT THIS
iii. EXAMPLE: I offer my glasses to Andy for $1000they may not be
worth that, but we do not care about that as long as what is being
exchanged is real and has value (to someone)
b. Love and affection is NOT sufficient consideration; promise will NOT be
enforced
c. Think of example with conjuring over the sick: might say that she provided a
service and that he believed in it and to say that the bargain lacks sufficieny is
offending someones beliefs
i. Or you could say that its not real, society does not believe in majic,
therefore it does NOT have legal value, lack sufficient consideration by
common law (cannot enforce promissory note with it) What does she
GIVE UP by conjuring over himsuspicion of this.
d. ON EXAM: for sufficiency of consideration
i. Focus on the exchange was something done because of a promise (talk
about something as legally sufficient and real)
1. As long as something real is donethat is all that matters
e. INADEQUACYOFCONSIDERATIONWILLNOTVOIDAK
i. BATSAKIS v DEMOTSIS[During WWII, defendant received $25 from
plaintiff but signed a contract saying she would return $2000 to him. She
tries to argue that the contract was invalid due to lack of consideration.
HOLD: Considerationwassufficient(valuabletoher)]
ii. She asked for drachma she got the loan in our system you are allowed
to make a big a fool of YOURSELF as you want, but we will not let
anyone make a fool of YOU (he didnt go to her to take advantage of
her, she wrote to him)
1. Rule: Mere inadequacy of consideration (whether exchange was
fair) will not void a contract; D got exactly what she bargained for.
2. In a loan situation, there is normally no lack of consideration, she
is arguing that in the context of all this stuff, she would have
signed the letter for ANYTHING.
3. We would not need to invoke equity here, because the drachmae
has VALUE it is real! She got the benefit of her bargain.
f. Anytime you are dealing with Different Currencies:
i. Once we get into an exchange rates issue (we kknow currency exchange
rates can change), there is a possibility of differences in exchange rates: it
makes a real case for the idea of value
ii. If I lend you $100 today and you have to pay me 5 years from now, the 2
sums will not be equaltime-value differential. There is a risk involved
and that risk has VALUE.
CONTRACTS 30

iii. All we ask here is SUFFICIENCY

g. But if it is the SAME currency and there is an inequality in the exchange:
i. This is suspicious exchange and the court will involve itself in an inquiry
on adequacy(only here we ask)
h. MORALOBLIGATIONSARENOTENFORCEABLE
i. SCHNELL v. NELL [Wife left $200 she did not have to Ps in her will;
husband agreed to pay and in consideration each heir would give him 1
cent and the love he had for his wife. He did not pay, Heirs then sued.
ii. Thatwhichexchangedarebothmoney,howeverthevalueofthepennyis
nominal(innameonly)andnotintendedtobereal
iii. Theyweregoingthroughacharade,weneedtoputconsiderationinthere,
butthiswasjustpretend
iv. Thecurrencyhereisthesamesuspicionsetsin,nowwewouldhaveto
lookatAdequacy
v. HOLD: Husbandsloveforhiswifeanddesiretodoherwillarenot
legallyenforceable] Court rendered the contract unconscionable
1. Rule:Gratuitouspromisesandmoralobligationsarenot
enforceable.Exchangeofonecentfor$200isnominal&sham
considerationsinceitisbothinadequate&insufficientshows
thattherewasnobargainforexchange.
a. Fungibleexchangedoctrine:whendealingwiththings
thatareofequalmerit(moneyformoney)exchangeable,
butthereisagrossdisparitybetweentheitemsand
somethingsuspiciousgetsraised(1pennyinconsideration
for$500),thecourtwillquestionwhythisisdoneby
lookingattheadequacyoftheexchangetoseeifthepenny
wasintendedasconsideration
1. ex)Ifthough,someonesaid,Iwillgiveyouthis
$1inexchangefor3quarterssoIcanusethe
vendingmachine,theyareactually
bargainingforsomethingusefulfora
purposetheyneedtohavefulfilled
2. Loveandaffection:pastconsiderationnotlegallyvalidalsoa
moralconsideration
3. Thefactthatthiswasinaninoperativewill,alsopast
consideration(THISWASAPROMISETOMAKEAGIFT)
4. Whatabout$1inconsiderationforsaleofahouse?Seems
suspiciousbecauseconsiderationseemsinoperablebecausethe
valueissodisparaged.couldbeforthepurposesoftax
consequences,ifyoumakeagiftthegivingpartyhastopay
taxessotryingtohide(mostcourtswouldstrikethisdown,
othersmightaccept)
CONTRACTS 31

a. Lookatintent(ifintendedtobenominalyouhave
adequacyconsequences.
3. FailureofConsideration:questioniftheconsiderationhasbeentendered
4. Lackofconsideration:considerationdoesntexistatall
87OptionContract:
(1)Offerisbindingasanoptioncontractif
(a)itisinwritingandsignedbytheofferor,recitesapurportedconsiderationformaking
theoffer,andproposesanexchangeonfairtermsw/inareasonabletimeor

(b)ismadeirrevocablebythesame
(2)Anofferwhichtheofferorshouldreasonablyexpecttoinduceactionorforebearanceofa
substantialcharacteronthepartoftheoffereebeforeacceptanceandwhichdoesNOTinduce
suchactionorforebearanceisbindingasanoptioncontracttotheextentnecessarytoavoid
injustice
FalseRecitalofNominalConsideration:
o Arecitalinawrittenagreementthatastatedconsiderationhasbeengivenisevidenceof
thatfactasagainstapartytotheagreement,butsucharecitalmayordinarilybe
contradictedbyevidencethatnosuchconsiderartionwasgivenorexpected
o Acceptanceofdeliveryofthewritteninstrumentconclusivelyimportsapromisetomake
goodontherecital,itissaid,andthepromisefurnishesconsideration

II.FORBEARANCEASCONSIDERATION
1. RESTATEMENT(R274)SettlementofClaims
2. FIEGEvBOEHM[babymamadramaD agreed to pay various expenses and child
support for P as long as she did not institute bastardy proceedings against him. He
breached K, but DNA tests showed he was not father. Was her promise not to institute
bastardy proceeding sufficient consideration, even if there turned out to be no basis for it?
HOLD: The consideration is sufficient and the promise is enforceable because she was
giving up something that she had a legal right to and it was the result of a real bargain
made in good faith. He was getting out of it (his value) the fact that the world would
not know he had a child out of wedlock/he avoids the suit
a. Rule: Forbearance to assert an invalid claim may serve as consideration for a
return promise if the parties at the time of settlement reasonable believed in good
faith that the claim was valid (as long as the parties had an honest inention to
prosecute litigation which was not frivolous, vexatious, or unlawful and which he
believed to be well founded)
b. There was good faith, he thought there was a bona fide good faithe question
between them (at common law, this is subjective testDid I think that I was
the father? Look at the circumstances around agreement/situation.

CONTRACTS 32

3. STANDARD FOR FORBEARANCE: Good faith and reasonable belief

III. THE ILLUSORY PROMISE
1. Definition: words that sound like commitment, feel like commitment, but when you look
at the meaning of the words, you realize there is none and therefore no K (there is only
an illusion of a promise)
a. To have a K must have an exchange of promises to do something or refrain from
doing something in the future
b. Look for words like I feel like it
2. WOOD v LUCY, LADY DUFF-GORDON [
3. Read the facts and reach a conclusion about what the parties true intent was
4. Wood receives exclusive right to market and license Lucys designs. Lucy markets some
designs on her own but does not share the profits. Was there sufficient consideration on
Woods part (who did not obligate himself to do anything) to enforce contract? Lucy
claims: illusory promise. HOLD: there is a valid K]
a. RULE: an express promise may be lacking, but the whole writing may be
instinct with an obligation (implied promise) imperfectly expressed, so as to
form a valid K
i. There was an INTENT to be bound here, both parties had signed and
it had a bunch of recitals but also a list of duties/the duties that were
actually performed, they say they have a business organization (or
said at first) = binding K (implied)
ii. Promises are not necessarily illusory even if one partys obligation is
merely conditional. Courts try to find consideration, however, by imputing
an unconditional obligation (reasonable to assume that both parties
implicitly understood that Wood would expend reasonable efforts).
iii. The marketers implied promise to faithfully market the designers
products amounted to fair consideration creating peformance obligations
by/for BOTH parties
5. Rule: Option to cancel does not make this promise illusory because defendant had
alternatives - to either give delivery instructions or notice of cancellation within a
reasonable time - that were alone sufficient consideration for the plaintiffs promise to
deliver in accordance with delivery instructions.
a. We have consideration: reasonable notice to cancel (restricts your right to
cancel)
b. Another case (like Lady Duff Gordon) where the court imputes obligations
tend to try to find ways to enforce contracts whenever possible.
c. SYLVAN CREST SAND AND GRAVEL CO. v US [Plaintiff submitted bid to
provide trap rock for an airport that was being built. Bid gives government option
to cancel but must give notice of cancellation within a reasonable time. Plaintiff

CONTRACTS 33

is suing because government hasnt requested or accepted delivery of rock within

a reasonable time]
d. This was a requirements K
e. Document should have been seen as them both acting in good faith, US entered
they intended that when they would terminate they would do so in good faith and
give reasonable notice
i. Reasonable interpretation: would be that the D. was under an
obligation to give instructions from time to time when the rock was
required for projects, unless cancellation clause precludes such a
construction for the document
f. Just because the D had unrestricted right of cancellation did not make the
Ks illusory, because the D had alternatives that standing alone were
sufficient consideration to support the parties promises
6. UCC 2-306: Output, Requirements, and Exclusive Dealings
a. A term which measures quantity by the output of the seller or the requirements
of the buyer means such actual output or requirements as may occur in good
faith, not unreasonably disproportionate to what is estimated or as compared to
prior output/requirements
b. Requirements K:
i. Must be exclusivity and good faith
ii. Assumption: I will buy all that I require from someone
iii. Consideration: giving up opportunity to do business with someone else
(restricting your freedom to act) = sufficient consideration to make a K
binding
iv. Language like all that I wish to by there is no commitment here, what
are you commting your self to, no consideration
c. Output K
i. All the output of the seller must go to that one buyer
ii. Measure by exclusivity and good faith
1. If there is no exclusivity then there is NO valid K
2. The limit on freedm (through the exclusivity) is sufficient to be
consideration
7. Must act in good faith for these Ks
a. Ex) if you are in an output a K and you make 5 million widgets, but you know the
buyer can only take 100,000making him take and pay for those (intentionally)
would be acting in bad faith because he would HAVE to take them
8. Focus on exclusivity

CONTRACTS 34

9. McMICHAEL v PRICE [Plaintiff contracts to buy all the sand he can sell from the
defendant, who promises to supply all the sand plaintiff needs. Defendant breaches.
10. D. said that the P breached the terms of the K by failing and refusing to pay for sand
shipped each month as requied by the K and was in default of the K and advised the
p that he would cease making further shipments unless he was paid
a. Rule: A bilateral contract is enforceable when there is mutuality of obligation
both parties must be bound or neither is bound. (obligation to purchase and
provide sand to each other was mutually binding)
i. If one party does not suffer any previous detriment, they can escape future
liability under the K and that party may have a free way out and then
mutuality is lakcing
ii. Terms of promise give sufficiently objective standard for determining
amount of sand to be delivered and how much is to be paid, even if it is
not definitely known at time of contract (Corbin on Contracts 156).
When there is a limitation on the promisors future liberty of action it is no
longer an unlimited option.
iii. In a requirements K, as long as there is exclusivity, then that would be a
limit on freedom sufficient to be consideration, we get the exclusivity out
of the business efficacy context, they intended a business context and we
are able to imply terms that were intended by the partiesthey must have
intended those terms and legal K.
11. Corbin on Contracts 156:
a. Basic test for illusory promise: whether the promise states a limitation upon the
promisors future liberty of action.
i. There is no consideration in that, by terms the promisor reserves a
choice of alternative performance and if the K lacks true consideratin
than it would not exist, this might manifest the illusion of commitment
but is, in fact not commitment
ii. As long as the promisor does not have an unlimited option, it doesnt
matter how great or small that limitation is mutuality of obligation
exists.
iii. Look for the language
iv. Ask what was the promisors motivation/intent: was the promise making
a gift or was it intended to have LEGAL consequences/K
1. Ask: what was the benefit to the promisor, if we find none, it is a
gift, if we find something, it is a K; we use the benefit to the
promisor as a way of deciding whether the act was bargained
for as opposed to a gift. (Hamerthe uncle bargained for it,
we do not care what the uncle gets out of it)
12. RESTATEMENT (R2 77): A promise or apparent promise is not consideration if by
its terms the promisor or purported promisor reserves a choice of alternative performance
unless
a. each of the alternative performances would have been consideration if it alone had
been bargained for (Sylvan Crest); or

CONTRACTS 35

b. one of the alternative performances would have been consideration and there is or
appears to the parties to be a substantial possibility that before the promisor
exercises his choice events may eliminate the alterative which would not have
been consideration. (ex, if you accept an offer from someone to use something
prior to their purchase of it, if they then purchase and charter it to someone else,
there is a clear breach of K. But if they never purchase itno breach)
IV. PAST CONSIDERATION
Something happensand because something has already happened, promise is not valid.
*making a bargain for something that has happened in the PAST
1. Past consideration is NOT consideration: Past consideration is not part of a bargain
and therefore NOT consideration at all in the contract sense. (Hayes)
a. HAYES v PLANTATION STEEL [Man retires after 25 years and is told he will
be taken care of. Receives checks from company for 4 years till company
changes hands and payments stop. Trial court found that even if Hayes had not
truly bargained for the pension, his reliance on the promise would have been ough
to make it legally binding. HOWEVERreversed on appeal.
b. HOLD: NOT sufficient consideration to uphold the promise (to make the promise
legally binding) since the man acted on his own will and was not induced to
either work for 25 years or to retire because of the promise to take care of him.
It was intended out of gratuity to be a GIFT. Therefore, no detrimental reliance
No bargained for considerationno enforceable K and no promissory estoppel ]
i. His long years of dedicated service = past consideration, no consideariton
ii. Reliance of Promissory estoppel: requires a RIGHT to rely, promissory
estoppel requires that the promise induce the promisees action or
forebearance. A promise which induces action and the promisor could
reasonably expect to create the action (could start as a gift) he must
connect his actions to the promise (here, he did not retire because of
the promise of the pension)
iii. Rule: In certain circumstances RELIANCE can be substitute for
consideration if the promise that was relied on INDUCES the
promisees action or forbearance.

2. Moral consideration is NOT consideration:

a. EXCEPTIONS: (situations where moral consideration can be sufficient
consideration) just b/c cant collect debt there is still a duty to payif you say
you will pay = moral consideration (new consideration) can revive the debt b/c
of pre-existing duty
i. Debts barred by statute of limitationsyou do not have to pay the debt
even though the debt existed and you can prove the expiration, you do not
have to pay
ii. Debts incurred from kids

CONTRACTS 36

iii. Debts previously discharged by bankruptcy

iv. BUT: the mere acknowledgement of the debt or PART of the payment
may be found to be an enforceable implied promise to pay the obligation
and then would owe the full amount again. a partial remittamnce I most
states would mean he does not even need to put the rest of the debt in
writing.
b. MILLS v WYMAN: [Guy gets sick in another town and is cared for; Father
wrote and said he would pay for the expenses, but there was no consideration for
the promise; dad doesnt have to pay for his care because he promised after the
fact.]
c. A promise for the incurred expenses after the fact has no consideration/past
consideration
i. Rule: Debt incurred by adult son creates no obligation on parent.
1. A verbal promise is not enforceable without consideration (of legal
obligation). Even if a court cant find quasi-contract in an uncertain
case (when youre not sure if its valuable to the other party), once
that party makes a promise to repay, it functions as a tiebreaker
that lets the court find a quasi-contract. (Mills should have been
enforced on these grounds).
d. EXCEPTION: RESTATEMENT (R2 86) Promise for Benefit Received
i. a moral obligation is sufficient consideration to support a subsequent
promise where the promisor has received a material benefit, even though
there was no preexisting duty or liability resting on the promisor to extend
necessary to prevent injustice
ii. WEBB v McGOWIN [Saving McGowins life, Webb sustained a lifelong crippling injury, he was going to throw the block of the edge, saw
McGowin was underneath so sacrificed himself. In gratitude, McGowin
agreed to care for Webb for the rest of his life. HOLD: Webb saved
McGown from death which was a material benefit to McGowin =
sufficient consideration]
1. Rule: A promise subsequent to a directly received benefit is
sufficient consideration for formation of a quasi-contract
where prior negotiation was difficult or impossible. (such as in
an emergency)
2. Policy: if someones animal ran away and you care for it, it is
assumed that they would want you to care for it, so you get
compenseated
3. In this case, he is getting promissory restitution, this is an
exception and very few cases would actually apply this rule
V. THE PREEXISTING DUTY RULE

CONTRACTS 37

Similar to past consideration rule. Doing something which you are already legally obligated to
do and then an attempt to enter into a new K for the same thing is unenforceableis not
consideration for a promise to pay you more, you are already obligated.
1.

Preexisting duty rule barrier to modifications of Ks tempered in the common law

a. One party agrees to do something for other party in exchange for a pricethen
party says they need more money to do work and the other agreescourt will
NOT enforce addition money modification of K without consideration
i. NO bargain for exchange b/c promisee isnt incurring any new obligation
b. COMMON LAW: cannot modify the K unless have new consideration if it is
legitimate, there is consideration for modification, which is really a new contract
c. UCC: do not need consideration to modify a K you need mutual assent (good
faith takes place of modification)if parties agrees in good faith, then can modify
K if the excuse is good, the promise isnt extorting or using coercion
1. If it is a sale of goodsall you need is a written agreement
2. It is enforceable w/out consideration, just need a writing
d. HARRIS v. WATSON / STILK v MYRICK [attempts by seamen to have their
pay increased, seaman lose in both sitations]
i. COMMON LAW: if a party does or promises to do what he is already
legally obligated to do he has not incurred a detriment for purposes
of consideration. Modification requires consideration.
1. HARRIS: policy reasondestroy basis of common order
2. STILK: doctrinevoid for lack of consideration
e. LINGENFELDER v WAINWRIGHT BREWERY CO. [Architect (who was
also the president of a refrigeratin co.) for brewery buildings threatened to quit
because competitor was designing refrigeration plant and was angry he did not get
the refrigeration contract too, so D promised him 5% bonus for completion so D.
said he would stay on the job, but at the end of the day, brewary then refused to
pay anything more than original contract price.
f. HOLD: architect was already obligated to perform services induced by offer of
extra compensation, thus NO consideration]
g. Compare to Fujiomoto: here they end up getting a bonus for EXTRA work so
they dont quit, initially they did NOT HAVE a k for a definite term, they said
they wanted a raise, the fact that they had a right to quit means that they gave up
something (thus consideratin)
i. Rule: When a party merely does what he has already obligated
himself to do, he cannot demand an additional compensation for his
efforts. NUDUM PACTUM
ii. Technically the architect is extorting here, trying to get more out of
the deal for himself and his conduct lacks good faith
iii. If however, in good faith, the architect comes along and says midway
through that something in the situation has changed and it will now be

CONTRACTS 38

MUCH more difficult to build, then can renegoitate and ask for more
more consideration.
iv. If the brewery VOLUNTEERS to pay the architecht more and they agree
on the additional payment, the courts might refuse to honor this.
2. Once you make a deal you are bound by it
3. Our law require strict liability: the agreement is enforced as written, but good faith in
both cases allows us to move away from strict liability
4. Pre-existing duty: if a police officer accepts an award, the servent is guilty of receiving
unlawful gratuitites when he solicits, accepts or agrees to accept any benefit for having
engaged in official conduct which he was required or authorized to perform
a. RESTATMENT (R289)
b. Touches on the idea of strict liability: agreements should be enforced
i. Notes exceptions to the common law rule that modification requires
consideration:
1. Changed circumstances: Includes, but may not be limited to,
changes that constitute excuse, touches on the fact that stuff
happens that neighter party assumed the risk would happen
a. Look to see if any party, via the K, assumed the risk
2. Statute: UCC 2-209(a): agreement modifying a contract needs no
consideration, the pre-existing duty rule does not apply Focus
shifts to whether concession was coerced
a. UCC 1-203, must always act in good faith when you are
dealing with a K/performance modifcation, modifying a K
is an attempt to change a performance
b. 2-209: must meet the test of good faith, again, look to see
that if what they did they did willingly and freely, not under
protest
3. Reliance: in UCC but also sets up an independent basis for the
enforcement of promise
5. Restatement 279: Substituted K:
a. Substituted K is a K that is itself accepted by the obligee in satisfaction of the
obligors existing duty
b. Substituted K discharges the original duty and breach of the subs K by the
obligor does not give the obligee a right to enforce the original duty
c. This is a way to get around the pre-existing duty rule, we must find good faith and
we must find that the intent was to abandon the old K and in its place some up
with a substituted K
i. Once parties abandon a K they are free to contract again
ii. Example if parties agree expressly to rescind the first K and then contract
for another K, therefore there would be adequate consideraitn to support
enforcement of the 2nd K
1. But you could also argue the 2nd K between the parties might not
exist because there might be a lack of consideration if the person
was already obligated to work.

CONTRACTS 39

d. UCC 2-209(1): Modifcation, Rescission, and Waiver (ABOLISHES the preexisting duty rule): An agreement modifying a contractneeds no
consideration to be binding. (replacing consideration with good faith)
i. There must be good faith it is up to the courts to determine if, for
example, a party was coerced into the modification. (look to see if what
was going on was being done in bad faith)
ii. UCC 1-201: Good Faith (of everyone) = honesty in fact in conduct or
transaction concerned (subjective test) ARTICLE 1 APPLIES TO
EVERYONE
iii. UCC 2-103: Good Faith of Merchants = honesty in fact (subjective
test) AND must also use reasonable commercial practices (objective test)
1. Good faith for merchants = subjective and objective test
e. Preexisting duty rule Assumes the money we are talking about had been
liquidated (defined in dollars by a specific amount)
i. BONA FIDE DISPUTE: (un-liquidated amt)
1. EXAMPLE: if have a dispute where one party thinks they owe
$1000 and ther other think he owes $750 (money is not
liquidated)
a. as long as there is a bona fide dispute then COMMON
LAW can reach an accord : an agreement
i. The attempt to settle = consideration
1. We are a PRO-SETTLEMENT society,
parties both in good faith believe they are
right, if they each give up something, then
they are also avoiding litigation and the cost
of attourneys fees
2. If liquidated amountthen difficult to make bona fide dispute
claim
3. Satisfaction: performing pursuant to that agreement (here, paying
the debt off)
6.

PAST DUE MONEY DEBTS

a. CLARK v ELZA [There was a tort case involving a car accident parties
reached a settlement agreement and it was orally agreed that Elza would sign a
release and order of satisfaction. Draft was tendered, but Elza reneged the
settlment, saying that he had revisited the Drs who said his injury was MORE
severe.
b. Court held that the agreement was an executory accordparties intended to
surrender old right only upon performance of new agreement], should not have
been allowed to sue on the underlying cause of tort action
i. Court distinguishes between executory accord and substituted contract

CONTRACTS 40

1. Executory accord: agreement for future discharge of a preexisting claim for performance, and does not discharge the
underlying claim until it is performed (if breach or they do not live
up to the agreement, can sue for old agreement)
2. Executed Accord/Substituted contract: (R2 279) when parties
intend new agreement itself to constitute a substitute for the prior
claim immediately discharges original claim (if breach, can sue
only on new terms)
3. This idea moves away from pre-existing duty rule, we dont
have the context of a fixed amountwithout this it is hard to
say what the pre-existing duty WOULD HAVE BEEN
ii. Once you cash a check: accord and satisfcaiton, but requires the 3311 UCC if you use for UCC
1. If you owe 1,000 and you only pay 350, but you write Paid in
full on the check that is not a valid accord and satisfaction
2. BUT once the ppl cash the checkthere is accord and
satisfaction, you have made them an offer and by cashing the
check they have accepted (as long as it is clear that the debtor
was offering payment in full/for full satisfaction)
3. If you do not agree to a payment in full, then you SHOULD
NOT cash the check
VI. PROMISSORY ESTOPPEL
1. Essentially a substitute for consideration, created to avoid the harsh results of allowing
the promisor of a donative promise to repudiate, after the promisee has acted in reliance
on the promise
a. Promises enforced by estoppel will be enforced as if they are part of the contract
but it is a limited enforcement
i. The harm is the lost reliance therefore reliance damages are awarded
(restore promisee to sitatuion before detrimental reliance)
2. RELIANCE = substitute for consideration (basis for PE)
a. Promissory estoppel is a way of finding that the promise and reliance on that
promise is a substitute for that promise of consideration
3. CHARITABLE SUBSCRIPTIONS:
*generally they are tended to be gifts, pure and simple, the huge problem is, that
charitable contributions are relied upon by the charities to do their work
*Our law favored charitable instutitions and a promise is not enforceable unless there
is some consideraitn for this purpose, but the courts bend over backward to enforce
charitable contributions
*IN the following case Cardozo says we have found consideratin where K law
would have said it was absent
a. ALLEGHENY COLLEGE v NATIONAL CHAUTAUQUA COUNTY BANK
[Johnson offers Allegheny College $5000 to be given 30 days after death to be
used for a memorial fund in her name; she paid $1000 and school accepts, then
CONTRACTS 41

she revokes. (that 1000 the court found to be sufficient consideration to make the
charitable subscription promise legally enforceable)
b. While this is known as the case that establishes promissory estoppel, it isnt
actually a PE case its a case of a simple contractshe promises to make a
donation, school promises to advertise her donorship. *However this case does
have the reliance idea. Cardozo just wants to toot his own horn
c. HOLD: binding bilateral K with consideration (duty to name fund after Johnson)]
d. The benefit detriment discussion/TEST pg 203
i. We try to look at the intent of the Promisor, if they are getting nothing out
of the deal then it is probably a gift, if there is something in it for the
promisor (then walking around the block like the homeless guy)/an action
is consideration
ii. In this case Cardozo says that she was bargaining for her name to be
placed on the scholarship and the first 1,000 was consideration (this is BS,
but its good)
4. RESTATEMENT (R2 90). Promise Reasonably Inducing Action or Forbearance
a. A promise unsupported by consideration may be binding without consideration if:
i. Necessary elements for PE:
1. A promise must exist
2. Foreseeable reliance
3. Actual reliance
4. Injustice avoided in enforcement of promise
5. Reliance = substitute for consideration
a. UNIVERSAL COMPUTER SYSTEMS v MEDICAL SERVICES [Promise by
Medicals agent/ employee to pick up bid. And the bid is not received timely and was
rejected.
b. Forseeable relianceGebert said he would pick it up. Reliance: Universal sent bid and
didnt arrange alternate pickup. Injustice: lost out on the bid b/c Gebert didnt pick up bid
at airport.
c. COURT: applied P.E. and found there was a K to pick up bid, which was an

enforceable promise that was breached]

i. RULE: A promisee who reasonably relies on the apparent authority of
the agent (Gebert here) or employee of another to his detriment, may
recover for breach of K based on P.E.
ii. Reliance is serving as a substitute for consideration in this case
d. Agency Principle: an agent acts on behalf of the principal, you can sue the
principal for the acts of the agent
i. Actual authority: hired to be the agent
ii. Apparent authority: sometimes youa re putin the position to act like you
have the authority of the principle
6. PRE-ACCEPTANCE RELIANCE

CONTRACTS 42

a. JAMES BAIRD CO. v GIMBEL BROS [D (subcontractor) submits a low offer

to plaintiff based on a miscalculation. In reliance on that bid/quote, contractor

(plaintiff) submits a low general bid to the government that is accepted. Prior to
that acceptance, the subcontractor withdrew its bid, realizing its mistake. D
subcontractor refused to recognize a K and the P. sued for breach.
b. Court held: that the offer was withdrawn before it was accepted. An offer is not
meant to become a promise until consideration is received. D offered to deliver
lineoleum in exchange for Ps acceptance, NOT FOR ITS BID. P.E. cannot be
applied b/c there was no promise to rely on.
c. Promissory estoppel is not a substitute for acceptance, only consideration!
Here, there was NO acceptance.
i. IF Learned Hand misread facts and D knew it could be bound merely by
contracting using his bidthen there is acceptance and there is a promise
supported by consideration no need for P.E.
ii. Hand says the defendant was bargaining for acceptance not a bid,
revocation took place before there could be acceptance.
iii. Additional reliance by the offeree that is not included in the offer does not
bind the parties.
7. P.E. FOR OFFERS (R2 87)
a. DRENNAN v STAR PAVING: [relied on by Branco court similar facts to
Baird case. Contractor relied on subcontractors low bid to bid on a general bid.
General bid is accepted. Subcontractor says made a mistake and withdraws bid.
b. As consideration: it is now an independent basis for allowing the reliance by an
innocent party to be satisfied (it is reasonable to believe that they relied on the
promise and the promise was NOT lived up to)
c. COURT HELD: even though there was no K, offer was made with subcontractor
knowing that contractor relied on his bid and would have wanted the contractor to
rely on it.
i. P.E. supports enforcement of this promise b/c subcontractors lowest bid
bound contractor to use that subcontractor (you want your bid to be
accepted)they are bound to each other
ii. RESTATEMENT (R2 87(2)): option contract: P.E. for offers as
opposed to promisesoffer which offeror should reasonably expect to
induce action or forbearance of substantial character on part of offeree
before acceptance and which does induce action is BINDING as option K
to extent necessary to avoid injustice
1. By creating an option K, we have taken away the power of the
offeror to withdraw/revoke the offer
2. Allows for enforcement based on reliance
d. BRANCO ENTERPRISES, INC. v DELTA ROOFING, INC. [Delta submits a

subcontracting to bid to Branco. Branco tells Delta they are relying on its bid;
Brancos bid is approved then Delta pulls out.

CONTRACTS 43

i. COURT held: there is a K under P.E. looks at DRENNAN (which

looked at RESTATEMENT (R287. Option K). K was formed when
Branco relied on and used Deltas bid. Court rejects Deltas argument that
promise was contingent on certification. Court saysDelta was BOUND
at time of K, irregardless of certification.
8. THELIMITSOFP.E.
a. Rule:apromisetooindefinitetobeanoffermaybeapromiseenforceable
underPEThepromisereliedonneednotcontainalltheessentialdetails
usuallyrequiredofanofferfordetrimentalrelianceonthepromiseto
supportac/ainP.E.
i. ThiscaseistheveryedgeofP.E.doctrine:usingPEasanindependent
basisforcauseofaction,notasasubstituteforconsideration
1. reliance=causeofaction,notabreachofK
ii. HOFFMANvREDOWLSTORES[RedOwlmakesvariouspromises
toHoffmanregardingoneoftheirfranchises,andinreliance(tohis
detriment)onthosepromiseshesellshisbusinesses,relocateshisfamily,
etc.RedOwlbackedout.
iii. Courtheld:thatHoffmanandRedowldidnotreachafinalagreementin
negotiationsthereforeNOK
iv. FindnoenforceableKexists:appliedPEactsofreliancetohis
detriment=substituteforconsideration;injusticewouldresulthereifPs
werenotgrantedsomereliefbasedonDsfailuretokeeptheirpromises
whichinducedPstoacttohisdetriment]
v. PEisjustusedherebecausejusticeneedstobeserved,thesenseof
injusticeiswhatbringsustopromissoryestoppel,andtheneedfora
remedy(thiscaseisnotDEFINITEenoughtobindtheparties,wehaveno
K,butweneedjustice)
vi. HerethecourtrewardsHoffmanwiththelossesthatcanbedirectly
attributedtoRedOwl(thect.wantstoundotheharmasmuchastheycan)
vii. Ex)ofVentureCapitalfirms:manytimessayyoumustdoX,Y,andZ
beforewellevenlookatyouasapotentialcustomer
1. Courtwouldfigureoutwhatthepeopleintendedinthesituation:
typicallytheassumptionisthatuntilafullagreementhasbeen
made,eachsideassumesthefullriskoftheiractions
viii. NegotiatinginbadfaithisUSUALLYnotactionable,howeverifyou
negotiateinreallybadfaithitbecomesanactionablebasedonpromissory
estoppel
ix. Askistherereliance,butalsoaskwhatkindofreliance?Whendidthe
relianceoccur?
x. Theory1:didHoffmanbelievehehasbeenofferedastoreifhedoesX,
Y,andZ?IfhebelieveshehasdonethesethingsthereisaK

CONTRACTS 44

xi. Theory2:Hoffmanbelievesthattheywouldcontinuenegotiatingin
goodfaithandtherewasauniverseofthingsthattheycouldusetogetout
ofthecontractandauniverseofthingsthatwouldnotbesufficienttoget
outoftheK
1. Didthepartiesexpecttobeboundincertainways?
a. Note:underthistheorytheywouldbothhavetoagreeon
whattheywereboundto
b. Hoffmanexpectedthemtobeboundandtheyknewthathe
did,thereforeusingthisknowledgetheywereactinginbad
faith.
c. Thisquestiondecidesmanypromissoryestoppelcases
becausethereisalmostalwaysreliancebutthereisnot
alwaysinjustice!
b. PEissuccessfullyinvokedinlessthan10%ofcasesinwhichitisurged

CONTRACTS 45

CHAPTER3:REMEDIES
*thisencompassesanythingandeverythingthatsomeonecouldgainbackafterabreach,
notlimitedtomoneydamagesbutthisisthefirstthingwewillstudy,ourgoalisto
compensatehereindollars
I.DAMAGES=givepartythebenefitofthebargain
*thegoalistoputyouinasgoodaconditionasyouwouldhavebeenhadtherebeennobreach
Classhypo:ex)Youcontracttobyacarfor10,000andyoufindanotherfor6,000,doyouhave
arighttobreachthisK?ShouldyoubreachthisK?Someschoolswouldsayeconomic
efficiencybutallyoushouldaskyourselfwouldbewhatwouldmydamagesbe?Whatwould
IloseviatheK?
*Ihavearighttolookoutformyownecon.InteretsaslongasIliveuptomyobligations
o IfIbreachbutIamwillingtopayforthedamagesIcanbreach!
o Ifyoucausesomeoneakindofharmthatyoucanneverpayfor/beliableforin
reputationetcyoucanNEVERmakethatpersonwholethroughdamagessothen,
dontbreach
1. INTRODUCTION:
a. RESTATEMENT(R2344)PurposeofRemedies
i. 3purposesofawardingKDamages:
1. Expectationinterest:
a. GOAL:tryingtogiveaggrievedpartythefullbenefitofthe
bargain(puttheminthepositionthatwouldbeinifKwas
performed)findwhatthepositionwasandwhatthe
expectationwas
2. Relianceinterest
a. PhasreliedonpromiseoftheDwhichhaschangedPs
position
b. GOAL:award/reimbursedamagestoPforpurposeof
undoingtheharmwhichhisrelianceonDspromisecause
him
3. Restitutioninterest:
a. ThePhasinrelianceonthepromiseofDconferredsome
valueonD
b. GOAL:thepreventionofgainbydefaultingpromisoratthe
expenseofthepromisee;thepreventionofunjust
enrichment,getbackthebenefitlostonthebreachparty,
wecompensatebasedontheinterestweseektoprotect
2. UCC1106,remediesbeliberallyadministered

CONTRACTS 46

a. Firstgoalbenefitofthebargainthroughexpectationdamages
i. Inmostcommercialcasesgoalistogettheprofits(whatwouldhave
madeunderthedeal)
ii. However,sometimescannotestablishthislooktoreliancedamages
b. PUNITIVEDAMAGEScannotgetthemunlessthereisanindependenttort
claims
3. EXPECTATIONDAMAGES
a. =benefitofthebargaindamages:designedtomakethevictimofbreachaswell
offasifthepromisehadbeenperformed(valueofperformancevalueof
performancedelivered)
i. example:IagreetopaintJohnshousefor$10K.Idiscoveritwillcostme
$20K.OnceIrepudiatetheK,Johnfindssomeoneelsetopintfor$12K.
Expectationdamages=$2K
ii. whenyouclaimanexpectationinterestineconomicterms,youclaim
profitsyouwouldhavemadeandlost.Youmustestablishthatyou
WOULDHAVEMADEaprofitingeneral.ifthedealyoumadewasa
badoneyouarenotentitledtorecoverthatsjustabaddeal!
iii. Again,ifitisabaddeal,youcantprovelostprofits,youcannotjustgo
afterreliance:relianceisaboutabreachthatcausesdetrimentandlosses
youwanttocompensate,wearenotgoingtocompensatesomeonefora
baddeal.
b. 3waystogetdamages:
i. Loss of profits: could go after whatever profits they would have made off
of contract
ii. Replacement costs: how much would it cost to replace?
iii. Disgorgement: disgorge the breaching party of the benefit they receive due
to unjust enrichment. We might not know the lost profit or replacement
cost but we do know the benefit the breaching party was getting
c. RESTATEMENT(R2347).MeasureofDamageinGeneral
i. Lossinvalue(+)Plusanyotherloss()anycostavoidedorotherlosses
avoidedbynothavingtoperform
ii. **FOCUSONBENEFITOFBARGAINconsiderwhatwaspromised
andthevariousfactorsaddressedhere**
d. HAWKINSv.McGEE[thehairyhandcase:Hawkinssuessurgeonforbreach
ofwarranty(ofsuccessofoperation).Expectationdamagesherewouldbe
valueofperfecthand(thatwaspromise)valueofhandinpresentcondition
(madeworsefromsurgeryhairyhand).(whatwaspromisedvwhatwasdone)]
CONTRACTS 47

e. Normally,maybesuspicioustobaseacaseonthisguarantee,buthereweseethe
doctorrepeatedlysolicitedthepatientforachancetoperformthisoperation
(EVENTHOUGHhehadneverdonethesurgerybefore,tryingtomakeaname
forhimself)usuallythiswouldbeanegligencecase
i. DAMAGES:(judgmentfornewtrial)
1. Costofoperationdoesntgetcalculatedcantgetmoneyback,he
wasgoingtopayforthisanyway
2. Painandsufferinginoperationpartoftheconsiderationin
originalK,heknewtherewouldbepain
3. Painandsufferingthatwouldhavenotoccurredifhandwas
perfect:possibilityifforeseeableandifyoucandeterminevalueon
this
4. Embarrassmentscarredhandvshairyhandwhichismore
embarrassing?Forseeability,ifyoucancalculatethis
5. Differencebtwnhandbeforeandafter
a. Courtsaystherewasareasonableriskofdamagetothe
handbyundergoingsurgeryDoesntawardanydamages
f. DIMUNITION VALUE FOR DAMAGES:
i. Economic waste theory: if provision breached was incidental to main
purpose AND the economic benefit of full performance is grossly
disproportionate to the cost of performance, THEN damages are limited
to diminution in value resulting from nonperformance
1. PEEVYHOUSE v GARLAND COAL & MINING CO, [D
agreed to perform restorative work at end of lease of land for
mining, but didnt do it. DAMAGES? P wants cost of completion
damages, ($$ to have work completed, not for them to do the
work) D argues for diminution in market value. (improvemant of
land with the restoration--$300)
a. Court held: economic waste theory economic waste to
order someone to pay what it would cost to restore land in
order to increase value by $300equitably doesnt make
sense: (K provision was incidental (not main reason for K)
AND economic benefit is grossly disproportionate to cost
of performance)
i. Damages = diminution value for damages
b. **still trying to give aggrieved party the BENEFIT OF
THE BARGAIN**
c. Also, want to make sure that we are still promoting
restoration and not encouraging fraud, because then no
company would ever intend to restore properties.
g. COST OF REPAIR

CONTRACTS 48

i. UNIT OWNERS OF SEA COLONY v. FREEMAN ASSOCIATES

[Unit Owners sued Freeman b/c of defects in building at time of
construction. Unit Owners sought $13 to $15 million to make repairs
cost of completion damages. D wanted diminution in value (diff btwn
what promised and what given) and useful life theory (P had already used
up some of life and giving full cost of repairs would be unjust
enrichment). HOLD: repair costs are proper damages]
1. RESTATEMENT (R2348(B)) cost of repair what normally
happens UNLESS, the repair costs are clearly disproportionate
to loss in value AND would cause economic waste (LIKE
PEEVYHOUSE) however, HERE: it was NOT an incidental
provisionit was the CONTRACT that was breached.
a. HERE: Cost of repairing is SUBSTANTIALLY LESS
then the value of the units themselvesrepair costs
would not be unreasonable nor cause economic waste
2. As far as useful life theory D made good argument that Ps
benefited, however, they were also DEPRIVED of some benefits
cant come up with a number for thatconjecture
ii. HYPO: enter into a K for a new roofK price = 25K, roofer breaches.
You can 1) sue for specific performance OR 2) sue based on how much it
will cost to hire someone else (replacement cost)
1. Aggrieved party must go out and find other roofing companies and
can:
a. Hire someone else and sue for differences in hiring new
roofer; OR
b. Showthatyougotestimatesfromroofersandyouwantthe
differencebetweentheKpriceandtheestimate.
iii. Classexample:Kforahouse.Priceis24,000anditwillcosther20,000
tobuildthehouse,theprofitis4,000.
1. Findlossinvalue=24,000buttheyhadalreadymadedown
paymentof5,000(thisistheanythingalreadypaid)
2. 24K5K=19K
3. Otherlosses=0
4. Costavoided=anycostotherlossthattheyhaveavoidedbynot
havingtoperform,5,000oftherestofthe20,000wasavoided(we
knowtheyalreadypaidher15,000),therewasalsosalvageforthe
valuefortheworkdone,2,000(wehavetodeductthisorthe
aggrievedpartygetsmorethanlossinprofit),boththeseare
subtracted
5. 19,000+05,0002,000=12,000(thisisthenumberthatmakes
herwhole)
6. TheseareexpectationdamagesbecausetherewasaK.
4. THERELIANCEINTEREST
CONTRACTS 49

a. Definition:awarddamagestoPforpurposeofundoingtheharmwhichhis
relianceonDspromisecausedhim(makevictimofbreachaswelloffasifthe
promisehasneverbeenmade/hadtheynotreliedontheK)
i. IfthereisafullKsupportedbyconsiderationshouldntusereliance
damages(trytogetExpectationfirst)
ii. outofpocketexpenses
b. RESTATEMENT(R2349)DamagesBasedonRelianceInterest
i. Analternativetomeasureofexpectationdamagesinjuredpartyhasa
righttodamagesbasedonrelianceinterest,includingexpendituresmade
inpreparationforperformanceorinperformance,LESSanylossthe
partyinbreachcanprovewithreasonablycertaintytheinjuredparty
wouldhavesufferedhadKbeenperformed
c. STATUS QUO ANTE: (position she was in pre-K, before operation)
i. Sullivan v. OConnor [Court doesnt follow McGee, because its so
difficult to calculate the value of the perfect nose. P (prof entertainer)
gets a nose job. D expressly promises to enhance and improve nose in 2
operation. D messes up and must get a 3rd surgeryleaves her
permanently disfigured.]
ii. Note: Dr. should always give an opinion, say this is how things should
go , however sometimes the Dr. says things that rise to the level of
commitment, a promise, and language of a K.
1. RELIANCE DAMAGES: put her back in position prior to entry of
K = what plaintiff lost in reliance on the promise.
a. She gets P&S for 3rd surgery b/c she only bargained for 2
surgeries where she knew there would be P&S.
b. Entitled to value of worsened condition (put P in position
she would have been in before the operationNOT
HAWKINS standard)she can recover all out of pocket
expense including additional costs (from trying to fix)
PLUS paint and suffering caused by breach
i. Pain and suffering allowed here because she had
to have a 3rd surgery. If we allow in K it must be
a situation where there is expectation/the goal is
beyond that of COMMERCIAL pruposes
c. We cannot predict medical results and it is not fair to award
patient the difference in value btwn her action conditon of
body part and the conditon of the body part the Dr.
promised
d. HOWEVER, patient should be entitled to recover just more
than the money he spent on treatmentneed compromise
reliance interest

CONTRACTS 50

e. Restitution by contrast: giving the P. back what he/she

gave the defendant (in this case this was NOT enough) this
is equitable and expectancy would be excessive
d. RECOVERING FOR EMOTIONAL DISTRESS:
i. HYPO: casket case
1. Husband dies, wife goes to funeral parlor to see caskets and wants
a waterproof one. Guy says 100% guaranteed waterproof. Few
years later, casket is dug up and there was mud bc water had
leaked in. Wife got upset and went to psychologist for emotional
distress.
a. this goes beyond business dealdealt with something
emotional and VERY specific that they relied on
b. This woman was not just buying a coffin, she was buying
peace of mind
5. HUGE DAMAGES NOTE: you pick between reliance, restitution, or expectation
you do NOT get a combo.
a. ANGLIA TV, LTD v REED [Anglia producers entered into K w/ Reed to
perform in a role for TV. Reed repudiated K. Anglia tried to find replacement but
couldnt and accepted repudiation. Anglia sued Reed for damages.
b. Anglia wants wasted expenditures spent in preparation money wasted relying
on promise (aka RELIANCE INTEREST). Reed claims can only recover
expenditures that came after the K was entered into, not before. He claims that
the money was spent for Anglias benefit and even when it was uncertain if there
would be a K, anglia spent
c. Court held: Reed must pay ALL expenditures wasted b/c of breach and he
should have known his actions would cause waste.]
d. In these cases it is Ps choice as to what he wants to recover, he can pick loss of
profits OR wasted expenditures, but he cannot pick BOTH
e. Can claim expenditures before and after the K was concluded, as long as the
expenditures were such as would be reasonably be in the contemplation of
the parties as likely to be wasted if the K was broken
f. Reed in K, must have known that a large amount was already spend and if he
broke the K, all those expenditures would be wasted, he was to pay damages
g. Reed was on notice that they spent a lot a time looking for the right actor to
play the part
h. Can recognize/give damages on reliance (how they changed conduct based on the
K, by performing or foregoing acttook steps that were detrimental to them) put
him back in the positn he would have been had the K NOT BEEN MADE/befor K
i. Expectancy: puts you back in the position you would have been w/out breach (this
would be if they chose to try to get the lost profits in this case, but that would only
be if they could calculate)

CONTRACTS 51

i. **CARABALLO SAID US COURT WOULD HAVE RULED

DIFFERENTLY: at heart of reliance is that a party spent money relying
on the K how can you try to get money you spend before you hired
me?? (TYPICALLY THIS IS A GREAT POINT!!most AMERICAN
courts would find this valid) normally only for expenditures after the K
j. If you claim reliance: you must articulate the RIGHT TO RELY, there must
be a justification of the reliance
k. PRESUMPTION OF BREAKING EVEN
i. All recovery is based on the idea that the breaching party has harmed the
non-breaching party in one way or another AND that that harm can be
quantified
1. If there is NO harm, then no foul If there is no injury than no
recovery
2. If for some reason that Reed above could have shown that Anglia
knew they would have lost moneyif Reed could prove that
fulfilling the K would have led to a loss, then the P recovers
nothing. The burden would be on the D to show that there
was/would have been a loss
6. LIMITATIONSONTHERECOVERY:
a. CERTAINTY:
i. RULE: no right to compensation which has not been given a
sufficiently certain monetary evaluation.
1. FREUNDvWASHINGTONSQUAREPRESS[In exchange for
delivery of manuscript by a certain date, author would receive % of
royalties. The publishing company merges with a bigger firm and
they refuse to publish his book. Breach of contract suit Freund
wants damages to be cost of producing the book? HOWEVER, he
contracted for royalties, not producing book.
2. RELIANCE: his expenditures were manuscript which he got
back. He was NOT bargaining for the book, he was bargaining for
the profits from the book.
3. Court held: awarded him nominal damages for 6 cents (and atty
fees under NY rule).
a. Note on nominal damages better then outright dimissal
bc finding that D was in breach AND may be basis for
award of punitive damages
b. His claim lacked certainty: there was NO way of knowing
how many profits the book would have earned, did not
provide a reasonable estimate of the royalties, also dont

CONTRACTS 52

want to risk allowing P to recover more than he actually

would have if the K was properly executed
i. Might be different if he was Steven Kingor John
Grisham, can say Ive written 2000 books, each
book has sold 50 million copies, this gives us an
estimate of his losses in this case
c. There was also the risk of allowing the P to recover more
than he actually would have gotten if the K properly
executed
ii. RULE: Need certaintydamages cannot be speculative BUT can be
based on estimate as long as there is substantial, relevant, reliable and
helpful evidence to determine what profits might have been (profit
determination) MUST BE REASONABLY CALCULATED
1. HUMETRIX c GEMPLUS [Humetrix relied heavily on contract
with Gemplus to provide patient data cards. Court allows for
consideration of lost profits, because in this case Humetrixs profits
could be reliably determined. Expectation of damages case
looking at profit determination. Courts do NOT set profits to zero
anymore, unless they determine zero is their best guess.
a. HERE: Although loss of profits is necessarily an
estimate there is substantial, relevant, reliable, and helpful
evidence. Battle of the experts. Jury finds in favor of P.
b. We have a (high degree of certainty) there was a breach
(higher degree of certainty), they could establish
reasonably what the damages were (reasonable
certainty)
c. They actually use the numbers PROJECTED by the Ds
for sales f the product had they been a partnerhip/up
and running, had good evidence of profits
b. FORSEEABILITY: damages that are not foreseeable at K formation are
NOT recoverable
i. HADLEY v BAXENDALE: [Ps mill broke down; he shipped broken
crank shaft and needed a new one asap. Delivery of shipment was delayed
for a few days. As result P lost several days profit.
ii. Court held: P should bear the loss, not the carrier b/c D had no way of
knowing that P would lose profits if delayed (they had no idea the mill
was shut down)info was NOT communicated directly and therefore the
loss of profits were not reasonably calculated by both parties when K was
made]
iii. Injured party can recover damages as may reasonably considered
arising naturally from the breach itself (ORDINARY) and second
may recover those damages as may reasonably be supposed to have
been in contemplation of the parties at the time they made the K as
CONTRACTS 53

the probably result of the breach of it (EXTRAORDINARY,

SPECIAL, CONSEQUENTIAL)
iv. FORSEEABILITY: for special damages, consequential damages we
need the BUT FOR infor
1. TYPES OF DAMAGES:
a. Usual, ordinary, general: Difference in amount promised
vs actual value/goods in their defective state
i. All about knowledge the parties have at time they
entered into K and using knowledge to predict
forward the kind of foreseeable harm from breach
b. Special, extraordinary, consequential: Fact sensitive to
special circumstances
i. Were the special circumstances communicated so
that breaching party is on notice that a particular
type of injury loss could occur
7. Restatement 352:
a. Damages are not recoverable for loss beyond an amount that the evidence permits
to be established with reasonable certainty, we need certainty so that we can
establish what the remedy might be
b. We do not need exactness, we can read into statements and actions of the parties,
reasonable interpretation INENT
c. Certainty arises in breach, if you claim breach we have to pinpoint what the
breach is (makes sense)
1. Test of Forseeability: (p284)
a. When 2 parties have made a K
i. All damages must be the natural consequence, it
is just a matter of how much knowledge you have
ii. (if you are given notice of extraordinary
consequences and they happen, then these are
something that could naturally happen)
b. Look at the injury (assume the breach in forseeability):
i. If one could ordinarily see this happeningthen
these are general damages OR
ii. If damages could not have been anticipated given
the amount of info that you have = special damages
c. MAKE SURE YOU KNOW WHAT PARTIES ARE
CONTRACTING FOR
d.
i. Tacit agreement test (HOLMES): shouldnt hold someone liable unless
someone has tacitly agreed to assume the risk
1. UCC REJECTS TACIT AGREEMENT TEST for recovery of
consequential damages if aggrieved party can establish that the
breaching party had notice of consequences that is enough
CONTRACTS 54

ii. EXAMPLE: Guy needed script delivered overnightcontacted courier

told women Ill lose $50,000 if this package does not arrive by October
12. Did the company KNOW what would happen if the package was not
delivered? YES harm was FORSEEABLE = LIABILITY
iii. ASSUME BREACH FOR FORSEEABILITY (look at the claim based
on the information given)
iv. CONSEQUENTIAL DAMAGES
1. AM/PM FRANCHISE v ATLANTIC RICHFIELD CO. [K
between AM/PM and ARCO where ARCO supplied a type of gas
which was deemed to create problems to fuel systems. Gas stations
brought suit for consequential damages claiming 3 ways they lost
money. UCCincidental and consequential damages, breaks
consequential into 3 types.
a. Loss of primary profitseasily foreseeable (we can
measure them)
b. Loss of secondary profitscan measure by looking at
history of previous years
c. Loss of goodwill not recoverable before this case in PA,
but now can make claims for prospective profits lost
2. UCC 2-714: GENERAL DAMAGES DAMAGES FOR
BREACH IN REGARD TO ACCEPTED GOODS
a. breach of warranty (difference btwn what actually earned
and what would have been earned if no breach)
i. NOT LIMITED TO THISand NOT WHAT
AM/PM WANTED
3. 2-715
a. INCIDENTAL DAMAGES: damages incurred
DEALING with the breach
i. expenses reasonably incurred in inspection, receipt,
transportation and care and custody of goods
rightfully rejected, any commercially reasonable
charges, expenses or commissions in connection
with effecting cover and ant other reasonably
expense incident to delay or other breach
b. CONSEQUENTIAL DAMAGES: damages that arise
FROM the breach (3 types of lost profits)all about the
information and connecting that to the losses/ possible
losses MUST BE SOME WAY TO MEASURE
i. Loss of primary profits:

CONTRACTS 55

1. Because of defective product we have lost

customers and lost profits
ii. Loss of secondary profits:
1. Primary purpose of K has been breached
which has proximately caused a secondary
loss
2. Ex) AM/PM had minimarts associated with
gas stationslost profits from minimart due
to defective product
iii. Loss of good will:
1. Lost profits based on loss of good will
profits we would have made from people
who used to come here when trusted us and
no longer come bc of defective product
c. **DUTY TO MITIGATE: if you can procure substitute
goods (cover), thereby lessening the damages occasioned
NO CONSEQUENTIAL DAMAGES

e. AVOIDABILITY/ MITIGATION
i. Mitigation Not separate from expectation damagesmitigation is a
part of them (LIMIT ON RECOVERY)
1. Duty to Mitigate: The plaintiff may not recover for those
injurious consequences of the defendants breach that the plaintiff
herself could by reasonable action have avoided. Also referred to
as the doctrine of avoidable consequences.
a. Apartyisnotpenalizedforfailingtosuccessfullymitigate
solongasareasonableattemptismade;BUTifhecould
havemitigatedanddidnot,hewillbeforcedtoabsorbthat
portionofhisloss.
ii. CONTINUED PERFORMANCE AFTER BREACH:Ifaparty
continuestoperformafterreceivingnoticeofabreachorrepudiation,the
damagesawardedhimforthatbreachwillbethecostsincurredupto
thetimeofthebreachplustheprofitthatwouldberealizedhadthe
contractbeenperformed.Pisneverentitledtothefullcontractprice(cant
profitfrombreach) he gets only what he would have received had the K
proceeded normally to completion.
1. ROCKINGHAM COUNTY v. LUTEN BRIDGE CO. [Can
plaintiff recover for work done on the bridge after the cancellation
of contract was received? Court held: that Luten CANNOT hold
County liable for damages which need not have been incurred
(after repudiation, Luten continued to construct bridge). Luten

CONTRACTS 56

wants full K price In contract breach: NEVER ENTITLED TO

FULL K PRICE.]
iii. EMPLOYMENT CONTRACTS:
1. Thedamagestoawrongfullydismissedemployeeshouldbethe
salaryfortheperiodofthecontractminustheamountthe
employeraffirmativelyprovestheemployeedidearnorcould
haveearnedfromanothersimilarjob.(Parkerv.20thCentFox)
a. Itistheemployersdutytoraisethemitigationissue;
theyhavetoshowwhattheemployeecouldhavedoneto
mitigatedamagesbylookingforjobsthatarecomparable
orsubstantiallysimilar,etc.
i. Exception:Ifthefiredemployeetakesajobthat
shecouldhavehadwhilesheSTILLHADthe
originaljob,itisnotmitigating.Onlyifshetakesa
jobthatshecouldnothavetakenbutforthefact
thatshegotfired
2. PARKER v. TWENTIETH CENTURY FOX [Shirley MacLaine
signed K to perform in Bloomer Girl; Fox offered her Big Country
insteaddoes she have to accept? Court HOLDS: 2nd offer wasnt
comparable or substantially similar as a substitute, so it it
NOT a mitigation opportunity (b/c it was different location,
different type of film, she lost some creative control). Instead give
entire benefit to the victim of breach.
f. DAMAGES BY AGREEMENT: (liquidated damages in agreement)
i. RESTATEMENT (R2 356(1). Liquidate Damages and Penalties
1. Damages for breach by either party may be liquidated in the
agreement but only at an amount that is reasonable in the light of
the anticipated or actual loss caused by the breach and the
difficulties of proof of loss.
2. Some specified or liquidated damages are so high
(unreasonable)and thus unenforceable, because they are more
like a penalty for one of the parties.
a. LIQUIDATED DAMAGES CANNOT BE
PENALTIES! PUBLIC POLICY: NO penalties
(punitive damages) in K law b/c violates public policy
EXCEPT in rare exceptions
i. LAKE RIVER v. CARBORUNDUM [contract
law hates penalties. Here there was a take or pay
clause: party has to pay for full performance,
whether or not he repudiates contract not a
reasonable estimate of damages, because doesnt

CONTRACTS 57

take into account the time of repudiation (policy:

huge windfall depending on when breach occurs]
ii. UCC 2-719: Contractual modification or limitation of remedy
1. whether the liquidated amount is reasonable in light of the
anticipated or actual harm caused by the breach
a. section 1: a seller may decide that he is only willing to sell
certain goods if you accept that a breach of that sellers
obligation will be remedied in a limited fashion
b. section2 : seller can substitute UCC remedies with their
own remediessometimes the seller cannot live up to their
remedies (fails their essential purpose) then you can
scratch remedies from seller and go to the CODE
c. section 3: consequential damages may be limited unless
unconscionable (so unfair court wont enforce)
2.

SCHURTZ v BMW of NORTH AMERICA: [seller is limiting

the remedy and limiting that they cannot get consequential or
incidental damages. Court holds: failing to give a remedy is
separate from limiting the consequential damages. ( UCC 2-719:
subsection 2 and 3 are independent from one another)]

g. PUNITIVEDAMAGES
i. RESTATEMENT355.PunitiveDamages:NOpunitivedamagesfor
breachofKunlessthereisanindependenttortarisingoutofK
ii. HIBSCHMANPONTIACv.BATCHELOR[Batchelorboughtacar
fromPontiac,thenPontiaclied/concealedthingswithpurposeof
misrepresentingthattheyactuallyfixedcarandultimatelycaused
destructiontothecar.
1. HOLD:jurycouldawardpunitivedamagesb/celementsof
commontortlaw,includingfraud,malice,grossnegligence,or
oppression,weremingledintothebreachofwarrantyclaim
a. **thisisacasewhereyoufindasituationthatfeelslike
fraud,lookslikefraud,tasteslikefraudCALLIT
FRAUDandthengivesrighttopunitivedamages**
8. DAMAGESUNDERUCC

(forbuyer&sellerdependsontypeofbreach)
a. OVERVIEW:
i. Compensatethenonbreachingpartybyputtingthatpartyinasgooda
positionasthatpartywouldhavebeenin,hadthecontractbeenfully
performed

CONTRACTS 58

ii. Coreconceptsaresymmetricalfornonbreachingbuyer,nonbreaching
seller:
1. Startwith:Differencebetweencontractpriceandmarketprice
2. Takeaccountofpossibilityofcoverandresale(i.e.,avoidable
loss)
3. Takeaccountofincidentalandconsequentialdamages
(particularlyfornonbreachingseller)
b. BUYERS DAMAGES
i. RIGHTS OF BUYER:
1. UCC 2-601: Buyers rights on improper delivery:
a. Buyer has right to receiver perfect tender (seller is
obligated to perform K exactly as it has been agreed to) and
if seller fails to do so, then the buyer has the right to reject
2. UCC 2-606: what constitutes acceptance of goods
a. Buyer can accept the goodsthis is CONTINGENT on
buyers right to inspect the goods (based on reasonable
period of time)
b. Buyer can rightfully reject goods or revoke acceptance:
Buyer can rejected within a reasonable period of time and
claim goods were defective and non-conforming, but has
the burden to prove they were defective when accepted
c. if fail to reject deemed as acceptance
d. if use the goods deemed acceptance
ii. DAMAGES OF BUYER: BUYER IS FREE TO CHOOSE WHAT
DAMAGES WANT TO PURSUE. You dont have to elect one remedy
over anotherbuyer has decision BUT buyers ACTIONS cannot be
overlooked (If you go out and buy substitute goodsthen you have
already decided)ALSO can get consequential
1. SUMMARY:
a. IF goods have not been accepted (seller failed to deliver,
seller repudiated, goods were rejected), the buyers
damages are measured either by the difference between the
market price and the contract price ( 2-713) or by the
cover provision (the cost of purchasing substitute goods)
( 2-712), plus incidental and consequential damages under
2-715.
2. UCC 2-712: COVER; procuring substitute goods
a. If seller fails to deliver or buyer properly revokes
acceptance buyer may cover with substitute goods as
long as:
i. 1. good faith,
ii. 2. without unreasonably delay and

CONTRACTS 59

iii. 3. reasonable purchase or K to purchase goods

b. DAMAGES = [different btwn cost to cover and K price +
any incidental or consequential damages any expenses
saved ]
i. *IF you get a better product the fact that you get
a better product doesnt factor in as long as good
faith, not unreasonable delay, and reasonable
purchase.
ii. **look at circumstances in context, not just price
alone**
3. UCC 2-713: Buyers Damages for Nondelivery or Repudiation
a. If seller fails to deliver/ repudiates or buyer rightfully
rejects/revokes acceptance:
b. DAMAGES = [difference btwn market price at the time
for tender under the K and the K price + any incident or
consequential damages expenses saved]
i. Market value focus on time and place for tender
(where revocation or repudiation took place)
4. UCC 2-715: Consequential and incidental damages
a. A buyer is NOT FORCED TO COVER, however, if you
want CONSEQUENTIAL damages then DUTY TO
MITIGATE (must attempt to cover)
c. SELLERS DAMAGES
i. UCC 2-703 Sellers Remedies in General
1. Seller CANNOT get consequential damages
2. If a buyer rightfully repudiates
a. DAMAGES: seller is entitled to whatever profits would
have made in the immediate sale
ii. WRONGFUL REJECTION BY BUYER
1. If a buyer doesnt have the right to reject (wrongful rejection)
seller has 2 options
a. UCC 2-706 Sellers Resale
i. Seller can resell in good faith, must give notice
and sale must be conducted in a commercially
reasonably manner.
1. Public sale (auction)only identified
goods, give notice of public sale, and
whatever price is received is it

CONTRACTS 60

2. Private sale: usually leads to higher price,

must give reasonable notice to buyer
ii. DAMAGES = difference from K price and resale
price
b. UCC 2-708 Sellers Damages for Non-acceptance or
repudiation
i. Look at the market price at time and place for
tender
ii. DAMAGES = difference between market price and
K price
2. What if you sue under 2-706 but dont meets requirements, can
you sue under 2-708?
a. Cases are split:
i. Some courts say too bad you already chose your
remedy, you are screwed
ii. Others courts not forced to choose and can go
after market
d. Lost volume doctrine: idea that a seller would have gotten the 2nd opportunity for
selling the goods no matter what. (would have made 2 sales). THUS, reselling
goods after a breach will not absolve the breaching party from damages (no credit
to buyer) if the non-breaching party could have sold both goods.
i. TERADYNE v TELEDYNE INDUSTRIES: [sellers damagesbuyer
breaches and seller took the goods and resold them to another company.
Buyer says will buy another product but seller refuses. Seller claims they
are lost volume seller and would have made the two sales anyways.
Therefore, mitigation does not apply and Seller is entitled to lost profits]
II.RESTITUTION
1. RESTITUTION=placingamonetaryvalueontheservicesconferredandgranting
thepartybestowingthebenefitthatmonetaryvalue
a. Basedontheideaofpreventingunjustenrichment,thisdoctrinewill
imposealegalobligationinthecompleteabsenceofanycontractor
agreement.ItadoptsthecontractmetaphorandproceedsasiftherewereaK.
i. Note,howeverRestitutionDOESNOT=PromissoryEstoppel
2. RESTITUTIONWHENTHEREISNOK:QUASICONTRACT
a. QuasiK=notreallyaKatall,impliedinlawKusedtodenoterecovery
wherejusticerequires
i. one person has received services, property, or money under
circumstances where he would be unjustly enriched if allowed to keep
themso the law allows an action in restitution to recover the benefits
conferred

CONTRACTS 61

b. EMERGENGY CONTEXT: When a doctor treats an unconscious person in

the street, that is quasi-contract + restitution
i. Judge presumes its very likely that the beneficiary would have
contracted for the services if he had been able tobut there was no
opportunity to bargain
ii. Court decides that doctor should be repaid for providing his sevices
c. QUANTUM MERUIT: value of services rendered
i. RULE: QUANTUM MERUIT allows recovery for the objective
(market) value of services rendered to another, not the effects of
the services (NOT the value by which that person actually benefits
from the services)
1. MAGLICA v MAGLICA [Husband and wife work together
in business, live together, both help create the business, they
separate; wife wants her piece and sues husband. Jury
instruction was improper. Court saysyou ought to allow jury
to consider indicia of an implied in fact K. However, wifes
claim for quasi-K is not proper b/c Q.M. is not about effects of
service, it is about the actual value of service.
a. If her services could have been replaced by another
employee, the value of her service is just her wages
b. If she had unique skills and couldnt have been
replaced, she should also be entitled to a restitution
award (some of the profits)
d. CLEAN HANDS DOCTRINE: a person who has acted wrongly, either
morally or legally (unclean hands)will not be helped by a court when
complaining of actions of someone else. IF YOU ARE UNJUST, JUSTICE IS
NOT AVAILABLE!
i. FEINGOLD v. PUCELLO [Pucello was injured, met Feingold
(personal injury lawyer); they discussed possibility of legal
representation, but never discussed fees or signed an agreement.
Feingold began work and demanded payment for his services.
1. Court held: quantum meruit DOES NOT apply b/c the client
never accepted the benefit. There was no enrichment therefore
other party cant be unjustly enriched. Restitution is based on
the idea of an injustice occurring in which we seek equity.]
2. clean hands doctrine: Q.M is an equitable remedy and
lawyer came to this court with his hands smudged in ink which
should have been used to sign his fee arrangement. (if you are
unjust then justice is not available)
3. RESTITUTION FOR BREACH OF K

CONTRACTS 62

a. RULE:QMistoallowapromiseetorecoverthevalueofserviceshegave
theotherpartyirrespectiveofwhetherhewouldhavelost$ontheKand
beenunabletorecoveronasuitontheK.
i. YOUARENOTLIMITEDTOTHEKWHENTHEREARE
ELEMENTSOFINJUSTICE!
ii. US v. ALGERNON BLAIR: [D, prime contractor, used a
subcontractor for materials and labor. D breached and subcontractor
stopped doing work and sued under Q.M. to get value of equipment
and labor supplied. HOLD: PisentitledtorestitutioninQ.M.b/catits
ownexpense,providedDwithlaborandequipmentandwerenotfully
paidBlairwasunjustlyenriched.]
b. MODIFIED QUANTUM MERUIT: in certain situations (client fires
attorney without cause), recovery is LIMTITED by the contract.
i. ROSENBERG v. LEVIN [Levin hired Rosenberg to perform legal
services at an agreed upon fee. Levin later discharged Rosenberg w/o
cause, after R-berg completed substantial work. Levin then settled.
Court held: R-berg, under Q.M., is entitled to only the reasonable
value or his services rendered prior to discharge, limited to the
maximum contract fee.
1. Lawyer-client relationship is specialbut client has right to
fire, but lawyer has right to compensation. lawyer is limited
to restitution damages
2. Lawyer must wait for happening of the contingency
(resolution of lawsuit he was hired to work on) to sue the
client.
4. THE BREACHING PLAINTIFF
a. RULE: As a matter of equity, breaching party can get back the benefit he
conferred (less any damages sustained by breach), because it was in
exchange for compensation and the non-breaching party benefited from
it.
i. BRITTON v TURNER: (changed law @ time) [Britton agreed to
perform labor for Turner for one year for $120. After 9.5 months,
Brittion quit without cause. Turner refused to pay anything. Britton
(breaching party) sued to recover reasonable value of services under
Q.M. COURT HOLDS: Britton was entitled to value of services less
any damages sustained from breach.
b. THE BREACHING BUYER:
i. UCC 2-718: liquidation or limitation of damages

CONTRACTS 63

1. GENERALLY in a K if there is a downpayment: the

question should be what was the expectation interest and does
the downpayment reflect the expectation (is it more than, less
than, the expectation)we will refund any excess OR force
buyer to pay more
2. Subsection 2: buyer is entitled to restitution AND the
minimum amt the aggrieved seller can get is:
a. the amt seller is entitled by liquidated damages term;
OR
b. in absence of liquidated term, 20% of total K or $500,
whichever is smaller (seller keeps this and returns rest
to buyer)
3. HYPO: buyer agrees to buy a car for $20K and gives a $2K
depositthen calls seller and says he doesnt want car. Seller
goes out and sells car for $21K. Therefore, seller loses nothing
breach actually helped seller. Seller got $21K for selling car
and is holding $2K deposit.
a. Subsection 2: allows seller to keep 20% or $500,
whichever is smaller and return the rest to buyer =
PENALTY to buyer for breaching seller keeps a
portion even though no damages
i. PREPAYING BUYERS GET SCREWED
ALL THE TIME
III. EQUITABLE REMEDIES
1. Remedies (specific performance, injunction, etc) that are alternative to money damages
granted by the court
a. RESTATEMENT (R2359): Can only get equitable remedies (specific
performance or injunction) when money damages would be insufficient
b. RESTATEMENT R2360: In determining whether remedy would be adequate:
i. Difficulty proving damages with reasonable certainty
ii. Difficulty of procuring a suitable substitute performance by means of
money awarded as damages, and
iii. The likelihood that an award of damages could not be collected
c. RESTATEMENT R2 362: Effect of uncertainty:
i. Equitable remedies will not be granted UNLESS the terms of contract are
sufficiently certain to provide basis for an appropriate order
1. Need GREATER CERTAINTY for equitable remedy than with
expectation damages (reasonable certainty) so courts know what
they are imposing on parties
d. RESTATEMENT R2367 Contracts for personal service Specific
performance of personal service Ks is NEVER permitted

CONTRACTS 64

2. Specific performance: extraordinary remedy, permitted when there would be an

inadequate remedy at law (when expectation damages are inadequate or difficult to
calculate, i.e. there is no market value)
a. Usually applied in contracts for the sale of land or particularly unique goods
b. Specific performance of services is never permitted (Lumley)
3. WAYS TO GET EQUITABLE RELIEF (specific performance):
a. if you can prove uniqueness of the deal then that will be sufficient to invoke an
equitable remedy (interest in real property) OR
b. cannot adequately measure the damages (not capable of estimation)
c. ALSO: Mutuality of remedy (remedy available to one party should be available
to other) is NOT the basis for granting or denying specific performance.
4. REAL ESTATEno SPECIFIC PERFORMANCE when land is not unique and
there is adequate remedy at law
a. CENTEX HOMES CORP. v BOAG: [Contract for the sale of land, seller wants
specific performance. HOLDING: NO specific performance b/c the land is not
unique and there is an adequate remedy at law (damages can be determined
based on liquidated damages term). Case is also about mutuality common law
used to say if a remedy is available to one party, its automatically available to the
other. Court says this is ridiculouseven though specific performance would
have been available to the buyer doesnt mean its available to the seller.]
5. LENDERS specific performance is NOT appropriate remedy when loan
agreement is NOT unique and borrower simply has breached loan agreement.
a. CITY CENTRE ONE v. TEACHERS INSUR. & ANN.: [loan agreement
borrower says they dont want to borrow money anymore. Lender says cannot do
this (trying to force borrower to borrow money). HOLDING: NO specific
performance b/c contract is not unique. Just b/c damages seem difficult to
calculate, doesnt mean they are incalculable.]
6. SPECIFICPERFORMANCEGRANTEDbasedonpublicinterestandinjuryto
publicb/cofdifficulttocover
a. LACLEDE GAS CO v AMOCO OIL CO. [requirements K where Laclede
agreed to buy gas from Amoco as needed for certain development. Amoco tried to
raise price and Lacleded objected and Amoco terminated agreement (based on
unilateral cancellation provision). Court found this was a valid K and the
provision of unilateral cancellation does not make it void. Court orders specific
performance b/c of public interest reasons (buyer wouldnt be able to buy gas
on long term from another supplier (uniqueness) and if Laclede couldnt get gas
anywhere else it would be hard to calculate loss (cannot adequately measure)]
7. NO SPECIFIC PERFORMANCE FOR PERSONAL SERVICE Ks b/c it goes
against the 13th amendment that say involuntary servitude is unconstitutional
a. LUMLEY v WAGNER:[Singer agrees to sing in a particular theater, and not
sing elsewhere, and then reneges. HOLDING: no specific performance, but they
CONTRACTS 65

grant an INJUNCTION that says she cannot perform same service for someone
else.]
i. INJUNCTION: enjoin a party from doing something
1. Effect:youareessentiallymakingthemworkforthepersonthe
didntwanttoworkfor;mustbecarefullycreatedthoughnotto
restrictsomeonefromworkingatall

CHAPTER 4: STATUTE OF FRAUDS (S/F)

**IF SOMETHING FALLS WITHIN STATUTE OF FRAUDS = MUST BE IN WRITING**
*when you can find a writing, you overcome the statute of fraudsbut you still must
prove the K is enforceable*
It is a statute to DEFER FRAUD
ii. Concerned that Plaintiffs will come to court and fraudulently allege
the existence of a contract when one did not exist
iii. Dont want ppl convinced there were Ks when there were notstate
and court will have to enforce: STATE PART OF IT.
iv. Defendant would be able to dismiss on SOF, so P. might never get to
courtSOF is a barrier which must be surmounted
I.RESTATMENT(R2110)TYPESOFKsCOVERED
1. Under the S/F, if a K come within the statute, REQUIRE A WRITING to be enforceable
(no writing = not enforceable)
a. SURETYSHIP: K to answer for the duty of another
b. LAND: K for sale of an interest in land
c. ONE YEAR: K that is not to be performed within one year from the making
thereof
d. MARRIAGE: K made upon consideration of marriage
e. UCC: SALE OF GOODS: K for the sale of goods for the price of $500 of more
(UCC 2-201)
2. PROCESS:
a. DoestheKfallwithinthestatute?WhendoestheFencecomedown?
b. IstheKreflectedinawritingthatsatisfiesthestatute?DOESTHEWRITING
SATISFY?
c. Doesthecasefallwithinoneoftheexceptionstothestatutethatpermite
enforcementdespitenoncompliance?
WHATTYPESFALLWITHINSOF:
3. SURETYSHIP:
a. Suretyship=aguarantorwhoagreestopaythedebtofsomeoneelseMUST
BEINWRITING:

CONTRACTS 66

i. PRIMARYPURPOSEEXCEPTION:weretheprimaryconcernofthe
guarantorhasbeentoprotecthisowninterest,asopposedtothatofthe
individualbenefitingfromthesuretyagreement,theagreementneednot
beinwriting
1. YARBROvNEILMCGINNISEQUIP.CO.[Russellpurchased
farmequip.fromMcGinnisonconditionalsale(paydebtandget
title)anddefaultedoninstallmentpayments.Yarbroagreedto
makepaymentsheusedtractorforhisownbenefit.Yarbro
stoppedpaying.McGinnisbroughsuitagainstRussellandYarbro.
YarbroclaimsS/Fbarredenforcementofhispromiseb/chewasa
suretyandsuretyshipKsmustbeinwriting.HOLDING:nota
suretyshipYarbrosprimarypurposewasforhisownbenefitnotto
besuretytoRussellsdebtsthereforedoesntneedtobein
writingjudgmentforMcGinnis]
4. LANDTRANSACTION
a. IfstatuteoffraudsisbeinginvokedincontextofaKthateffectsaninterestin
landtheonlyinterestwecareaboutisaSALEOFLAND
5. ONEYEARPROVISION:
a. Generalrule:contractinwhichperformanceitselfwilltakeoverayearand
contractsinwhichperformancewillnotbecompletedwithinayearofcontracting
mustbeinwriting
i. Example:July1,2003makeaKtorentaroomforJuly4,2004,theK
fallswithinthestatute.
b. ALSO:aKthatdoesntspecificallystateatimethatismorethanoneyearisNOT
withintheS/F,evenifthetimeforcompletionoftheKisverylikelymorethan
oneyear
c. CourtsHATEtheoneyearprovisiononeyearprovisionisillcontrived
generallyreluctanttoapplyitunlessabsolutelyclearthattheKcannotbe
performedwithinayearofitsmaking
i. Waystogetaroundtheoneyearprovision:
1. Iftherearetwoalternativeperformances,theKdoesnthavetobe
inwritingwhenoneofthemcanbecompletedwithinayear
d. WHATISONEYEAR?(dependsonthecourt)
i. Ifthekistobeperformedoverthetermofayearbeginningondayof
makingtheK,thestatuteisinapplicable
1. Example:ifenteronNov30andstartNov30itisperformance
withinayearanddoesntneedtobeinwriting
ii. IfKismadetobeperformedoverayearfollowingthedayaftermaking
theKthereisDISAGREEMENTastotheapplicability

CONTRACTS 67

1. Manycourtsarewillingtodisregardfractionsofadayandholdthe
statutetobeinapplicable(thusperformablewithinayear)
2. Othersmaysayoneyearandonedayandnotwithinayearmust
beinwriting
3. ThinkitwouldTHEORETICALLYBEPOSSIBLEWITH
UNLIMITEDRESOURCES.
i. Three year employment contract: no way you
can finish within a yearcannot finish in a year
ii. If you dieyou are excused.
iii. Ex) Real exam q: I offer you a job working for
me for 1 year. But my offer provides that you
are to start work 3 months from now. The
calendar starts running from the moment the
agreement is signed. It is a one year contract,
but is there anyway you can complete w/in a
year from
iv. Ex) A contract for a Bruce Springsteen
contract to perform. But that contract, even
though entered into in 2010, it provides he will
play in November 2011. SOL. Look at date of
contract and date of performanceno way it
will be done w/in a year (not that he will play a
year long concert)
v. Ex) P. agrees to cut all the trees on Ds land for
$1000. Does the SOL fence come down? Is it
within SOL.WE NEED TO KNOW MORE.
Capable of being performed w/in a year
unlimited resourcesso NOT w/in SOL. It can
be done w/in a year.
iii. PROBLEM95:
1. Arethefollowingwithinscopeofoneyearprovision?
a. Nov30offerforjobtostartDec1(nextday)dependson
court(seeabove)
b. Nov30,2001enteredoralKtobeingJan1,2002thereis
aKbutNOTenforceableb/cfallswithinS/fandneedsto
beinwritingb/coverayear
c. OralKfor5yearscanpartyavoidwritingclaiminghe
mightdiewithinthefirstyear?theKisnotperformable
withinayearthereforedeathhasnothingtodowithit
MUSTBEINWRITING
d. WhatifKsays:5yearsunlessyoudiesooner?
alternativewaytoperform:dyingnaturalwaytofulfilK
doesnthavetobeinwriting
e.
CONTRACTS 68

f. contractFORLIFENOwritingb/cwedontknowhow
longlifeis
6. UCC2201:SALEOFGOODSOVER$500:
a. mustbeover$500toinvoke2201
i. The K is NOT ENFORCEABLE unless:
1. A writing (definition 1-201) with language that is sufficient to
indicate a K for sale has been made between the parties
2. Signedbytheparties(definition1201)
3. Muststateaquantity
b. S/F=arightofpassageundertheUCC
i. Mustbeover$500
ii. ThewritingallowspartiestoprovetheKincourt
1. CantprovemorethanisstatedinwritingBUTyoucantryto
provelessbasedonanmistake
c. THEWRITINGMUSTCONTAINAQUANTITYTERM(even
requirementinrequirementKwouldbeok)theoneabsolute
requirementasfarasterms
i. EASTERNDENTALCORP.vISAACMASELCO.[EDCenteredinto
oralagreementwithMaselforMaseltosupplyEDCrequirementsof
productsitwishedtosell.PurchaseorderswereexchangedbutnoKswere
signed.Maselterminated.EDCsuesforbreachofK.Maselclaims
noncompliancewithS/F.HOLD:Kisvoidb/cdoesnotsatisfytheS/F
undertheUCCprovisionwritingsshowedwhatwasdoneinthepast,
nothingaboutbuyingproductsinthefuture.Thecourtlooksatthe
writingswhichseemtoindicatearequirementsKbutthereisNO
QUANTITYtermandthereisnteventhetermREQUIREMENTwhich
wouldhavebeensufficient.]
4. BUT in situations where both parties are merchants:
a. Ex) 2 merchants. One sends a writing that says they have agreed to sell 1,000
widgets for a $1 a widget. Buyer signs the agreement. Seller gets the letter
back and never answers or sends widgts. Buyer sues. But seller never signed
anything. Under these facts, no SOF defense
b. Answer the Damn Letter Rule: A reasonable business persongets the
letterand claims contract and mentions the number of items coveredif she
receives the letter and believes she never made it she would answer it. A
reasonable business person, if she believed in no contract, send a written
objection. Failure to respond
II.SATISFACTIONOFTHESTATUTEBYMEMORANDUM
1. RESTATEMENT(R2131)GeneralRequisitesofaMemorandum
CONTRACTS 69

a.
b.
c.
d.
e.

Needawriting,
needstobesignedbypartytryingtoavoidK,
reasonablyidentifiessubjectmatter,
somethingthatshowsagreementbtwntheparties,and
musthaveessentialterms(broaderrequirementsthanUCC)
i. essentialtermsdependsontheagreementanditscontextandalsothe
subsequentconductoftheparties,includingthedisputesthatariseandthe
remedysought

2. Subjectsforcommonlaw:transactioninland,suretyship,Knotperformablewithina
year

3. MEMOSUNDERS/F:
a. RULE:DoesnotrequirethememoexpressingtheKtobeinonedocument.
Documentsmaybepiecedtogetherfromseparatewritingswhichmaybe
connectedexpresslyorthroughevidenceofsubjectmatterandoccasion.Permit
thesignedandunsignedwritingstobereadtogether,providedthattheyclearly
refertothesamesubjectmatterortransaction.
i. Restatement:Youareallowedparol(evidencefromthingsbefore
writings)orextrinsicevidence(anyandallevidence)thatmayhavean
effectondeterminationthatthesewritingsmayhavereferencetosame
subjectmatterortransaction
1. Sidenote:acheckmaybesufficienttosatisfyS/Fcanuse
extrinsicevidencetodetermineprice
b. CRABTREEvELIZABETHARDENSALESCORP:[Crabtreenegotiated
withArdenforsalesmanagerposition.Ardenoffered2yearswithsalarysetout.
Secretarywrotedown2yearstomakegoodCrabtreegotpayrollchange
cardandgotfirstpayraise,butnotsecondandsues.Crabtreelookatmultiple
writingstofind2yearK.HOLD:canpiecetogetherwritingsonethatissigned
and2thatarenotthatallrelatetosametransactiontofindawrittenKthatfalls
withinS/F]
IV.MITIGATINGDOCTRINESANDEXCEPTIONSUNDERS/F
1. PARTPERFORMANCE:RecognizesasanexceptiontotherequirementoftheS/F
a. NEED2things:
i. Establishanagreementexisted(existenceofK)proofofexistenceofan
oralKbringinanythingandeveryoneyoucantoestablishthis
ii. Provethatyoupartiallyperformedbasedonandrelyingontheagreement
b. Whethertheresufficientpartperformanceinpurchaseofrealestate:

CONTRACTS 70

i. Deliveryandassumptionofactualandexclusivepossessionoftheland:
assumesthatyouarethereb/cseller/ownerallowedyoutobethere
ii. Paymentoftenderofconsideration,whetherinmoney,otherproperty,or
services:thiscanbeproblematicifyoustarttomakerepairs(*thisis
whereweseeequitableestoppelcomeinwhereconsiderationhasNOT
beenpaid)
iii. themakingofpermanent,substantial,andvaluableimprovements
c. RESTATEMENT:transactionofland
i. R2129.ActioninReliance;SpecificPerformance
1. AKforthetransferofaninterestinlandmaybespecifically
enforcednotwithstandingfailuretocomplywithS/Fifitis
establishedthatthepartyseekingenforcement,inreasonable
relianceontheKandcontinuingassentofpartyagainstwhom
enforcementissought,hassochangedhispositionthatinjustice
canbeavoidedonlybyspecificenforcement
a. NOTE:thepromiseemustactinreasonablerelianceonthe
promise,beforethepromisorhasrepudiatedit,andthe
actionmuchbesuchthattheremedyofrestitutionis
inadequate.(firstgoformoney,ifdoesntcurethen
specificperformance)
d. UCC2201(3)(c):aKwhichdoesnotsatisfy(signed,writing,quantityterms)
butwhichisvalidinotherrespectsisenforceablewithrespecttogoodforwhich
paymenthasbeenmadeandacceptedorwhichhasbeenreceivedandaccepted
i. PARTIALPERFORMANCE:onlyforgoodswhichhavebeenaccepted
orforwhichpaymenthasbeenmadeandacceptedunambiguousovert
admissionbybothpartiesthataKactuallyexists
1. IfcourtcanmakejustapportionmentTheagreedpriceofany
goodactuallydeliveredcanberecoveredwithoutawriting
2. Partperformancebybuyermaybemadebycheckormoney,
acceptedbytheseller
ii. Checkswhenyoudate,sign,andwriteinmemopartcreateawriting
thatsatisfiestheS/FwhichmaybesufficientundertheUCC
e. PARTPERFORMANCEEXCEPTIONSDONOTAPPLYTO:
i. oralKthatwilltakeoveroneyear
1. however,fullperformancebyapersonofapromisetorender
servicesforoveroneyeardoesservetomakeanoralpromiseto
payenforceable
ii. oralKinconsiderationofmarriage.
iii. Nordothecourtstypicallyusepartyperformancetoescapefromthe
suretyshipprovisionofthestatute

CONTRACTS 71

2. ADMISSIONS
a. Restatement:doesnthaveanythingaboutadmissions
b. UCCcameupwithanexception
i. UCC2201(3)(b)(PROFCALLSPERRYMASONEXCEPTION)
1. IfyougetsomeonetoadmittoexistenceofK(incourt,
pleadings,testimony)thenthatisanexceptiontotheS/F
however,itisnotenforceablebeyondtheamountadmitted
3. CONFIRMATIONS:
a. UCC2201(2):MERCHANTEXCEPTION
i. betweenmerchants(allmustbemerchants)ifwithinareasonabletimea
writinginconfirmationoftheKandsufficientagainstthesender(whenit
evidencesexistenceofK,whenithasaquantity,andsigned)is
receivedandthatpartyreceivingithasreasontoknowitscontents,it
satisfiestherequirementsofsubsection1(writing,signed,quantity)
UNLESSwrittennoticeofobjectiontoitscontentsisgivenwithin10
daysafteritisreceived
1. NOWifvalidforthesender,itisnowvalidfortheparty
receivingitiftheyknowthecontents
a. Thenoticeofobjectionmustshowthattherewasno
existenceofK
ii. EFFECTOFMERCHANTEXCEPTION Thisexceptiontakes
awaytheS/fdefensefromamerchantwhoreceivesawritingin
confirmationofaKanddoesnotobject.Thesendermuststill
persuadetrieroffactthataKwasinfactmadeorallytowhichthe
writtenconfirmationapplies.(THOMSONPRINTING
MACHINERYvB.F.GOODRICH)
4. WAIVERANDESTOPPEL
a. EXCEPTIONSTOS/fINCOMMONLAW:
i. Waiver:intentionalrelinquishmentofaknownright
1. IncontextofS/F:youcanwaiveyourrighttoasserttheS/F
2. Problemarisewhenonepartysaystheotherwaivedit
ii. Estoppel:actofdenyingsomeonetherighttoassertacertain
defense/fact/etc
1. IncontextofS/F:whenweevokeestoppel,wearedenyingthe
personwhohastherighttoevokethestatuteoffraudsthatright

CONTRACTS 72

2. Promissoryestoppel:substituteforconsideration,independent
basisforclaimingyouhaveaK
a. courtwillestoppsomeonebasedonideathatyoumadea
promisethatwasrelieduponthatthepromisorcouldforsee
wouldberelieduponandjusticedemandsthatyouestopp
them
3. Equitableestoppel:Necessaryelementsofpartperformance:take
overproperty,payconsideration,makeimprovementbut
somehowyoustoppedshortofbeingabletoclaimparty
performance(usuallyconsiderationpart)
a. RESTATEMENT(R2139)EnforcementofS/F
ThroughReliance:youcanestopsomeonefromasserting
aS/Fbasedonapromisewhichthepromisorshould
reasonablyexpecttoinductactionorforbearanceonpartof
thepromiseeorathirdpersonwhichdoesinduceactionor
forbearance
b. Problemsarisewhenoneoftheelementsismissing
typicallypayingconsiderationistheissue
i. Ex.Ifpersonisonlandandispayingfor
improvementisthatjusttokickthepersonoffthe
landb/coflackofconsideration??
c. DefensetoS/F:basedontheactoftakingpossessionof
landandactofmakingimprovementsmaybesufficient,
absentconsideration
i. Thecourtforequitablereasonscanestopthe
sellerfromassertings/f
iii. RULE:WhileanoralKformorethanayearviolatestheS/F,
equitableestoppelmayrendertheKenforceablebasedonrelianceof
promisewhereyoucanproveactionstakenwereinfactactionstaken
basedonthereliance(invokeR2139)
1. McINTOSHvMURPHY:[MurphycalledMcIntoshandtoldhim
ofpossiblejobopeningin30days;McIntoshsaidhecouldwork
Apr26.PcalledandsaidjobavailableMarch27.Psold
possessionsin,CAleasedaptinHawaii,quitotherjob,andarrived
atnewjob.2monthslaterwasfired.HOLD:S/fisvaliddefense
bcKcannotbeperformedwithinayearHOWEVERthereis
anINJUSTICEwherePreliedonpromiseandinjusticeonly
avoidedbyenforcementofK(equitableestoppel).
b. EXCEPTIONSINUCC:(2201)

CONTRACTS 73

i. NothinginUCCaboutwaiver,PE,equitableestoppel(theyare
COMMONLAWexceptions)
ii. Onlyexceptionsarethosefoundinthesection:(merchantexception,part
performance,admissions)
1. HOWEVERthereisconflictaboutequitableprinciples
a. Somecourtsyouarescrewedb/cthelegislaturewrote
thestatuteandlefttheexceptionsfromcommonlawoutof
2201,whichtakesawaytheirpower(wontinvoke1103)
b. Othercourtlegislaturecannottiethehandsofjustice
andwillapplyotherequitableprinciplestobringabouta
justresolution
i. 1103:unlessdisplacedbyaparticularprovision
inthecode,cansupplementprinciplesoflawand
equitycourtsbelievetheycandojusticeand
invokethis
2. ONEXAM:recognizethereisaaproblemanddoesntfallwithin
theUCCexceptionsthereforetalkabouthowitcangoeitherway
dependingonthecourt

EXCEPTIONSTOS/F(WaystogetaroundS/Fwaystodealwith
specificsituations)
Commonlaw:
o Waiver
o Equitableestoppel
o Promissoryestoppel
2201
o (3)(c)partperformance
o (3)(b)admissions
o merchantsexception

SUMMARY: STATUTE OF FRAUDS

Therearecertaintypesofagreementsthatcommonlawrequireinwriting
o Whatsatisfieswritingrequirement
o Exceptions
CertaintypesthatUCCrequiresinwriting
o UCCWhatsatisfiesthewritingrequirement
o Allofexceptions(exceptsubsection3(a))underUCC
**KNOWWHENAWRITINGISREQUIREDANDWHYITISREQUIRED**
o becausesuretyship,notperformableinayear,etc
THEN HOWDOYOUSATISFYTHISRULETHATSAYSYOUNEEDA
WRITING
o Commonlaw:writingthatsatisfiesR2131
CONTRACTS 74
o UCC:lookat2201
THEREAREEXCEPTIONSBUILTIN

CONTRACTS 75

CHAPTER5:THEPAROLEVIDENCERULEAND
INTERPRETATIONOFTHECONTRACT
I.INTRODUCTION
1. Asimpleconceptbutdifficulttoexplain
a. Notallagreementshavetobeinwritingonlythoseforwhichthereisaspecific
S/FthatsayscertaintypesofKsmustbeinwriting
b. Assumethatyouhaveawritingwhateffectdowegivethatwriting?Howdo
wetreatthatwriting?
II.PAROLEVIDENCERULE(PER)
1. Theruleapplieswherethereisanagreementinwritingandoneofthepartiessubmits
evidencetoproveatermthatisnotcontaininthewritingortoexplain/expandonaterm
inthewriting
a. Thisruleimposesrestrictionsontheextenttowhichthecontextofawriting
maybeusedtoestablishwhatthepartiesagreedon
2. WelookdetermineINTENTofthepartiesbystudyingthatwriting
a. Problemsarisewithoralagreementsthatwereintendedbypartiesbutwerenot
putinwriting
3. Basicrule:whenwehaveawritingthatisintendedtobeafinalexpressionofthat
agreement,thenyouarenotallowedtocontradictwhatisinthewriting
a. Mustdetermineifthewritingwasintendedtobethefinalexpressionand
exclusivewriting
i. Problem:sometimesbasedontherelationshipsofpartieswritingdont
alwaysstateeverythingthepartiesintendstoagreeon
PROCESSFORPAROLEVIDENCERULE:
1. FindawritingifnowritingthePERdoesnotapply
2. Mustdetermineifitisthefinalexpressionoftheparties
3. Determineifcompletelyorpartiallyintegrated(courtdecidesthisbasedonthe
factsasaquestionoflaw)

4. RESTATEMENTR2209217:ANALYSISOFPER
a. IntegratedAgreements:whetherornotanagreementisanintegratedagreement
wasitthepartiesINTENTforthewritingtobetheFINALagreement?
i. DETERMINEDBYCOURT
b. CompletelyandPartiallyintegratedagreements:
i. Completed(total)integrated:integratedagreementadoptedbytheparties
ascompleteandexclusiveofthetermsoftheagreement
CONTRACTS 76

1. Ifsomethingisnotinthewritingthencannotbringinanythingelse
ii. PartiallyIntegrated:anagreementotherthanacompletelyintegrated
agreementtheremaybeothertermsthatwereagreedonthatwerenot
includedinthewriting(cannotcontradict)
c. Evidenceofpriororcontemporaneousagreementsandnegotiations
i. Youcanbringinevidencetoshowthatthewritingisnotanintegrated
agreement(orthatitispartiallyorcompletelyintegrated)
ii. Canbringinevidenceaboutthemeaningofthewriting
PAROL v EXTRINSIC
parol evidence: any kind of evidence, not just oral, (extrinsic in that sense)
which relates to prior to or contemporaneous statements related to writing
extrinsic evidence: more expansive, general, any and all evidence that doesnt
arise out of the writings themselves can meet anythingbefore, during, after,
PAROL EVIDENCE RULE BAR EXTRINSIC EVIDENCE!

5. UCC2201:FinalWrittenExpression:ParolorExtrinsicEvidence
a. Termswithrespecttowhichtheconfirmatorymemoofthepartiesagreementor
whichareotherwisesetforthinawritingintendedbypartiesasafinalexpression
oftheiragreementmaynotbecontradictedbyevidenceofanyprioragreementor
ofacontemporaneousoralagreementbutitMAYbeexplainedorsupplemented
i. Ifpartiallyintegrated:consistentandadditionaltermscanbebroughtin
ii. Ifcompletelyintegrated:cannotbringanythingelse
iii. HOWEVERcustomandusagecanALWAYSbebroughtin
6. INTEGRATION:2schoolsofthought: JUDGEDETERMINATION
a. WILLISTONsTEST:lookatthe4cornersofthewritingandmake
determinationifcompleteornot
b. CORBINSTEST:(modernapproachthathasbeenadoptedbytheUCCand
restatement)lookatthetotalityofcircumstances;lookatanyandallevidence
thatmayberelevant(thejuryleavesandjudgehearstheevidencetheninstructs
thejuryonhowtoproceed)
i. Writingsdontspeakforthemselves,writingsreflectcontextandthat
contextisimportanttodeterminewhatparitesINTEND.
c. MERGERCLAUSES:(akaintegrationclausethatthisistheonlyagreement
controllingthisagreementeverythingandanythingwehaveagreeduponis
here)(Betaco)
i. WILLISTON:onceyouhaveamergerclausethenthisisproofthatan
agreementiscompletelyintegrated
CONTRACTS 77

ii. CORBIN:thisisstrongevidencethatitmaybefullyintegratedbutisit
NOTDISPOSITIVE,thecourtwillstillheartherestoftheevidence
7. EXCEPTIONSTOTHEPAROLEVIDENCERULE:
a. COLLATERALAGREEMENTS: If the agreement might naturally be left out
of the writing even though truly ageed to by the parties, the agreement is
collateral and evidence of it may be introduced in spite of the written Ks
apparent completeness This is basically another way to address partial vs
complete integration. If indep collateral agreementanother way to say never
complete integration.
i. MITCHILLvLATH:[PboughtpropertyfromLath.WrittenKofsale
integreatedfor$8400.LathmadeoralpromisethatinconsiderationofPs
purchasehewouldremoveanicehouseontheproperty.Pgotdeed,
enteredland,andmadeimprovements.Lathdidntremoveicehouse.
HOLD:oralagreementcannotbeenforcedb/cthereisNOcollateral
agreement]
ii. HOWTOEXPLAINONEXAM:
1. Sellerclaims:partiescommittedagreementtowritingandwriting
isintendedtobethefinalexpressionandcomplete(total)
agreementamongtheparties.Theremovaloficehouseisnotin
agreementthereforehedoesnthavetoremoveitandbuyercant
doanythingaboutit
2. Buyerclaims:removaloftheicehouseisacollateralagreement:
separateagreementthatrelatestothemainagreement,butis
independentofthemainagreementandisNOTinconsistentwith
thewriting.
iii. StandardtomeasureclosenessofthebondbetweenanoralK
modifyingawrittenKmust:
1. Theagreementmustinformbeacollateralone;
2. ItmustnotcontradictexpressorimpliedprovisionsofwrittenK;
3. Itmustbeonethatthepartieswouldhaveordinarilyexpectedto
embodyinthewriting
4. Note:theoralagreementmustnotbesoclearlyconnectedwith
theprincipaltransactionastobepartandparcelofit
iv. Incustomarybusinesspractices,oralagreementscanbetreatedasseparate
andindependentofthewrittenagreement Closerelationshipof
confidenceandfriendshipbetweenpartiesallowsthecourttofinda

CONTRACTS 78

collateralagreementthatwasnotinwritingtobesubmittedbasedon
thecontextandcircumstances
1. LEEvJOSEPHSEAGRAMSONS:[Collateralagreementfound
basedontotalityofcircumstancescourtlooksatwhatisgoingon
here:Wherelongtimefriendsaredealingwiththesaleofan
establishmentandtheyalsoagreetoanarrangementwhere
purchaserwasgoingtosetthesellerupwithanotherplacebutit
wasnotinwriting.]
b. WARRANTIES,DISCLAIMERS,ANDMERGERCLAUSESINTHEUCC
i. BETACOvCESSNAAIRCRAFT:[Betacoagreedtobuyjetfrom
Cessnasignedpurchaseagreement,made150Kadvanceandrealizedget
wasntasgoodastheythoughtandcanceledpurchase.Cessnarefusedto
refunddeposit.Pclaimsbreachofexpresswarranty.Cessnaclaims
purchaseagreementwasfullyintegratedandanyotherdiscussionswere
irrelevantb/cDISCLAIMER(saysnoexpressorimpliedwarranties).
HOLD:remandtolowercourttohavefactualhearingonINTENT]
ii. WARRANTIESINTHEUCC
1. UCC2313:expresswarranties:
a. Makingrepresentationstogetbuyertoagreetothosethings
statedstatementsareinducingbuyertobuygoods
i. LawpresumesthesebecomeBASISofBARGAIN
b. Puffery,salestalkisstilallowedsolongasyoudonot
crossthelineintomakinganaffirmation/promise
2. UCC2316:exclusionormodificationofwarranties
a. wordsorconductrelevanttocreationofanexpress
warrantyandwords/conducttendingtonegateorlimit
warrantyshallbeconstruedwherereasonableasconsistent
witheachother(PROF:weignorethesecondpart)
i. PURPOSE:PROTECTTHEBUYERFROM
UNEXPECTED/UNBARGAINEDLANGUAGEOF
DISCLAIMER!
iii. GENERALRULEonwarrantyvsdisclaimer:onceyoumakeexpress
warranties,itisHARDtodisclaim
1. BRINGINPAROLEVIDENCERULEiswritingthefinal
expressionoftheiragreement??Isittotallyorpartiallyintegrated?
a. Ifpartiallyintegratedcanbringinevidenceofcover
lettershowingtheexpresswarranty
iv. ALSOhaveanINTEGRATIONCLAUSE:(mergerclause):thissays
thatallweagreetoiswritinginthisagreement
1. HOWEVERUCCusesCorbinapproach:mergerclausehelps
butisnotdispositive(willlookattotalityofcircumstances)
CONTRACTS 79

c. UNCONDITIONALSALEOFGOODS+PER
i. UCC2202:sayscansupplementwritingswithanyevidenceofparol
(prior)orcontemporaneousoralagreementsasalongasconsistentandthe
agreementisnotcompleteandexclusivestatementofterms.
1. PROCESS:
a. LookatoverallKtoseeiftermcontradicts
b. WouldpartieshavewrittenthiskindofKwithdetailsthey
hadanleftoutatermthattheyindendedtobepartof
agreement
c. EvaluatethetermusingUCClanguage
i. Officialcomment:isthisthekindofadditional
termthatwouldcertainlyhavebeenincludedinthe
writingifthepartiesactuallyhadagreedtothat
termIFYESevidenceisexcluded
ii. LURIABROSvPIELETBROSSCRAPIRON[contractforLuriato
buyscrapmetalfromPielet.Writingsaysbuyerwillbuyfromsellerand
sellerwillsell.Doesntsayanythingmore.LuriaclaimsPieletbreached.
Luria:writing=finalagreement.Pielet:claimedoralagreementsaidhe
wasdependingoncertainsupplierandheofferedconsistentadditional
writingsattrial.HERE:Whenwritingwasintendedtobefinalexpression
ofagreementforunconditionalsaleofgoodsparolevidencethatsays
sellersobligationsareconditionalonacertainsupplieris
INCONSISTENTanmustbeexcluded]
d. LIMITONTYPEOFEVIDENCE:doesntblockALLevidence,itblocks
evidencethathasitsintenttoCONTRADICTthewriting.Courtwillallow
evidenceofpriorandcontemporaneousagreementsandnegotiations.
SubsequentagreementsareNOTallowed.
i. PYMvCAMPBELL:[onepartysays:partiesagreedthatwritingwould
onlybeeffectiveifthetwoengineersthatwerenamedimprovedonthe
invention.Othersays:signedwriting,cantgetoutofit.HOLD:strong
evidencethatnoKuntilapprovalbyengineers]
III.INTERPRETATION
1. ADMISSIBILITYOFEVIDENCEOFSURROUNDINGCIRCUMSTANCESAND
EVIDENECEOFINTENT
a. 2extremesofhowcourtlooksatinterpretationEICHENGREENand
PACIFIC

CONTRACTS 80

b. RULE: PER excludes extrinsic evidence where a letter operating as a complete

integration of the parties agreement exists. HOWEVER, if there is an ambiguity
in language of K then may be able to bring in some extrinsic evidence that is
consistent to give meaning to ambiguity
i. EICHENGREENvROLLINS:[homeownerboughthomewsecurity
systeminplace.Putanadditiononandenteredagreementtoinstallation
offireandsmokedetection/alarms.Firestartedinbathhouse.Homeowner
suessecurityprovider.Eichengreenclaims:DbreachedKclaimingK
coveredadditionandwantstobringinextrinsicevidenceofprior
negotiations.Rollinsclaims:didntbreachb/cKdidntcovertheaddition.
HOLD:agreementwasfullyintegratedsonoextrinsicevidenceallowed.]
ii. **IFapartyistryingtoBRINGINPAROLEVIDENCEtheyneedto
showthattheLANGUAGEcreatesanAMBIGUITYORthattherewas
noKORthereisduress,mistake,undueinfluence,etc
c. CORBINAPPROACH:allowedextrinsicevidencetoseewhattheparties
intended.Wordsdonotspeakforthemselves.
i. Test of admissibility of extrinsic evidence to explain meaning is not
whether it appears to the court to be plain and unambiguous on its face,
but whether the offered evidence is relevant to prove a meaning to which
the language of instrument is reasonably susceptible
1. NOTEONEXTRINSICEVIDENCE:
a. although extrinsic evidence is not admissible to add to,
detract form, or vary the terms of a written K, these
terms must be heard in order to determine whether
extrinsic evidence is being offered for a prohibited
purpose
ii. PACIFICGAS&ELEC.VG.W.T.DRAYAGE:[PacificenterseK
withDrayageforDrayagetofurnishthelaborofPsturbine.Damages
occur.Drayageagreedtoworkatitsownriskandexpenseandindemnify
Pacificoflosses.WrittenKsaysprotectproperty(doesntspecify).
Drayageclaimscoversthirdpartyproperty.Pclaimsprotecttheir
property,notjustthirdparty.HOLD:(usingCorbinapproach)allow
extrinsicevidencetoseewhatpartiesintended.
2. ADMISSIBILIY OF EVIDENCE OF USAGE OF TRADE, COURSE OF
DEALING, AND COURSE OF PERFORMANCE [NANAKULI v SHELL]

CONTRACTS 81

a. UNDERTHEUCC:Todetermineintent:lookatlanguageANDtradeusage,
courseofdealing,courseofperformance.
i. *Commercialagreementsarebroaderthanthewrittencontractandits
meaningsaretobedeterminednotjustbythelanguageinthecontractby
bytheiractionsinterpretedinthelightofcommercialpracticesandother
surroundingcircumstances.
1. RULE:youCANNOTcontradictpurposelybutyoucan
EXPLAINthecontractthroughusage,andcourseof
performanceandcourseofdealing,eveniftheeffectisto
somehowgoagainstexactwordsoftheagreement
ii. Forafinalandcompleteagreement,lookat:
a. CourseofPerformance(howthepartiesactedinthe
contractatissue)
b. CourseofDealing(priorrelations/contractsbtwnparties)
c. UsageofTrade(usual/expectedcourseofdealing
particulartoatrade,vocationorplaceinthebusiness
reliancebased)*usageisineveryKifdontwantitmust
bespecificandclearyouaretakingitout*
iii. BUDENISONTHEONECLAIMINGTHEUSAGE
1. Example:ThePhastheburdenofestablishingthatthepractice
thePclaimsshouldbereadintotheagreementactuallyexistsina
waywheretheDkneworshouldhaveknownexisted.
3. SUMMARY: being a 4 corners judge is safe and will lead to judges getting rid of cases a
lot soon

CHAPTER6:AVOIDANCEOFTHECONTRACT
avoidanceofK:weareundercuttingthewholeideaofagreementbyusingmistake,fraud,
undueinfluence,duress attackingtheformationofK
1. MISTAKE
a. MISUNDERSTANDING:
i. deals with confusion in the bargaining process
ii. Objective Theory of Assent: doesnt matter what people meant by what
they said or didwhat matters is an objective account of what they said
or did
1. A party can be bound to the objective meaning of words or action
regardless of subjective intent
a. Reason for objective theory is to foster reasonable
reliance on contract terms
iii. RAFFLES v WICHELHAUS: [peerless casetwo parties that never had
a Kthere were two ships called peerless. One party meant Peerless in
CONTRACTS 82

Oct, the other meant Peerless in Dec. HOLD: no k NO MEETING OF

THE MINDS b/c they didnt INTEND the same thing. ]
b. MUTUALMISTAKE=equitabledoctrine
i. Mutual mistake: a situation where you can grant relief to one party
seeking relief where both parties have belief that is not in accord with
facts = two innocent parties
1. CannotavailourselvesofdoctrineofmistakeUNLESSdefect
existedATTHETIMEKwasmade
a. asageneralpropositionanythingthathappensaftertheK
cannotbedealtwithasamistake(thiswouldbeachanged
circumstanceandwecaninvokeotherthings)
2. EXTRINSICEVIDENCE:mistakeoneofareaswhere
extrinsicevidencecouldbeallowedtoattackexistenceof
agreement,butcannotcontradictthewriting
ii. RESTATEMENT R2 151: A mistake is a belief that is not in accord
with the facts
1. TESTfromRESTATEMENT(R2152):whereamistakeof
bothparitesatthetimeofKwasmadeastothebasicassumption
onwhichKwasmadehasamaterialeffectontheagreed
exchangeofperformancesKisvoidablebyadverselyaffected
partyUNLESSbearstheriskofmistakeunder154
a. Lookatcircumstancesandcontext
2. RESTATEMENTR2154:whenapartybearstheriskofa
mitake(riskallocationanalysis)
a. Apartyberasriskofmistakewhentheriskisallocatedto
himbytheagreementofthepartiesorheisawareatthe
timetheKismadethathehaslimitedknowledge,whichhe
treatsassufficient,underreasonablecircumstances(lookat
theACTUALlanguage)NOTE:thisisafudgefactor
whenallelsefails,courtswillflipacoin!
iii. RULE:avoidanceofKduetomutualmistakeDOESNOTAPPLYwhen
onepartyhasassumedtherisk.
1. LENAWEECOUNTYBRD.HEALTHvMESSERLY:
[Picklespurchasesbuildingintendedtouseasincomeproducing
property.Messerly(seller)andPickleshadnoideaabtdefects=
mistake.Turnsoutseptictankwasillegallyinstalledandviolated
healthcode.Khadasisclause.BuyerseekstoAVOIDKon
basisofMUTUALMISTAKEandntsrescission.HOLD:no
rescissionforPickles.]

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a. HERE:wehaveTWOINNOCENTPARTIESsomeone
isgoingtogetscrewed.riskallocationanalysis:by
lookingattheK,ittellsusoneofthepartiesassumedthe
riskofabaddeal.
iv. RULE:inabsenceofevidenceoffraudonthepartyofthevendee,a
mutualmistakeastothenatureandvalueofathingsoldwillnotafforda
basisforrescissionoftheKforsale
1. WOODvBOYNTON:[WoodsoldgemtoBoynton,jewelerfor
$1.Boththoughtitwasatopazattimeofsale(bothassumedrisk).
Later,turnsoutitwasadiamondworth$700.Woodsuedforits
return.HOLD:judgmentforBoyntonb/cbothpartieswere
innocentinsensethatneitherknewATTHETIMEofKthetrue
valueofthestone.
v. RULE:ARELEASEmaybesetasideformutualmistake,ifitcan
establishthatreleasesetsoutBARGAINTHATWASNEVERMADE.
AllowsfortheavoidanceofKswherethepartiesaremistakenabouta
materialassumptionoftheK.
1. LookatobjectivemanifestationsofpartiestodetermineINTENT
2. WILLIAMSvGLASH:[Williamsinjuredinaccidentw/no
immediateinjuries.Submittedcardamagetoinsur.Coandshe
signedasettlementagreementwithaRELEASE(whichsays
disputeabtallclaimsweresettled.PlaterdevelopsTMJand
claimsreleaseneverexplainedordiscussed.HOLD:releasedoes
NOTbarPforbringingsuitoninjuriesunknownattimeofsigning
b/cofmutualmistake]
vi. RULE:Cannotdenyapartyofsomethingtheybargainedforandgrant
reformationofaKifitappearsthatsuchreliefwillprejudicetherightsof
abonafideandinnocentpurchaser.
1. BAILEYvEWING:[2piecesoflandbeingsoldtotwobuyers
disputeabouttheboundary.EwingputupfenceandBaileysaid
fencewasonhisproperty.Baileyhadlandsurveyedanditturned
outfenceandhousewasonhisproperty.Wehaveamutual
mistakebetweensellerandEwing.ThisdisputeisbetweenEwing
andotherbuyer,Bailey.Ewingclaimsmutualmistakebetween
himandEwing.HOLD:noreformationisitappearsthatsuch
reliefwillprejudicetherightsofabonarideandinnocent
purchaser.]
c. UNILATERALMISTAKE:
i. Usuallydealwithconstructionbids

CONTRACTS 84

1. rationalebycourtsforallowingrescission:nothingwaslostbythe
partywhoisnowattemptingtoforceKontheonemakinga
reasonablemistakeinbelief
ii. GENERALRULE:noreliefforunilateralmistake
1. Exceptions:
a. MistakeswhereenforcementofKwouldbe
unconscionable
b. Mistakemustrelatetosubstanceofconsideration
c. Mistakemusthaveoccurredregardlessofexerciseofdue
care
d. Itmustbepossibletoplacetheotherpartyatstatusquo
iii. 2kindsofunilateralmistakes:
1. Reasonablemistakeinbelief:concertetasserationofsomething
thatisabeliefthatisdifferentthantheactualfactsdoesntinjure
theotherside,possibletogetoutofK
a. Ex)clericalmistake(FirstBaptist

)
2. Mistakesinjudgment:Iguessedthatcametotheconclusion
thatcourtsareNOTreceptivetothis.Thismeansyoumadea
badKandthatisyourproblem.
iv. RULE:aKmayberescindedwhenonepartyenteredintotheKbased
uponanclericalmistake,aslongasopposingpartywillnotbeprejudiced.
1. FIRSTBAPTISTCHURCHvBARBERCONTRACTING:
[BarbersubmittedbidtoChurchforconstructionofbuilding.Bid
wasopenedandBarberrealizedmademistakeof143Kbasedona
clericalerrorandb/cofmistakesoughttowithdrawitsbid.Church
refused.Barberclaims:unilateralmistake.HOLD:rescissionof
KispermittedwhenmistakeofmaterialfactbyonlyonepartyP
hadknowledgeofmistakebeforesentacceptance.
HOWTOTACKLEUNILATERALMISTAKECASES:
1. Findingabeliefthatisnotinaccordwiththefacts
2. Beingabletodefendthebasisforwhyyoubelievethatthatbeliefthatisnot
inaccordwithfactsshouldgiveyourighttogetoutofK
3. Looktoseeifothersideisharmedifnoharmtoothersideandother2
propositionaremet,thenthereisthepossibilityyoucangetoutofK
a. Keepinmind:reliefisdiscretionarybasedonequity
d. REFORMATION:
i. Reformation:tryingtorewritethecontract
1. anequitableactionwherebythecourtisaskedtorewritetheKso
thatisrepresentsthetrueagreementoftheparties
a. mostoftentocorrectawritingthatincorrectlyreflectsthe
partiesagreement

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b. occasionallyusedtocorrectKswherethereisfraud,
duress,undueinfluence,andunconscionabilityBUTNOT
OFTEN
ii. RULE:Parolevidenceisinapplicableinreformationaction(doesnt
barevidence)b/cyouaretryingtoprovethatthewritingitselfisNOT
thefinalexpressionbetweentheparties.Therefore,canintroduceany
otherevidencethatisrelevanttoactualintentofparties
1. BEYNONBUILDINGCORP.vNATIONALGUARDIAN
LIFEINSUR.CO.[Beynonentersamortgagecontracttopayoff
aloanitwasassignedtoNational.Beynonsendsinlast2
paymentsandasksforrelease.Nationalrefusesclaimingthey
madeaclericalerrorsanddidntknowaboutthemuntilBeynon
askedforreleaseindraftingpromissorynote.Psuedforrelease.
Twodocuments:promissorynoteandmortgagedocument.
HOLD:PERdoesnotbarevidenceb/cwhatyouaretryingto
proveisthatthewritingitselfisnotthefinalexpressionbetween
thepartiesandcourtwillreformKtomakeitwhattheparties
intended.]
iii. STATUTEOFLIMTIATIONS:Rulethatsaysafteracertainperiodof
timeyoumaynotbringanaction.Courtscaninvokeequitableestoppel
toestoptheotherpartyfrominvokingSOL.
1. Nodutytoinformtheotherpartyofamistake,butifyouareaware
ofthefactthatamistakehasbeenmade,cannotusethestatuteasa
bartoanenforcementactionbasedonequitableprinciples
iv. WHETHERREFORMATIONISBARREDBYLACHES?
1. Laches=sleepingonyourrights,equitybased
a. Sometimesyoubedeniedfromassertingyourrightsifyou
donotasserttheminatimelymanner(differentfromSOL)
i. Equitablejudgmentmadethatyoushouldhave
actedsoonertoavoidinjusticetootherparty(you
knowyourrightsandshouldhaveraisedissue
earlier)

II.FRAUD
1. GENERAL:
a. Opinion if you make a K based on opinions then you are stuck with contract

CONTRACTS 86

i. If deal with goods: Sometimes there is a fine line between opinion and
warranty
ii. If not dealing with goods: the fine line of opinion and a factual
representation
iii. Can find fraud based on innocent misrepresentation
iv. Can find braud based on the nature of the relationship
2. Opinion vs statement of fact:
a. for a misrepresentation to be actionable it must be one of fact rather than of
opinion.
b. Fraud does not necessarily consist of verbal or written statementsCONDUCT
by itself can be fraudulent where D takes affirmative steps to conceal a
problem, a misrepresentation occurs
c. EXCEPTIONS: when one giving an opinion has a special duty to tell the truth
and simple nondisclosures may suffice as assertion of existing fact
i. Fiduciary relationship: relationship based on confidencecreates a
special duty when it comes to making statements (maybe in Vokes)
1. 99% of the time cannot make a fiduciary relationship in there case
ii. Superior Knowledge: two people not on equal footingstatements made
by superior party must be TRUTHFUL (Vokes)
1. statement of a party having superior knowledge may be regarded
as a statement of fact even though it would be considered an
opinion if the parties were dealing on equal terms.
iii. REAL ESTATE: duty to disclose material defects (one that would effect
decision to buy) failure to disclose = fraud
iv. one party has made an assertion and later learns it is false
v. party A knows that party B is laboring under a misconception that Party A
has not caused
3. RULE: Sales puffery can cross the line into implicit statements of a fact that is false
which amounts to fraud.
a. VOKES v ARTHUR MURRAY. INC [Vokes conned into signing contracts for
endless number of dance lessons. Court held: that the companys behavior
amounted to fraud b/c the dance company had superior knowledge. Arthur Murray
was implying that they were experts in the fieldthey understood the objective
standards of good dancing and said she was good. Arthur Murray knew that
she had no dance potential, thus statements were fraud]
4. RULE: If a condition is created by the seller, known by the seller, is unlikely to be
discovered by a careful and prudent buyer, and impairs the value of the contract, then
nondisclosure of this condition represents a basis for rescission under equity.
a. STAMBOVSKY v ACKLEY: [haunted house caseP bought house from D
house turned out to have a reputation for being haunted (a rumor that D
perpetuated and hadnt disclosed to P). HOLDING: Rescission of K was allowed.
Sell not only took an unfair advantage of Ps ignorance but also perpetuated the

CONTRACTS 87

condition. The house is haunted as a matter of law. The active concealment of this
fact had a material effect on the K and D should have disclosed it.]
5. DAMAGES FOR FRAUD:
a. Punitive damages: damages are most appropriate where there is intentional
conduct of the D which is malicious, oppressive, or gross also opens up the
possibility for attorneys fees
i. Must be able to establish person had knowledge of what they were saying
was false
b. Election of remedies:
i. Some jurisdictions in claim for fraud limit the remedies to rescission as
opposed to expectancy damages
6. INNOCENT MISREPRESENTATIONS = FRAUD: when we allow someone to get
out of a K based on an innocent misrepresentation Misrepresentation about something
material AND something that was relied upon
a. Cousineau:Inlookingatrighttorelycourtlookedatexistinglawofcaveat
emptor,thenappliedprinciplesthatshouldoutweighcaveatemptor
i. COUSINEAU v WALKER [Seller misrepresented facts about the world
(amt of gravel on property, amt of frontage property)but that
information wasnt actually part of the negotiations. HOLDING:
rescission of K was allowed. the misrepresentations here were material
AND there was clearly reliance given the purpose for which buyer
contracted.
1. Court brings in rationale used in the UCC that gets adopted by the
RESTATEMENT: CAVEAT EMPTOR
a. UCC (commercial goods) caveat emptor has been
abolished
b. PROPERTY DOCTRINE: in property doctrine caveat
emptor is receding
i. REAL ESTATE DEALS: in real estate,
transactions could be void by caveat emptor, but in
small sale of goods it doesnt apply UNFAIR!!
doesnt make sense to continue caveat emptor

IV.DURESSANDUNDUEINFLUENCE

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1. DURESS:beingforcedintosomethingonewouldntordinarilydo(circumstancescaused
bytheotherparty)
a. RESTATEMENT(R2175)DuressbythreatmakesaKvoidable):
i. 2elements:
1. coercion(improperthreat):onepartydoessomethingthatforces
anothertodosomethingthathe/shedoesntwanttodo;AND
2. no reasonable alternatives (question of fact)
b. RESTATEMENT(R2174):Physicalduress
i. ifphysicallycompelledbyduress,theconductthatlookslikeformationof
Kisnoteffectiveasamanifestationofassent
c. RESTATEMENT(R2176):improperthreat:
i. Ifwhatisthreatenedis:
1. Acrimeortort,orthreatwouldbeacrimeortort
2. ACriminalprosecution
3. Theuseofcivilprocessandthethreatismadeinbadfaith
4. thethreatisabreachofdutyofgoodfaithandfairdealingunder
aKwiththerecipient(Totem)
d. RULE:Economic Duress: does not exist merely b/c a person has been the victim
of a wrongful act, in addition the victim must have no reasonable alternative
(question of fact) choice but to agree to the other partys terms, or face serious
financial hardship. Also must show that he had no adequate remedy if the
threat were to be carried out.
i. TOTEMMARINETUGv.ALYESKAPIPELINE:[Misunderstanding
betweenpartiesleadstodelaysandadditionalexpenses.Totemdemands
patyment(b/ctheyreallyneededthemoney)butAlyeskasaystheywould
paybutdidntknowwhenanddidntsayhowmuch.Totemsigns
settlement/releaseformuchlessthentheywereowed;claimsduress
wereforcedtosettleb/cwouldhavegonebankrupt.Ifcourtbelieves
thensupportseconomicduressallegations.HOLD:nosummary
judgmentbcissuesofmaterialfact]
2. UNDUEINFLUENCE:
a. UNDUEINFLUENCE:unfair overpersuasion of taking advantage of a weaker
party
b. Confidentialrelationship:basedonthisrelationship,onepersontakesadvantage
ofanother(Odorizzi)

CONTRACTS 89

c. 2indiciaofundueinfluence:(weaknessononesidevs.abuseofstrengthon
otherside)
i. SUSCEPTIBILITY:personissusceptibletoundueinfluence(someonein
vulnerableposition)lookattheconditionthatthepersonisintryingto
findweaknessononeside
ii. DISPOSITIONANDOPPORTUNITY:personisinpositionthathas
opportunityanddispositiontotakeadvantageofotherssusceptibilityfor
onesownpurpose
1. Excessive force being used by dominant subject against a servient
object
d. RESTATEMENT (R2177) When undue influence makes a K voidable
i. Undue influence is unfair persuasion of a party who is under the
domination of the person exercising the persuasion of who by virtue of
the relation btwn them is justified in assuming that the person will not act
in a manner inconsistent with his welfare

e. THESESCASESSHOWTHATITDEPENDSTHEWAYTHECOURT
LOOKSATTHEFACTSANDWHOTHEYBELIEVE
i. NOUNDUEINFLUENCE:
1. KASEvFRENCH:[couplebefriendingelderlywoman.They
convincehertosellherhouseandopenajointaccountwiththem.
Theymoveherintonursinghomeandthenshedies.Estatesuesto
gethouseandmoneybackbasedonUNDUEINFLUENCE.
HOLDING:noundueinfluencecouplewereactingingoodfaith
andweregoodpeople]
ii. UNDUEINFLUENCE:
1. ODORIZZIvBLOOMFIELDSCHOOLDISTRICT:
[Odorizziarrestedforhomosexualactivity;thatnighttheschool
boardmemberscometohishouseanddemandhisresignationand
sayifhedidntresignthentheywouldfirehimandpublicize
proceedings.HOLDING:resignationshouldberescindedbcit
wasexecutedunderundueinfluence.Ifboardwantedtonegotiate
theteachersKtheyshouldhavedoneitduringnormalhrsand
allowedhimtohaveanattyandgivenhimtimetorecoverform
stressofbeingarrested.]

CONTRACTS 90

V.ILLEGALITY
1. ILLEGALITY:GoesbeyondtheideathataKisforacriminalpruposemostsettings
forKsthataredeemedtobeILLEGALfocusonPUBLICPOLICYthathasbeen
VIOLATED
a. PROCESS:
i. Findapublicpolicy(inastatute,inapronouncement,ofacourt,or
pronouncementofsomeentitythathasbeen
2. EFFECTOFILLEGALITY:
a. RULE:WhenyouengageinillegalconductinKsyouareculpableparty
andanoutlaw(dirtyhands)andasanoutlawyouMAYNOTSEEK
JUSTICE.Musthavecleanhandstoseekequity.
i. BENNETTvHAYES:[statutesaiddutyofautorepairmantogivea
customerwrittenestimateandshallnotchargeforthingsnotinwritten
estimate.HOLDING:failuretocomplywithstatutethereforecannot
chargeforworkb/cnotinestimateANDnoquantummeruitclaim.
b. RULE:Meretriciousrelationship(unlawfulsexualrelationship)between
partiesmakeKsbetweenthemUNENFORCEABLE.
i. However,iftheyhaveabusinessrelationshipthatisNOTfoundedonthe
meretriciousrelationshipthenKswillbeenforced.
ii. CARNESvSHELDON:[meretriciousrelationshipscasetwo
individualslivingtogethertheyseparateandwomanwantsequitable
divisionofassets.Pclaimsexpressorimpliedinfactagreementwhich
dividedpropertyaccumulatedwhentheylivedtogether.HOLD:no
enforcementofKmadeinconsiderationofmeretriciousrelationships
(unlawfulsexualrelationship)
1. THE PUBLIC POLICY policy that says people living
together are living an illegal arrangementconsequently,
their agreements that arise from arrangement are
UNENFORCEABLE bc they stem form a meretricious
relationship**
iii. KOZOLOWSKI: [cohabitation of parties after 1968 cannot be termed
meretricious bc they engaged in sexual relations]
3. LICENSES:

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a. RESTATEMENT (R2181): if a party is prohibited from doing an act b/c his

failure to comply with a licensing registration, a promise in consideration of his
doing that act is unenforceable on ground of public policy if: 1) requirement has
regulatory purpose, and 2) interest in enforcement is clearly outweighed by public
policy behind requirement
i. EXAMPLE:
1. Withrespecttolicensesforprofessionals,ifaprofessional
performsserviceswithoutalicense,notonlydoestheclientnot
havetopayyou,buttheprofessionalwillbeuponcharges.
Helpingafrienddifferentthanchargingforservicesholding
yourselfoutasalawyer.
4. CONTRACTS IN RESTRAINT OF TRADE
a. Anticompetitionagreements
b. RULE: As a basic proposition the court wants to allow the business to be sold
thus it will blue pencil the unreasonable parts of restrictive covenants made
ancillary to the sale of a business. No blue penciling in employment cases but will
do it in sale of business cases.
i. WHITEvFLETCHER:[Whitewasoneof3employeestosignan
employmentagreementwarestrictivecovenantprecludinghimfrompost
terminationcompetitionwithcompany.Mergerhappened,andWhitewas
fired.Suedtoenjoinenforcementofcovenant.HOLD:cannotbluepencil
inemploymentcases,thereforerestrictiveclauseisoverbroad]
c. RESTRICTIVECOVENANTSFORPROFESIONALS:
i. 3Prongtestforreasonableness
1. unduehardshiponemployeedorestrictionsmakeitimpossible
topracticetrade
2. legitimateinterestsonpartofemployers
3. publicinterestconcernbeneficiariesofuniquetalentarethe
publicconcernthatpublicisdeprivedoftheseuniquetalents,
thereforewelookatwhetherornotthereareenough
accountants/doctors/lawyers
ii. BDOSEIDMANvHIRSCHBERG:[DworkedforBDOasaccountant
promotedandsignedreimbursementclause.DresignedandBDObrought
actionunderreimbursementclause.HOLD:reimbursementclausewas
toooverbroadandhowevertherewerelegitbusinessinterestsemployer
wasattemptingtoprotect.]
VI.INCAPACITY:

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1. Incapacity: is an avoidance not based on a defect in the bargaining process, but because
there was a lack of ability to consent.
a. Either for policy reasons or statutory reasons, someone lacks the capacity to enter
into contract
2. MINORS/ INFANCY
a. Infancy: cant enter into contract based on status as an infant.
i. GENERAL RULE RESTATMENT R2 14: Unless a statute provides
otherwise, a natural person has the capacity to incur only voidable
contractual duties until the day before persons 18th bday. (ex: Minor
doesnt have to pay if dont want to)
1. Some exceptions:
a. Necessaries:food,shelter,heathcarepolicybasisfor
necessaries,societywantstoencouragecontractsfor
necessitiessothatsocietydoesnthavetopay
b. Statute
c. Depreciationrule:lookatitemsandhowmuchvaluehas
decreased,andinfanthastoreturnitemplusdecreasein
value
d. Fraud:ifinfantmisrepresentedhimselfthereispossibility
thatfraudmightbeexception(lookattotalityof
circumstances)
e. Benefitrule:moresubjectivetest,whatwasthebenefitto
theinfantSoyoulookathebenefitsthatthedisaffirming
partyincurredandsubtractthosefromthetotalvalueofthe
contract.Sotheminorthatdisaffirmsthecontractisheld
liableforanythingthatsnotthenecessity.
ii. Voidable:thisisarightgiventotheminorifyousaythattheKisVOID,
infantcandecidetogothroughwithKsothisisnotallowed
1. it is only VOIDABLE until you reach the age of majority
a. some states have statures which gives the infant a certain
period of time to ratify it, if not it is enforceable
b. moststates,havestatutesgivingayearortwoyearsto
disaffirmwheninfantreachesmajority
iii. Majority Rule: Infant returns whatever the infant still has in the condition
that is in and that is all the other party gets. If item is banged up and
worthless, then that is what the infant returns
b. VALENCIA v WHITE:[minorentersKfor$20K.wantstogetoutofK.HOLD:
ValenciadoesnthavetopaytherepairpersonifhedoesntwanttoNOTA
NECESSITY.However,undertheBENEFITRULEValenciareceivedbenefits

CONTRACTS 93

oftimeandlaborfromWhitecannotbereturnedandrepairmanisentitledto
compensationsubtractfromKprice.]
3. MENTAL INFIRMITY:
a. Asageneralpropositionifyouarelegallydeterminedtobelegally
incapacitatedthenthecontractisvoid.Allcontractsenteredintobyfolkswhoare
LEGALLYdeterminedareVOID.
b. RESTATEMENTR215:Mentalillnessordefect:
i. (1)apersonincursonlyVOIDABLEcontractualdutiesbyenteringintoa
transactionifbyreasonofmentalillnessordefect.2tests:
1. MAJORITYRULE(Cognitivetest):ifthepersondoesnthavea
mentalcapacitybecausetheyhaveamentalillnesswecannot
findthattheyarecapableofformingtherequisiteintenttoenter
intoacontract.TEST:whetherthepersonwascapableof
understandingthecontract.
a. Ie:certainmentaldiseasesautomaticallydecidethis.Even
iftheyarentlegallyincompetent.
b. Otherdiseasesdontfitintothecognitivetesttooeasilyso
theresa2ndtestbutonly3stateshaveit:
2. VOLITIONALTEST(motivationaltest):heisunabletoactina
reasonablemannerinrelationtothetransactionandtheotherparty
hasreasontoknowofhiscondition.
a. 2parttest:
i. partaskswhatisthepersonsmentalconditionatthe
timethatheorsheenteredintothecontractAND
ii. didtheotherpartyhavereasontoknowthatthere
wassomethingwrongwiththisparty?
b. example:personhasnotbeenlegallyincompetentbutDrs
saidtheindividualclearlysufferedfromdepressionand
actuallyhadsymptomsofsomeoneasamanicdepressant.
Alotofmanicdepressantsenterintocontractstoconquer
theworldakayoureMOTIVATEDBythedisease.
c. Casesareallovertheplaceinapplyingthetwotests
i. Generallycourtswilllookat:
1. Hownecessarythecontractis
2. Howfairisthecontract?
3. Didthepartycontractingwiththeoneseekingtodisaffirmitknow
thattheotherpersonwassufferingfromsomekindofincapacity;
and

CONTRACTS 94

4. Howmuchofahardshipisinvolved
VII.UNCONSCIONABILITY
1. RESTATEMENTR2 208 Unconscionable Contract or Term
a. If a K or term thereof is unconscionable at the time the K is made a court may
refuse to enforce the K, or may enforce the remainder of the K without the
unconscionable term, or may so limit the application of any unconscionable term
as to avoid any unconscionable result
2. UNCONSCIONABILITY = judge made determination
3. UCC 2-302 Unconscionable Contract or Clause
a. Basic test: whether, in light of general commercial background and commercial
needs, the clauses involved are so one-sided as to be unconscionable under
circumstances existing at time of making the K
b. Determined by the court
c. Whether or not you need a hearing?
i. Vast majority of courts require hearings, but not all do
ii. Basic principle: both sides given opportunity to alleged their position
iii. Judge has DISCRETION
1. Once determine unconscionability, K can be stuck completely or
partially in which court will reform the K
iv. Determination is supposed to be determined form the time it was entered
into court wants to avoid situation where there is a fair K and then it
turns out that someone is making a bad deal
4. Professor Leff: (p646) 2 part test for unconscionability
a. TEST: (generally must have both for unconscionability) look at totality of
circumstances
i. procedural unconscionability: (circumstances that surround the formation
of the K) unfairness in bargaining process (one party having superior
position, dictates terms and refuse to bargain at all)
ii. substantive unconscionability: (oppressive terms) harsh terms in
resulting K
b. **HOWEVER The more egregious the terms, the less egregious the
circumstances need to be**
i. EXAMPLE: If you find that procedurally that things are almost ok, but the
terms are outlandish the courts will not pay attn to the fact that we have
a 2 part test
1. TERMS OF K MUST SHOCK THE CONSCIENCE OF THE
COURT

CONTRACTS 95

5. UNCONSCIONABILITY: an absence of meaningful choice on part of one of the parties

together (procedural) with K terms which are unreasonably favorable to the other party
(substantive) LOOK AT TOTALITY OF CIRCUMSTANCES!
a. WILLIAMS v WALKER-THOMAS FURNITURE: [Williams bought
furniture on creditprovision said if default then all furniture where balnce is due
will be taken back. She defaults and Walker sought to replevy items. HOLD: term
was unconscionable (on assumption that buyer understood it). Court is making a
value judgment]
i. PROF how well we can argue that a particular set of circumstances
coupled with specific terms create a situation that should shock the
conscience of the court
b. SCOTT v CINGULAR WIRELESS: [class action against Cingular
individuals signed agreement that prevented them from bringing class action
(arbitration requirements). There were public policies for arbitration and there is
no problem with the actual term. What is unconscionable here HERE:
customers were informed of giving up their rights via a bill stuffer = procedural
unconscionability AND cingular is exculpating itself from liability b/c there will
only be a few people who will bring claims (b/c some are small claims) =
substantive.

CONTRACTS 96

6. HOLDHARMLESSCLAUSE:absentunconscionability,duress,undueinfluence,
etcthistypeofclauseisenforceablepartiescanmakecontractsexculpatingoneparty
anprovidingforindemnificationifitisdoneknowinglyandwillingly
a. BurdenisonpartysubmittingKtoshowthattheotherpartyhadknowledgeof
anyunusualtermstherein,otherwisehassuperiorbargainingpower.
b. FORUNCONSCIONABILITY=ABALANCINGTESTbtwnproceduraland
substantiveunconscionability(however,themoreoppressivetheterms,theless
oppressivecircumstancesneedtobe)
i. WEAVERvAMERICANOILCO.:[Khadaholdharmlessclause
WeaverisbadlyinjuredduetoAmericansnegligencebutAmericansays
notresponsiblebcofclause.HOLD:termsaresopatentlyonesided
thatitshardtobelieveWeaverread/understoodthem.]
1. Substantiveunconscionabilitycanbeevidenceofprocedural
unconscionability
a. Substanceisgreatlyonesidedandcanseethisin
proceduralunconscionability(noreasonablepersonwho
read/understoodthetermswouldhaveagreedtothem)
i. IfWeaverhadbeenrepresentedbycounsel
proceduralunconscionabilitywoulddisappear.
UNCONSCIONABILITY THEOPPRESSIVETERMSTRIGGERTHE
INQUIRY BRINGINTOQUESTIONWHETHERHEKNOWINGLYAND
WILLINGLYASSUMEDTHERESPONSIBILITY**
o IFthetermsareOKwecarelessabouttheproceduralunconscionabilityb/cif
thetermsintheKarefair,weassumeareasonablepersonwouldassumetherisk
andthiswouldbeok
o HOWEVER,whenwehavetermsaresooppressive,coupledwiththe
circumstancesthatwehavehereCOURTWILLFIND
UNCONSCIONABILITY

CONTRACTS 97

3termsusedwhenremedysoughtunderchangedcircumstances
Impossibility
Impracticability
Frustrationofpurpose
**undermodernUCCandstartingincommonlawcontextsometimesimpossibilityand
frustrationofpurposearediscussedunderimpracticability**

IMPOSSIBILITY:
Isperformancepossible?
IFNOT,wasKintendedtobeperformanceevenifperformanceisnotpossible?
o Ifyesnoexcuse
o Ifnothenimpossibilityisanexcuse
IMPRACTIABILITY:
KisnotasvaluableaswhenyouenteredintotitsubstantialreductioninvalueofK
o ClaimingthatreductionmakestheKimpracticable
o Mustfind:
Exceptionaldevelopmentssomethinghasoccurredandwecanstatethat
thenonoccurrenceoftheeventwasanassumptionoftheKandParty
seekingreliefcouldnotcreatetheexceptionaldevelopment
VIII.IMPOSSIBILITY:
Riskallocationlookatlanguageandcircumstances
DoesKitselfimposetheriskoftheexceptionaldevelopmentofthe
partyseekingrelief
SomecourtsNOWincludeimpossibility
FORSEEABILITYplaysaroleifitturnsoutthattheinterveningactwasforeseeable,that
willplayaroleindeterminationofoutcome,butnotdispositive
o Isthisanactweshouldreasonablyexceptpartiestohaveforseenandthattheyhada
Ktermdealingwithevent?
POINT:substantialreductioninvalueofperformance
FRUSTRATIONOFPURPOSE:
LookingtoexcuseperformancebasedonananalysisofwhattheprincipalpurposeofKwas
anddeterminingthatthepurposewassubstantiallyfrustrated
R2261and265

VIII.IMPOSSIBILITY:

CONTRACTS 98

1. IMPOSSIBILITY=
a. IfproblemarisesafterKformation,therulesthatfollowaremoreappropriately
used
i. MustINTERPRETtheKanddeterminewhatthepartiesINTENDED
b. inKsinwhichperformancedependsonthecontinuedexistenceofagivenperson
orthing,aconditionisimpliedthattheimpossibilityofperformancearisingfrom
theperishingofthepersonorthingshallexcuseperformance
i. Ex)PersonalservicesKifonehiredtoperserviceanddiesKisvoid
c. TAYLORvCALDWELL:[ahallwasrentedout,burneddownbeforeKwas
performed.HOLD:existenceofthehallwasabasicassumptionoftheKand
wasnecessaryforfulfillmentofK,Kisexcusedforimpossibilityof
performance.

2. IMPRACTICABILITY:
a. UCC2615ExcusebyFailureofPresupposedConditions
i. Partiesareworkingwithsuppositions(beliefs)whenmakingtheK)
ii. WaysasellercanavoidKorthefullimpactofbreach,unlesssellerhas
assumedgreaterobligation:
1. Delayindeliveryornondeliveryhasbeenmadeimpracticable
byoccurrenceofacontingencythenonoccurrenceofwhichwasa
basicassumptiononwhichKwasmade
iii. Generally,courtsarenotreceptivetotheargumentthatKisnotprofitable
anymoreEXCEPTIONS
1. Lookatreasonforincreaseandmakeajudgmentrevolves
aroundFORSEEABLE(wascontingencyforeseeable?)
b. RESTATEMENTR2261:Dischargebysuperveningimpracticability
i. Where,afteraKwasmade,apartiesperformanceismadeimpracticable
(samelanguageasUCC)
ii. R2263:inexistenceofspecificthingisnecessaryforperformanceofa
duty,itsfailuretocomeintoexistence,destruction,orsuchdeterioration
asmakesperformanceimpracticableisaneventthenonoccurrenceof
whichwasabasicassumptiononwhichKwasmade
c. Impracticability:somethinghappenedafterformationofKthatallows
performancetobeexcused(servesasadefense)
i. PROCESS:Lookforanexcusingeventandaskifthenonoccurrencewas
abasicassumptionofthek
ii. Excusefromperformance:basedonnotionthatcircumstanceshave
changedandmaketheKimpracticable
CONTRACTS 99

1. Partyseekingexcusedperformancecannotcontroltheevent
2. Whetherornotpartiesseekingtobeexcusedcouldhavetaken
reasonablestepstopreventtheexcusingevent
iii. RESTATEMENT261DischargebySuperveningImpracticability
1. Where,afterKismade,apartysperformanceismade
impracticablewithoutfaultbytheoccurrenceoraneventthenon
occurrenceofwhichwasabasicassumptiononwhichtheKwas
made,hisremainingdutiestorenderperformancearedischarged,
unlessthelanguageandcircumstancesindicatethecontrary
d. NISSHOIWAIv.OCCIDENTALCRUDE:[here,itwasmerelyimpractical
toperform(reallyexpensiveforOccidental).Thereisaforcemajeureclausein
K(anexplicitimpracticabilityclause)butthecourtinterpretsittoleadtosame
analysisonwhomshouldtheriskfall?Occidental:situationsfallsspecifically
underclauseHOWEVERitalsosaystheymustactreasonablytopreventloss
forittoqualifyasanexcuse.HOLDING:youmustexpendreasonableeffort
toavoidimpossibilityorimpracticability,soOccidentshouldimputethe
risk.]
i. Ifitisjustimpracticable,andnotimpossible,alwayswithinthepowerof
thesellertofixit
e. UCC2613:CasualtytoIdentifiedGoods
i. WheretheKrequiresforitsperformancegoodsidentifiedwhentheKis
made,andthegoodssuffercasualtywithoutfaultofeitherpartybefore
theriskoflosspassestothebuyer
1. ifgoodsfallsbelowtheKthebuyermaydemandinspectionand
isgivenopportunitytoavoidtheKortakeareductionintheprice.
ii. Whathappensifoneofthepartiesdiesbeforedeliverydatewillnot
effecttheKb/cthistalksaboutcasualtyofgoods
1. KsstaywithyouFOREVERestatescanbeliablefordebtsand
contracts
f. SUBJECTIVEvsOBJECTIVEIMPRACTICABILITY
i. Onlyobjectiveimpracticabilitymayservetorelievepartyofcontractual
obligation
1. Subjective:Icantdoitthisdoesntwork,UNLESStheK
requiredthatyouspecificallydoit
2. Objective:thethingcannotbedoneifyousayyoucannotdoit
andnooneelsecandoit=gooddefense

CONTRACTS 100

ii. SUNFLOWERELECTRICv.TOMLINSONOIL:[Dpromisedtosell
Pacertainamtofgasreservesonspecificfield.Fieldturnsouttobe
emptyitisunknowntosellerorbuyer;sellerclaimsmistakeand
(impracticability).HOLD:distinctionbtwnmistakeandimpracticability
ismeaninglessthereisobjectiveimpracticabilityHOWEVER,seller
assumedtheriskb/citcontractedtoproducethegasandwasinabetter
positiontoknowwhetherornotitcouldproduceany
1. RULE:Aspecificthingisnecessaryforperformancehowever
circumstancedemonstrateapartyhasassumedtherisk
UCC2615)

g. FRUSTRATIONOFPURPOSE:
i. KRELLvHENRY:[Henryrentedflatforexpresspurposeofwatching
royalcoronation.Coronationdidntoccur=frustratedthepurposeof
theK.HOLDING:Krellcannotsueb/cnonperformanceisexcused
sincethepurposeoftheKwasfrustrated.
ii. RESTATMENT265DischargebySuperveningFrustration
1. AfteraKismade,apartysprincipalpurposeissubstantially
frustratedwithouthisfaultbytheoccurrenceoraneventthenon
occurrenceofwhichwasabasicassumptiononwhichtheKwas
made,hisremainingdutiestorenderperformancearedischarged,
unlessthelanguageandcircumstancesindicatethecontrary

SUMMARY:
OnceyoufindnodefectinformationofKbasicprincipleofpactasuntservanda
(agreementsmustbekept)shouldapplyandusestrictliability
o Ifyoudontwantstrictliability?
Forcemajuereclause
Limitremediesavailable
Besteffortsclause
WhatifyoudonthaveoneoftheseImpracticability,impossibility,and
frustrationcomeintoplay
o Noclausesandhavepactasuntservanda
o Onepartysaysshouldntbeheldliableb/cofsituation
findingthatanimpliedconditionofKisthatperformanceisnot
possibleANDpartiesunderstoodthatifperformancewasnot
possibleitwouldbeexcused
CONTRACTS 101

b. Performance and Constructive Conditions

A. Need for Constructive Conditions of Exchange

i. Kingston v. Preston
-security was supposed to be tendered, it was not.
Part of the consideration was the security.
Buyer wants the business. Buyer's argument says my giving you security is independent of
you giving me the business, so sue me for consideration if you choose.
The promise is independent of the promise to give over the business. (Modern contract law
has its historical base in Lord Mansfield's decisions. He is considered the father of
commercial law)
However, Mansfield says that this was not the intent of the parties. That giving the security,
is necessarily a condition precedent.

3 Types of covenants:
1. Mutual and dependent
2. Mutual and independent
3. Conditional and dependent
ii. When we talk about dependency, we are talking about conditions. A condition is nothing
more than a dependent promise.
How do we know what the sequence is for conditions taking place?
-It's all about intent and the surrounding circumstances (which includes Usage of Trade).

Shaw v. Mobil Oil Corp

-Rental term for amount of gas delivered, there is a minimum amount required.
Shaw wants to make sure they get a minimum amount, which is what they were trying to
enforce.
Mobil's defense is impossibility.
o UCC section 2-615 applies: Excuse by failure of presupposed Conditions
o Except so far as a seller my have assumed a greater obligation and subject to the
preceding section on substituted performance:
A)Delay in delivery or non-delivery in whole or in part by a seller who
complies w b) and c) is not a breach of his duty under a K for sale if
performance as agreed has been made impracticable by the occurance of a

CONTRACTS 102

contingency the non-occurrence of which was a basic assumption on

which the contract was made or by compliance in good faith with any
applicable foreign or domestic governmental regulation or order whether
or not it later proves ot be invalid
B) if only partially affects sellers capacitymust fairly allocate and
notify customers/allocate between
C) the seller must notify the buyer seasonably that there will be delay or
non-delivery and, when allocation is required under b) of the estimated
quota thus made available

Certain assumptions as we perform the K.

The term conditions Shaw's performance on Mobile's performance... If mobil does not
perform, Shaw would not have to pay. Such a condition is an implied -in-fact condition.
Implied in fact: if one party does not perform, the other does not have to pay

-Shaw has no obligation to perform a promise that is conditioned upon Mobile's performance
when they failed to perform even if it is excused because of impossibility.

Shaw's promise to perform is a dependent promise (aka, condition).

Problem 146: What's the intent of the parties. This is a question of sequence. He doesn't have a
duty to pay for a boat before he actually gets the boat, and he doesn't have to give the boat until
he gets the money. If it has been an established contract, each can sue the other for failure to
perform. Neither can be sued/neither breached b/c neither showed up neither performed.
The intent was a concurrent condition. It was a contemporaneous exchange, since both did not
show up, time for performance has probably expired.
Problem 148:
UCC 2-307 default provision. 307 says duty to pay does not kick in until delivery is complete.
Unless she had a way of showing they otherwise agreed, she does not have to pay for the partial
delivery until the full delivery comes in.
C. Substantial Performance of Conditions; the effects of Material Breach on Performance
Jacob & Youngs, Inc. v. Kent
-Huge job to replace the pipe.
We are dealing with a condition (the K provision specifying the pipe).
However, when the departure from the specific provision is so insignificant, condition
can be viewed as independent and collateral.

-Cardozo adds another condition that SUBSTANTIAL PERFORMANCE satisfies the first
condition.
o if that which is not performed is so trivial, we are missing the goal of the K by
trying to enforce it.

CONTRACTS 103

o Equity rears its head. If condition is determined insubstantial, than substantial

performance is enough of a performance and we look at the remedy as what
was supposed to be delivered and what was delivered.
-If you don't fulfill a condition, the other side's duty to perform does not arise. Forfeiture.
Justice requires us to determine whether or not this is fair.
IF the deviation is so great, that you can say this is not what was bargained for,
forfeiture is appropriate.
However, as what happened here, it would not be fair to impose forfeiture.

**Substantial Performances does not apply to express conditions (note 4)

Problem 151
Do not equate willful violations with substantial performances....
*Should not have to payhe willfully violated
O.W. Grun Roofing & Construction Co. v. Cope
o
o
o
o
o
o
o
o

Roof tiles were not a uniform color.

He acted in good faith, did what he was supposed to do...
Buyer says I am not paying.
We have a condition, no duty to pay until roof is installed properly.
Roofing Co says substantial performance.
Breach has to be minor, insubstantial.
How can you tell? Read the contract.
What's minor can only be determined to be so when you know what is being bargained
for.

-Roofing company: She benefited. It's a good roof for 15 years, even though it is not uniform
color, that is minor.
-Aesthetic plays a significant role here. Ct. says substantial performance does not apply in this
case. The defect is not minor/insubstantial.
**Substantial performance is determined on a case by case basis, but only when it is an
implied condition.
Carter v. Sherburne Corp.
o Hold back term in the K: Hold back money to ensure what you did was ok/ and future
performance.
o If P failed to abide by completion schedule, D says no longer has a duty to pay.
o Anytime you say you don't have a duty to pay b/c other party did not live up to term of
the K, you are dealing with a condition.
Time table term: when you label it a condition, it is a "time of the essence" term.
Generally not in construction cases. since it is not expressed, the court will not imply it.

CONTRACTS 104

-the court also finds that the defendant caused the delay. However, since good faith is implied in
every K, the defendant cannot cause the harm then seek the damages.
o D says they said they won't make any payments and they continued to work... they should
not have to pay for any work they did after they were informed they weren't going to pay.
o The court responds by saying you were ending the contract, you were saying you are not
making any progress payments, you didn't mention contract termination, but they didn't
think you weren't going to pay at all.
Problem 153: Term is an express condition. She will sell the home IF he brought the money
between 12 and 1. He brings it at 1:23, so he CANNOT say substantial performance because it
is an express condition.
Problem 154: Courts are very sensitive to this type of issue. We tweak the rules for reasons of
justice. Most likely their action will succeed
Problem 155:
2-612 in UCC... regarding installment contracts. Breach is minor, if you do have right to reject
installment, doens't mean you have the right to reject the whole contract.
Printing Center of Texas, Inc. v. Supermind Publishing
o Sale of services vs. a sale of goodswhat law is used? THEY ARE USING UCC.
o Written contract to print a bunch of books5000
o Buyer ordered and books printed. However, when books delivered, different pages, quality
and color than they ordered.
o Buyer wants to rejectinvoking
o Perfect Tender Rule UCC 2-601
If the goods fail to conform in any respectbuyer may reject
May reject for ANY non conformity
Note: this really does not apply, because the lower court erred in the
application of the correct law.
o Seller argues: substantial performance is sufficient, they want to get paidso try to
convince perhaps they can get quantum meruit? And it would be unfair to deny them
payment. TRYING TO AVOID forfeiture.
o NOTE: substantial performance does not apply in the sale of goodsin the
context of sale of goodsyou either get what you bought or you do NOT.
o So Next Seller argues: good faith, they rejected
o UCC 1-203: every rejection or performance must be done in good faith
o Ct. decies that the buyer DID act in good faiththere were many defects, type of paper,
color, non-conformity in the pages themselves, off-center art. All point to good faith.
o In accordance to 2-601, the only way you cannot reject is if you are making up a nonconformity in a lack of good faithbut here, THERE WAS a non-conformity. Thats
all you need to reject.
o So the rejection was technically proper and the 2-601 was satisfied.

CONTRACTS 105

o Ct. decided that it was a sale of serviceshowever the UCC was applied? MESSED UP.
o Whenever we have a situation of both goods and services you are to use the
PREDOMINANT FACTOR TEST: use the printing, which is a service, therefore the
common law should be applied.
o The lower court used the wrong law and the Plaintiff did not appealso the appellate court
continues to apply the wrong law.
o A different test exists under the common law than under the UCCwe MIGHT come out
with a different result. HOWEVER, at the end of the day you could argue no substantial
performance.

WHAT HAPPENS IF WE ACTUALLY APPLY THE COMMON LAW (hypo. Of what

would have happened if they would have applied the RIGHT law)
o First question: is it a promise or a condition?
o Is it independent: promise (no they are not obligated to perform irrespective of
what the other side does)
o Is it dependant: condition YES! Each performance is dependant on the other
Express or implied?
Seems implied: have to conform to the contract/what request and
what satisfied industry standards
BUT: if it has to satisfy/meet the standard the of the SAMPLE the
COLOR shownEXPRESS WARRANTY! (Buyer should argue this)

AND THEN: when they get paper, wrinkledBREACH OF

WARRANT OF IMPLIED MERCHANTABILITY- sales we deal with express and implied warranties
o Common law conditions created through warranties.
o Substantial performance does NOT apply to express warranties(only applicable to
implied warranties)
o But this messes it all up. Because we have both implied and express
o A substantial performance here though: plays out poorly, breach of warranty here,
basic remedy does not work for seller or buyer
o Common law way is much more difficult
Note: UCC gets ride of caveat emptor if it is a merchantlook to the allocation of riskif not
merchant..no.
o Under the code: when something is an express warranty, you are saying you created
an express conditionplay 2-601 off of this.
Capitol Dodge Sales v. Northern Concrete
o Buyer wanted pick-up w/snow plowwent and took it for a test drive and it overheated
o Seller told buyer the overheating was from incorrect positioning of snow plow blade
o So buyer buys anyway, documents executed, checks executed
CONTRACTS 106

Buyers agents come to pick up, blade positioned properly and engine overheats again
Call seller, says fix radiator and check blade and take outoverheats
Take it back to seller to fixfix radiator capOVERHEATS AGAIN
Buyer does not WANT IT. Tells seller to take it back
However, seller tells the buyer You bought this truck, you keep it
Seller acts as if purchase completed and you have accepted the truckcannot return it..
Buyer is claiming right to reject based on non-conformity!
Seller: you accepted and now you cannot reject (LEGALLY: if you accept you
cannot reject) Says that buyer accepted by TAKING POSSESSION
o You accept or reject. You CANNOT accept THEN reject.
o Accepting of a tendered performance is not the same as accepting an OFFER.
o UCC-2-606:
o (1) Acceptance of goods occurs when the buyer
a. after a reasonable 107onconformi to inspect the goods significes seller
that the goods are conforming or that he will take or retain them in spite
of their 107onconformity(you can say I acceptexpressly)
b. (failing to rejectindirectly)
o
o
o
o
o
o
o
o

c. (taking the goods and acting as they are your own goodsimplied in
fact)

NOTE: UCC-513: Buyers right to Inspection of Goods

1) unless otherwise agreed and subject to subsection (3), where goods are tendered or delivered
or identified to the conract for sale, the buyer has a right before payment or acceptance
(right to inspect can be waived)
-however duty to accept or reject does not kick in until you have time to do this.
Example) when a buyer purchases a machine that requires assemblymight day days or
months. Need to get it together, get it working and THEN inspect. SO you can thus
reject/someone can reject months
o Here, they told him to check blade and radiatorthus this is what buyer needed to do to
inspect
o Buyer did all of thisinspectstill does not workequates to non-conformity and has
right to reject
o Just because it was in his possession does not mean he acceptedhe was waiting to
inspect
UCC-2-602: Manner and Effect of Rightful Rejection
1) Rejection of goods must be within a reasonable time after their delivery or tender. It is
ineffective unless the buyer seasonably notifies the seller (must be able to seasonably notify
the buyernotice is require)
(this includes the time period for INSPECTION)

CONTRACTS 107

(Just because he paid for itall that means is that he has to pay to take possession of the
goods, however, he then still has the right to inspect---condition subsequent)
RIGHT TO REJECT : is not the right to REVOKE ACCEPTANCE.
o Some contracts say, once you take this homeyou no longer can invoke your right to
reject.
o Your agreement may trump/supercede these factors: federal lemon lawssame
problem 3/4 times in a row you can return the car..
Colonial Dodge, Inc. v. Miller
o *this is what happens after you accept the goods and then you discover a non-conformity
o Usual remedy is to sue for the breach you claimgenerally we are referring to a remedy
o Sometimes however, you dont want to turn over the goods for repair and then sue for
damages---would rather just return the goods.
o Trying to undo contract RECISSION. (common law)
o Under Code 2-608: REVOCATION OF ACCEPTANCE
1. Buyer make revoke acceptance of a lot or commercial unit whose
noncomformity substantially impairs its value to him if he has accepted

(Puts you in a place you would have been as if you rejected the
goods)
o We need to know the value TO HIM. Those are the words
SUBJECTIVE. (what is being substantially impaired)
o Then, given the value to him, as the nonconformity
substantially impaired the value to HIMOBJECTIVE
TEST. (USE REASONABLE PERSON TEST)
If you can say really after these 2 tests, no value
read on.
A) he accepted on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured
B) w/out discovery of such non-conformtiy if his acceptance was
reasonably induced either by the di
o If the answer is yes to EITHER, now you can revoke the
acceptance

o Case is often criticized: rescind contractseems nuts, based on no spare tire

Facts:
o Buyer Orders a packagehas as its premiseimportant idea to the buyer: safety.
o He travels a lot 150 miles a day, afraid to breakdown somewhere and would not have
appropriate tire
o Orders special safety tire. CONCERNED w/safety
o Here: the value to him being impaired by the nonconformity is safetyVALUE = SAFETY
CONTRACTS 108

o Next: would the reasonable person who has the value of safety, think that the car has been
substantially impaired
o A) did he accept on reasonable assumption of the cure: he called and said where is it,
they saidwe dont have. Gave them chance to cure, they did not for 6 months. WE
DONT CARE if it was the sellers fault. Once he expressly contracts for the
package w/ tire.this is a CONDITION (must be satisfied before his duty to pay
arises) Failure of conditin gives him the right to rejectallows him to revoke
acceptance.
UCC 2-711
1)Where seller fails to make deliver, repudiates, or buyer rightfully rejects, or justifiably revokes
acceptance.buyer may cancel, coverrecover damages for non-delivery
-Care and custodyall we need to do is pinpoint the RIGHTwhat is it that you claim the right
to persue damagesrightful revocation.

UCC-2-703Sellers Remedies
1) buyer wrongfully rejects, fails to pay, repudiates with respect to a part or the whole, then with
respect to any goods directly affected and, if the breach is of the whole contract, then also with
respect to the whole undelivered bancae the seller may
a) withhold delivery of such goods
b) stop delivery by any bailee as hereafter provided
c) proceed under the next section respecting goods still

Sullivan v. Bullock
o Homeowner hires contractor to remodel roomswritten agreement
o Agr. Is NOT specifiche starts fixing
o She pays a bit, she claims she has NOT been happy from day one, she never TELLS HIM
this.
o At some point, she worries that they are being in the house while shes not thereso tells
them dont enter the house while Im gone
o Worker comes in thru windowTO WORK. Breaks in. lol.
o Shes come back and gets upsetshe wants to sue for the cost of redoing everything he was
hired to do. Initially contract for 7,000. To redo, would cost 19,000.
o Rule: Duty to cooperateit is an implied duty, implied condition in every contract is the
fact that there is a duty to cooperate.SHE FAILS TO COOPERATE.
o Contractor wins

CONTRACTS 109

Burger King v. Family Dining

o Guys met at Cornellbusiness relationship, and Ferris wants in/thinks he can get in on
thisclose friend
o Enter into a contract where BK guy gives friend a right to develop BKs w/in territory in PA
for 90 years
o Term in the contract which requires Family Dining to build 1 BK a year for the first 10
yearsif they do that, then they have exlusive rights to that territory for other 80 years
o This term is a CONDITION: if he does not satisfy he loses the right to
exclusivitysubsequent
o We both have obligations: as long as you keep up obligation, then it continues.
Should you drop the ball, then the right of exclusivity ceases to exist
o If they DO NOT: other term: should you fail to come up with one a year every year
after first 10 yrs, then the agreement shall terminate and be of no further force or
effect.
o This was EXPRESSEXPRESS CONDITION SUBSEQUENT: read these terms strictly
o He did not build one a yr,. On the time table as set (if this is what happened, technically he
should lose his exclusivity)
o This is all about INTENT: Cannot limit it to the 4 corners of the contracts (even 4 corners
judges know you cannot limit yourself in this analysis)
o They know whats at stake and DO NOT want forfeiture. Someone who has
been given a 90 yr exclusive territory will LOSE this. Try to figure out out
intentintentso they do not lose this/forfeit contract
o Now look at SURROUNDING CIRCUMSTANCES: 2 friends, trying to develop
business, analhes latetells him about itthey are fine with this
This happens again and againand they are fine with it
Then management changes and they realize it has made a mistake
Bucks and Mont. Needs WWAYYY more Bks than just this guys ten
Now, new management wants to insist on exclusivity on contract--o BK has the right to insist on the express termshowever, they GIVE UP THIS right.
WAIVER. (but court does not use this terminology) pg. 780Waived right to insist on
exact performanceand the overarching thought in this analysis is forfeiture
o They never insisted on exactness beforeand by the time of suit, 10 Bks in place
o Waiver can in fact serve as a defense to the claim that the express terms must be
satisfiedthey waived their right to enforce exclusivity.
Inman v. Clyde Hall Drilling co. (1962)
Facts: Inman works for Company under an employment contract.
o He is fired on March 24. He sues Company of April 5 for breach of the contract and
service of the complaint is made on April 14.
o Company defends on the grounds that the contract requires P to give written notice to
Company within 30 days of any claim, and that it bars Inman from suing sooner
than six months after such notice is given2 parts here, 1. cannot bring suit until 6
months after the notice.2. must give notice 30 days after claim

CONTRACTS 110

o D points out that the contract expressly makes fulfillment of these requirements a
condition precedent to any recovery
o P argues that the filing to the suit and service of the complaint constituted the requisite
written notice to Company, and that it was against public policy (he sues them!)
Rule: Strict compliance with an express condition is ordinarily necessary.
Holding/reasoning: Court finds for company.
o This case rests on the fact that this is a valid TERM in the K, the court finds the
term to be enforceable, no valid avoidance mechanism
o These mechanisms would have been duress, undue influence, etc. Then they
would not have to recognize the notice term (but not here)
o Service of the complaint probably gave the company actual knowledge of the claim.
But that does not serve as an excuse for not giving the kind of written notice called for by
the contract. --explicit term in the K. A term we can lael a CONDITION
o Notice is something different from sue, not giving the employer the benefit of K
o Since the contract barred suit until six months had passed from notice, this provision
would be rendered meaningless if filing of the suit were itself treated as notice.
o Since adequate notice is no longer possible within 30 days of the firing, Ds claim is
dismissed.
o Term in K, both parties agree to, court finds term valid, P is barred from suit
o Court does not analyze what type of conditionjust concludes it is a condition
prescedentit accepts the parties statements that it is a condition prescedent
(labeled it this themselves!)
o This was just what the parties had in the K. makes a difference because of B of
P.
o If presecedent burden of proof on P. to prove that it was met (no right arises
unless the condition is satisfied)
Why would a condition need to be satisfied if the other party breaches
this is why some courts say it is sub.
o Subsequent: affirmative defense which much be established by the Defendant
(employer)
o This case was discussed a lot based on what kind of condition it was
o Is the Employee totally screwed? : The employer HAD to go to a lawyer to file suit.
When the lawyer reads the Kwill see file noticehe sued 2 weeks after fired.
o Either the lawyer did not read the K: malpractice
o Or lawyer DID read the Kmalpractice
o Lawyer should have written to the company giving notice of the SUIT!!! We hereby
give you notice of our intent. Give notice, wait six months.
o If you think you dont need to give notice/disregard a term in the K, you
must have a LOT of insuranceYOU WILL GET SUED. READ the damn
contract.
Terms under which Employee cannot claim/try to recover
o No evidenceof duress etc. Freedom of K., no way of getting around.
CONTRACTS 111

o Court could have done justice and saidthey breached, K not in effect, P not
bound by terms, but they did not want to do this/equity was not required from
their perspective
**THIS IS COMMON LAW IN THIS CASEFreedom of contract caseyou have the
right to K for anything as long as not illegal,
Butif you parallel to UCC
Paralell to UCC 2-602: rejection is dependant upon seasonable notice
-If the buyer tells the seller that the goods do not conform on timeletting him know he still
wants them
-we are pro contract formation.
-No seasonable notice, you rejection is ineffective (so thus you accept), you lose your right to
reject the goods.
-HOWEVER, we know you can still revoke your acceptance
o assumption is that parties really want to do the RIGHT THING
UCC 2-607
(3)(a)Where tender has been accepted the buyer in a reasonable time, after he discovers or should
have discovered any breach notify the seller of breach or be barred from any remedy; and
o you dont give notice? You dont have a right to sue
o Reasonableness standard: case by case proposition, generally from the time it was
delivered and accepted.

Moe v. John Deere Co. (1994)

o Moe buys tractor from John Deeretrades in old tractors, enters into K
o Misses a payment, Deere says you can pay late
o Made another arrangement, another late payment
o Made a further deal: give us 2000 now, pay the rest sometime later (no date was set)
o Goes out of town, they reposess tractor
o Modification of K through course of performance: deals with same K. (acitons
pursuant to same K)
Distinguish: Course of dealing: multiple performances over the
course of several Ks. Ex)if you had 4 previous Ks and were always
allowed to pay late. Current K is then viewed in light of all other Ks
UCC Article 9: Secure transactions
-creditor wants to be secure, have a right to go after collateral
-goods: security interest was on the tractor
-mortage: go against real estate
o Should the debtor fail to meet the terms of the K, the creditor is able to forclose on the
collateral w/out having to notify the debtor
CONTRACTS 112

o
o
o

o
o
o
o
o
o
o

o Can reposess car from street, garage, etc. YOU Do not have to go to court.
KEY: in order for the creditor to have that right, the debter must breach.
o Breach in this case: DEFAULT, but no definition in the code. The parties
determine default.
o If you do not state what default is in this agreement, you are in trouble.
Cts . are clear that NOT PAYING is default.
Besides that, there is no uniformity about what constitutes default.
Ex) you buy tractor in NJ for ur farm in NJ. Do you think they want you
to take the tractor to another state? No. most likely would be in K.
o Until you commit a default, you cannot take the property back
Creditor: You defaulted by not making payments! K said that borrower was supposed
to make 5 payments once a yr for 5 yrs.
Debtor:
Lender had the right to forclose when the buyer was late the first time. Might be
considered a waiver
o 1 default/1breach/1late payment: Im just accepting this once
o Note: it could be about a late delivery
If it happens againor multiple times? It becomes course of performance Cousre of
performance modifies terms of K.
Now, the right to forclose must be viewed in light of the modifaction of the K.
o Creditor is screwed. Some payments substantially lateso you can NEVER
forclose if you keep accepting late payments.
Right before was to foreclose w/out NOTICE (under original terms, by implication of
law, no notice is required)
Modification: now requires notice of the foreclosure. No notice/no satisfactory notice
given.
*Change in the contractual terms which deny the creditor the right to foreclose
pursuant to the orignal terms of the K.
**Actions speak louder than wordsthem letting him go.
The right to foreclose is NON-waivable: but you keep accepting late payments

Pg: 793: You tell the buyer you have the right to foreclose. Also say the right to foreclose is
non-waivable. Then you accept late payment. Then you do it again. You are leading the buyer
to rely on/believe that it is OK to pay late!!
-Then the lender will be estopped from claiming its rights becaue of the reliance they have
allowed to be created by their actions
o Waiver and not acting on their rights gives rise to RELIANCE which gives rise to
ESTOPPEL
o In the real world, yes we want creditors to work with us and keep the K. It is not
unreasonable though, to have creditors send one letter that saysnowpayment is
expected to be ON Time. Also consistency
o Any analysis must be done under the FACTSits a maybe. Best argument is a MAYBE
with a good reason behind it.
o Pg 162..for exam studying
CONTRACTS 113

CHAPTER 8: ANTICIPATORY REPUDIATION

1. Anticipatory Repudiation: it is possible for a party to breach in advance of performance
to repudiate her obligation in anticipationIf before the time for performance, she
makes it clear by words of actions that she will breach when performance falls due.
a. contract has been repudiated, therefore breached, prior to the time that
performance is due
i. example: if conduct of a party goes beyond mere passive waiting for the
sue date, and he manifests intent in advance that hew ill not perform when
the date arrives, he repudiates the K
b. ELEMENTS:
i. promisor must clearly, unequivocally, and voluntarily communicates an
intention not to render the promised performance when it falls duecan
be communicated by WORDS or CONDUCT
1. must be material and total breach
a. example: intent to not perform at all, to render a
substantially defective performance, or refuse performance
unless promisee agrees to do or pay more than K requires
2. UCC 2-610: Anticipatory Repudiation:
a. When one of parties has repudiated a k = anticipatory repudiation
i. Aggrieved party may, (possible ways to proceed):
1. Await performance for reasonable commercial period of time
(wait to see if other party performs or plans to not live up to
repudiation)
2. Decide repudiation is final and resort to remedies go to 2-703,
2-711 for remedies
3. SUSPEND your own performance
*MAKE SURE, that there is in fact a repudiation, if you are given
reason to believe, you are allowed to be insecureyou can ask
questions, be unsure, ask for assuranceif you dont get
assurance (go after you 2-610 rights)
*But otherwise, cant go after your 2-611
3. UCC 2-611: Retraction of Anticipatory Repudiation
a. Allows for repudiating party to RETRACT repudiation unless the other party
cancels or materially alters their position (bring equity into picture)
b. Retraction re-instates the parties rights back into the contract
c. So THEN the one who originally accused repudiationbecomes the one liable
under the K. (CONSiSTANT w/basic contract law)
d. We want the parties to actually perform under their Ks
i. PROBLEM: under 2-610 aggrieved party can wait or resort to remedies

CONTRACTS 114

ii. **if you believe a party repudiated you better be right b/c the other party
has the right to retract
1. if party guessed wrong and it isnt repudiation, then they have
breached and are screwed
2. however, if you are right and other party actually repudiates, then
you go out, rely on that and cover, then other party cannot retract
3. So if you are unsure, get/make sure you know the ACTUAL words
of the possible/supposed repudiation..
4. RESTATMENT 250 When a statement or act is repudiation
a. A repudiation is:
i. A statement by obligor to obligee indicating that the obligor will commit a
breach that would give the obligee a claim for damages for total breach, or
ii. A voluntary affirmative act which renders obligor unable or apparently
unable to perform without such breach
5. RULE: when one of the parties clearly repudiates a material promise in advance, the
other may treat this as a breach immediately and may seek relief for breach without
delay.
a. HOCHSTER v DE LA TOUR: [D entered agreement w Pwhere D would
work for P to begin a certain future date, salary sat out, term set out. Before
leaving D renounced the agreement. Decides he will not perform, this day is
called law Dayday the Law kicks in. P claims breach, D claims cant breach
day before K was to be performed, before that day comes up. HOLDING: if K is
repudiated before date of performance, relief may be sought immediately.
b. This case tells us that once we KNOW one party will not perform, we have an
anticipatory repudiationaggreived party can seek damages even before the
date comes up.
c. Williston: hated this shit. Said how can you possibly breach BEFORE the date
of performance?
i. Dangerous idea: what if guy changes his mind?
ii. We must be sure an anticipatory repudiation has taken place
6. Things people can do to protect themselves from anticipatory repudiation:
a. Cover: benefits both parties
i. One side gets the goods they need
ii. Having the ability to cover, any damages that could have been caused by
the breach can be prevented
7. UCC 2-609: Right to Adequate Assurance of Performance
a. Contract should make parties feel protected and secureshould be able to rely on
performance that is to take place
i. HOWEVER, when reasonable grounds for insecurity arise, situations
may arise where one of the parties has reason to believe the other party
will not perform and has a right to demand adequate assurances

CONTRACTS 115

b. Once reason to believe buyers performance has become uncertainit is undue

hardship to force him to continue his own performance (MUST BE CAREFUL)
c. Your rights are in 2-610
d. measures in this situation (rights that flow from lack of security)
i. suspend own performance
ii. acquire adequate assurance of due performance in writing (the one
creating uncertainty must give assurances that performance will take
place)
1. adequate assurance = TEST:
a. anything and everything that an OBJECTIVE observer
would consider reasonable grounds for insecurity
b. FACT standards of commercial use
e. example: what if the language isnt a clear repudiation? YOU HAVE THE
RIGHT WHEN YOU ARE INSECURE then ask if language would construe
reasonable grounds for insecurity, to ask for assurances of performance (in
writing)
f. Problem 164: We need to make SURE that what is taking place is a repudiation
of the contract. If you are wrong and you try to sue and then you coveryou are
in breach because you have 2 contracts for the same services. All seem
satisfactoryask for adequate assurance. If they dont you can treat it as a
repudiation.
1. a.
2. b.
3. c.
8. RULE: A breaching party cannot demand assurances from the other party.
a. HOPEs ARCHITECTURAL v LUNDYs CONSTUCTION: [Lundy contracts
with Hopes to supply windows for a school contracting job. Lundy sends letter
that delivery must be by certain date. Hopes doesnt respond and ships windows
later than date.
b. Lundys threatens back charge. (if this was an actual threat to NOT pay. This
would be, at this point grounds for insecurity.
c. But Hopes is lateHopes asks for assurances as a right: wants prepayment of K
before delivery.
i. BUT: asking for full payment from the buyer is NOT adequate insurance.
Buyer is not supposed to pay until delivery.
ii. Might be valid not to ask for Back charges
d. PROBLEM: seller is in breach b/c didnt deliver and cannot change terms of K.
Lundy didnt pay, Hope didnt deliver, and Lundy terminated K. HOLD: Hope
breaches and therefore cannot demand assurances.] You cannot use your own
breach/ask them to not let you pay for your own breach.
Problem: what if seller decides they dont like the terms and want to MODIFY the K but
the buyer doesnt want to renegotiate? Seller then says dont know if I can pay you that
price. Is this enough insecurity to demand adequate assurances?
Problem w/ modification: pre=existing duty rule (barrier to modifying Ks)
common law: cant modify unless have new consideration
CONTRACTS 116
UCC: do not need consideration, need mutual assent (good faith takes the
place of modification

9. BEING INSOLVENT, doesnt mean you are bankrupt:

a. RESTATEMENT 252:
i. Equitable insolvency: not paying your billsa person is insolvent who has
ceased to pay his debts in ordinary course of business OR cannot pay his
debts when they become due
1. Creditors can get together and file a bankruptcy petition against
you and force you to liquidate your assets and pay off debts
b. Federal bankruptcy code:
i. When you owe more then you havedebt is greater than assetsby
federal law, you are insolvent
1. Creditors can file petition against you
c. NOTE: just b/c a party is insolvent it is not ground for repudiation:
i. However, it may be grounds for insecurity where one can demand
adequate assurances
ii. Example: if its a rumorwho did you hear it from? Can you ask them
yes.
1. You are allowed to be secure: you cannot change the terms of
the agreement though.
2. Be careful: if there is a false statement, the seller has more
rights than they had previously and they can reclaim the goods.
3. If person is bankrupt, take your chances in bankruptcy court
as opposed to just delivering goods
10. RESTATEMENT: the doctrine of anticipatory breach does not extend to unilateral
contracts (transactions involving installment payments)
a. GREGUHN v MUTUAL OF OMAHA INSUR. [P was brick mason for 30 yrs,
he had 2 insurance policiesboth were supposed to cover him if he was injured
b. one day was injured at workfell off scaffolding, went to dr and found out preexisting condition the fall aggrevated for a really bad back and couldnt return to
work as mason.permantly injured.
c. As a consequence of being PERMANENT injury: Insur co. made some payments
to him as he had Surgery, but THEY WERE SUPPOSED TO PAY HIM FOR THE
REST OF HIS LIFE.
d. and then stopped paying saying his injury, not the type that was covered under
policy. (because it was a pre-existing injury)
i. insurance co had repudiated the K when they deny coverage and stop
paying aggrieved party had right to seek damages

CONTRACTS 117

ii.

iii.
iv.
v.
vi.

1. unilateral K: performance by insur. Co isnt due until a qualifying

infirmity happens
2. Bring in the eggshell P rule: they got him as they found him, paid
for a long timehe did not HIDE the condition, you get him as
you find him
3. The trial court gave him a lump sum payment
4. Appellate ct. : Rejected the lump sum paymentthe K was still
valid and the term should be continued
5. The company breached, the P. is allowed to sue them for
damageswhatever he would have received over the life of the
policymeaning, his life
HOLD: now court is told the injury is qualifying and must pay. The
doctrine of anticipatory breach does not extend to unilateral Ks. The
majority rule is that a plaintiff my only recover accrued and unpaid
installments under a disability policy. In a unilateral contract for payment
of installments, one of the more defaults will not amount to an anticipatory
breach of the rest of the installments. (THUS, they are required to to
continue the contract.normally we call this specific performance, but he
wants damagesin effect ordering specific perf.)
The court views this NOT as an anticp. Breach---not normally how it
works out, ct is liable
This doesnt really make sense, because if they have another issue, he has
to sue againbut if they order specific performance the ct. has to
supervisethey dont want to do this
As the doctrine of anticipatory breach did not apply to Greguhns contracts
with the insurance companies it was inappropriate for the jury to award P.
future benefits.
DISSENT: where there is a repudiation of all contractual obligations, the
better policy is to allow full recovery in the action

POINT: focus on the fact that this is an anticipatory repudiation not withstanding the fact that
on pg 814, the court rejects this being an anticipatory repudiation.
-Because it is a unilateral K.
GOODFAITHoneofthemostimportantconceptsinlaw
is really fearful about giving someone a payment that is not yet dueit would be giving
-Court
Weassumepartiesaregoingtoactingoodfaithb/cweplaceadutyonpartiestoactingood
money to an individual before the payment is actually due. (this is WILLISTONs PROBLEM)
faith
this is the practical application.
-Fear
Goodfaith:
is that if they do lump sum they will not make that long in life
o UCC:
Honestyinfact(truth)subjectivethisisforeveryone
merchantsgoodfaithhonestyinfact(subjective)ANDusereasonable
commercialpractices(objective)
1203:obligationofgoodfaitheveryKordutyimposesobligationofgoodfatih
initsperformanceorenforcement
o RESTATEMENT:bringsthemtogetherintoonestandardforbothparties
205:everycontractimposesuponeachpartyadutyofgoodfaithandfairdealing
initsperformanceanditsenforcement
PROBLEM:howdoweapplythisb/cnotreallyadefinition(dutyofgoodfaith)
PROFESSORSOMMERSTEST:whensomeonedoessomethingto
CONTRACTS 118
you,canyoucallitbadfaith?youcanpointtoconductthatyoubelieve
isoneactinginbadfaithanduseittodefinewhatgoodfaithis
WeareassumingaKexistswhenwearedealingwithgoodfaithdoesntmeanthatpreK

CHAPTER 9: THIRD PARTY BENEFICIARIES

o It used to be that you could only sue someone for a K if you were in privity with them,
special relationship
Problem 170:
o Car dealership sues your parents for failing to buy the car you promised to buybecause
they said they were going to buy one from them.
o Why doesnt this make sense?
o We will have individuals who are not a party to the K want to come in and claim benefit
o AGAIN THIS IS ALL ABOUT INTENT: was there intent to bring the 3rd party, the
car dealership into the relationshipwith themFOCUS on this.
o THE INTENT ALLOWS FOR THE LAW ON 3rd PARTY BENEFICIARIES.
Problem 171:
o What was judge Hardys intent when he entered an agreement with MGM motor?
o Did judge Hardy and MGM motors intend Andy to become a party to that exchange of
promisesYES!
o MGM is making a promise to bestoy something on Andyobligating itself to bestow
something on ANDYthat was the whole intent btwn MGM and the jduge
o If Andy cant sue, MGM keeps the moneyand the intentbtwn the Judge and MGM
was meaningless.
I. TYPES OF THIRD PARTY BENEFICIARIES
1. Terminology:
a. Generally 3 parties involved:
i. Promisor, makes a promise to another party, the promisee, that involves
a third party, third party beneficiary
b. Promisor: contracting party who is to render the performance to the beneficiary

CONTRACTS 119

c. Promisee: the contracting party whose right to performance has been conferred
on the beneficiary, one to whom the promise was made
d. Third party beneficiary/the stranger: (Focus on the Intent btwn the Original
Parties)
i. Intended beneficiary: you have standing, right to be able to sue the
promisor (who will always be the D) b/c they are not living up to their
promise
ii. Incidental beneficiary: do not have a standing, or right to sue the
promisor for failure to live up to promise
2. Legal creation of applying law in trust cases to third party beneficiariesRULE:
the party whos benefit the promise was made has the right to sue on that promise.
a. LAWRENCE v FOX: [Holly lent $300 to Fox. Holly was indebted to Lawrence
for same amount, so Holly and Fox agreed that Fox would repay loan to
Lawrence. Law day comes, Fox doesnt pay and says I dont owe Lawrence
anything
b. Promisor: Fox, Promisee: Holly, Third Party Benef: Lawrence
c. Issue: Is a third party precluded for want of privity of contract from maintaining
an action on a contract made for his benefit?
i. Fox failed to pay and Lawrence sued him.
ii. Fox claimed: Lawrence had no standing to sue bc there was no
privity btwn them. (historically this workedeven into the 20th c.)
iii. HOLD: HE CAN SUE BASED ON THE INTENT! IT was clear that
the intent was to bring Lawrence into the picture and they intended
to make Lawrence a party to the K. Lawrence is a creditor
beneficiary: parties to a K have power to create rights enforceable by a
person who is not party to K, and that person can sue the promisor to
enforce the performance undertaken to the promisee for his benefit.
Lawrence can sue Fox directly w/out having to go through Holly.
1. The old cases they cite: discusses trust law and bailment, if I give
you something to hold for me for someone else, that person as the
right to go after it from the holder (deed of trust)
2. Ct says: we dont need this trust or bailment. Direct action.
iv. Concurrence: it should be presumed the promise was made to the
plaintiff through the medium of his agent whose action he could approve
when it become known to him
v. Dissent: Lawrence (P) should not be allowed to sue. There is not privity
of K. The P must either be the promisse, or have a legal interest in the
contract through a trust or agency relationship. P. was not the promisee
and had no control over the K. At any time, Holly could have told Fox to
pay the money to someone other than Lawrence and Lawrnece would
have had not right to demand the money. Nor did Holly give the money
to Fox in trust for Lawrence. In all cases where a third party has been
allowed to sue, the third party was a trust beneficiary. A trust ben. Has a
specific interest in the trust money. Fox was NOT Hollys agent.

CONTRACTS 120

vi. Other Issue: No consideration from Lawrence. Lawrence wants to

enforce, where is the consideration between Fox and Lawrence. This is
another way of getting at privityhere attacking the criterion of the K.
1. Court gets around this by saying: the Consideration that flows
from Holly to Fox, becomes the basis for the promise of Fox to
pay Lawrence
2. For the promise to pay Lawrence: Fox gets $300.
3. It makes no difference to FOX where the money came from
Fox gets what he bargained for. A Loan for $300. It makes no
difference who he promises to pay.
4. Lawrence is a creditor beneficiary.
3. RESTATMENT 302: the recognition of the beneficiarys right to enforce
performance must be appropriate to give effect to the parties intent
a. (unless otherwise agreed upon) A beneficiary of a promise is an intended
beneficiary if recognition of a right to performance in the beneficiary is
appropriate to effectuate intention of the parties and is either creditor or donee
beneficiary
i. (find thid party that was intended to be beneficiary and statuse can be
either creditor or donee)
1. creditor: one to whom debt is owed
2. donee: one to whom promisee wants to make a gift to
4. We also know that some promises are giftsnot promises. Holly is owed money by
Fox. What if Lawrence were Hollys niece. Holly loves Lawrence thats just only
reason why. Love does not make a promise enforceable.
5. RESTATMENT 280: novation
a. a novation is a substituted K that includes as a party (3rd party) one who is neither
the obligor nor the obligeee of the original duty
i. novationbrings in a third party and makes third party reliable on debt
OR makes third party the one to whom the debt is owed (using the
existing consideration for the new agreement)
b. ALL 3 parties MUST agreeand it takes one party out of the picture and
substitutes the third party for the obligor or obligee
i. This is not a third party beneficiary b/c it takes one of the parties out of
the picture
c. *UCC handles this the same way but doesnt have as section on novation*
Problem 172:
Is a grunt an agreement? Dont think this is an assentso no novation.
Problem 173:
Does she still owe this debtdoes the finance company agree to sub. George for Marthano
this was an agr. Btwen G and Mnot the car/fincance company.

CONTRACTS 121

Problem 174: YES NOVATION HERE!

-Podium agrees to take Chalks placeit erases him. LOL
-Makes podium liable.
6. COURT LOOK AT INTENT OF PARTIES
a. Distinction between creditor and donee beneficiary is IRRELEVANTif you are
either one and you are intended beneficiary then you have a standing to sue on
the promise
b. Dont focus on why the Promisee wants to give the 3rd Party the moneyjust
focus on if the promise if enforceable between the Promisee and the Promisor
c. Why we go back to intent of the parties.
d. Here: the niece is a donee beneficiary, technically at common law she could not
sue
i. SEAVER v RANSOM: [dying woman intened to bequeth house to her
niece.
ii. Her husband induced his dying wife to sign a will leaving all property to
him by promising that he would leave a certain amount in his own will to
Seaver.
iii. When presented with will it omitted this bequest but husband said he
would cure the defect by making a provision in his own will. (HERE IS
OUR CONSIDERATION) Promise becomes binding
iv. Husband dies and never changed will. Niece sued estate.
v. HOLD: Niece was intended beneficiary and distinction btwn donee and
creditor doesnt matter]
vi. THERE SEEMS NO CONSIDERATION HERE; cant be
enforceablelove, affection, not consideration
vii. BUT HERE: she signed the will in return for his promiseit was
bargained forpromise was bargained for
1. Consideration: doing anything you dont have to do or
foreberaing.
viii. Although a general rule requires privity between a P and a D as
necessary to the maintennce of an action on the contract, one of
several exceptions to the rule is the case wehre a contract is made for
the benefit of another member of the family. Mrs. Berman was
Childless and she LOVED Siever. However, the constraining power
of conscience is not regulated by the degree of relationship alone. The
dependant or faithful neice may have a stronger claim than the
unworthy son.
ix. The reason for this family exception and other exceptions to the
rule is that it is just and practical to permit another person for whose
benefit a contract is made to enforce it against one whose duty it is to
pay. Equities are with Seaver.

CONTRACTS 122

x. PROMISE must be enforceable on its own, must be binding K, before

3rd party can come in and enforce itwhat we care about is the
enforcement of the promiseand here there was a valid binding
K/promisesigned the will. RECOGNITION OF A RIGHT OF
PERFORMANCE:---CONTRAC
xi. When someone is obligated to perform/duty: K.
xii. Analysis?
1. Do you have a valid agreement k?
2. Was the intent to enforce the promise to benefit someone?
o Intended 3rd Party B.
o Not? Incidental 3rd Party B.
7. INCIDENTAL BENEFICARY
a. HR MOCH CO v RENSSELAER WATER CO.
b. [ Promisor: water co; promisee: city; party seek third party status: Moch/Public.
c. Moch claims: D had K with city and is supposed to supply water with purpose of
serving him.
d. There can be no 3rd Party beneficiary analysis if there is no claim btwen City and
water company---yes. Water company supposed to supply water facilities and
hydrants.
e. HOLD: Moch and the public are obviously beneficiearesbut Moch is only
incidental beneficiary. Duty is owed to the city and not to its inhabitants. The
city would be the one who would have to go against the water company and NOT
the public.
f. These decisions are usually universal
i. Public normally can not claim 3rd P. B. usually
ii. Think Regan era and HUD housing developments and housing
stuff
1. Who was intended to benefit on a rent freeze: Tenant. Some
fed. Courts said that they were the ones benefiting they were
intended 3rd partywere allowed to sue
2. Otherwise, they were incidental, no right to sue
II. EXPANDING USE OF THIRD PARTY BENEFICIARY CONCEPTS:
1. Lien = form of security interest granted over an item of property to secure the payment of
a debt or performance of some other obligation
a. Consensual liens: imposed by a K btwn creditor and debtor:
i. Ex: mortgages, car loans, security interests, mechanics lien

CONTRACTS 123

1. Mechanics lien: security interest in the title to property for the

benefit of those who have supplied labor or material to improve
that property
b. Nonconsensual liens: typically arise by statute or by operation of common law.
Laws give creditor the right to impose a lien on an item of real property or a
chattel by the existence of the relatiobship btwn creditor and debtor
i. Ex: tax liens (imposed to secure payment of tax); attorneys liens (against
funds and documents to secure payments of fees); etc
2. Duty to individual extended based on a statute if performance of promise will
satisfy a legal obligation which a promisee owes a beneficiary, the beneficiary is a
creditor beneficiary with standing to sue.
a. BLAIR v ANDERSON:
b. [P was formerly a federal prisoner who alleged that while incarcerated he was
victim of assault and Ds, including state of DE, were negligent in permitting the
assault.
c. Federal govt conracting with state of DE prison to house, feed, and protect the
prisoners.
d. Promisor: DE prison/STATE; Promisee: fed govt promising to fulfill
obligations that Fed govt has. Third party benef: prisoner (claims he is intended).
e. HOLD: prisoner is intended 3rd party, beneficiarythe statute creates a legal duty
for the prison to provide safekeeping, care,.. of prisoner and for his
protection. Prisoner has a right to sue.]
i. He is a Federal prisoner, housed at a state prison. HE HAS A RIGHT
TO SUE THE STATE. A STATE prisoner would not have a right to
sue the state. So if he is there as a state prisonerTHE state could
enact sovereign immunity w/regard to the state prisoner
f. **STATE SPECIFICALLY waived its right to soverign immunity when it
entered into a contract with the Feds. NO SOVERIGN IMMUNITY.
g. Contract exists, so we do a 3rd Party Beneficiary analyis.
h. Look at intentwhose benefit are you trying to give/what are you
bestowing? FOR WHOSE BENEFIT.
3. UCC 2-318. Third party benef of warranties express or implied
a. 3 options/altenratives w respect on how to deal with law on third party benef.
States are free to chose between
b. These are not as fine tuned: some states will say you cannot sue the bottling
company, but can sue the seller. Some states will say you can only sue the guy
who served the bad wine and then he has to implead everyone else.
i. a sellers warranty whether express of implied extends to any natural
person who is in the family of household of buyer or guest in home if it is
reasonable to expect that such a person may use goods and is injured in
person by breach of its warranty

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ii. sellers warrant whether express or implied extends to any natural person
swho may reasonably be expected to use goods and who is injured in
person b breach of its warranty
iii. extends to any person who may reasonably who may reasonably be
expected to use goods and who is injured by breach of warranty
Bain V. Gillispie:
o Court says the only way they can recover is if they are direct beneficiares and not 3rd
party beneficiaries
o No case here, bad call by ref costs a game a local seller on counter claim sues ref. As 3rd
party benefic.
Problem 177:
a) Action must be directly against tort feasor not the insurance
company. IF they win against tortfeasor then can win
against insurance company.
b) Shareholders, cases have allowed them to sue as 3rd party
beneficiariessee above 2-318
c) Deals with individual states laws and who gets impleaded
d) What was the contract for? Was it for protection of ppl or
land? If to protect ppl then the inidivdiaul who gets hurt
was an intended 3rd party beneficiary
e) Generally children cannot sue per se. Some states allow
children to go after parents for supportwhat happens if
pursuant for a K for support. In a K situation, kid does not
have a right to sueHere, child was allowed to sue, mother
died, and if the kid could not sue, no one would be around
to maek the claim suit can proceed.
f) Most states will aloow a legatte to sue attorney for this
case.
Problem 178:
Raises the point in section 309, also the blurb on rights of parties. Whatever defenses the
promisor had against the promisee can be asserted against the 3rd party beneficiary. The rights
are dereivativesee below on 309. 3rd Party gets no better rights than the promissee had, but
then it means you
Problem 179:
Defense of illegalitywhat the fuck?
III. RIGHTS OF THE PARTIES:
1. The promisors defenses:
a. RESTATEMENT 309:

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i. third party beneficiarys rights are derivative from those of the promisee,
so the 3rd party beenfi gets no better rights agisnt the promisor then the
promisee had
1. if promisee doesnt have the rights then neither does the third
party
ii. if K ceases to be binding in whole or part bc of impracticability, public
policy, non-occurrence of condition, or present or prospective failure of
performance, the right of any benef. is to that extent discharged or
modified
2. VESTING OF BENEFICIARYS RIGHTS
a. Vesting is important once rights vest parties cannot modify K
i. Question: at what point in time does third party beneficiary actually
become an intended beneficiary with vested rights?
1. Some cases: immediately upon K being formed
2. Other cases: at some later point (whenever K says that right will
vestmight be on happening of an event or nonhappening of
event)
ii. School Dist. 220 case:
1. Developer building homeswant the kids who live in those
homes go to a school districtwant to pay that money into the
district to which those kids are sent$ goes there
2. Two groups enter into an annexation agreement with the
village.money would be held in escrow for benefit of
education(where those kids go to school, very big problem in
places like NJ)
3. The Children are going to District 220, the ppl who fund 220, are
education the Village development and 220 is not getting any
funding
4. Agreement between 3rd party which gives them a benefit that
would all them to sue on contract between promisor and promisee,
would try to get them placed within school district 15, 15 is
probably a WAY better school, District 15 is way better than
220that is a SELLING POINT for the house
5. Have an agreement for 5 years and then after that, the money goes
to 220, the one that is educating the kids to BEGIN with
6. Before the 5 years are up, they amend the agreement, and extend it
for 9 years
7. Potential to become third party benef based on nonhappening
8. Disctrict 220 is saying it was an intended beneficiary between
municipality and contractors, and as direct benefic. Their rights
were vested at the point in time the agreement was first entered
into. Therefore, 220 says, you cannot change the terms of the
agreement. If this is the case, the modifcation is invalidIf
wrongmodification is valid
9. Look at section 311

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10. When the right to sue on the K arises?: Right have not vested
until that time and parties can modify K
11. In this caseDistrict 220 MAY be an intened beneficiary, but we
do not know this yet. You are one of orgiianlly 2 (now 3) potential
3rd party beneficiariaries. How can you claim that the rights
vested in you, when we dont know if you are 3rd party b.?
12. Condition needs to be satisfied for 220 to be indientifies as the 3rd
party b.this could be argued220 only gets the money if they
cannot have an agreement to have the kids go to district 15if
they can get the kids in 15, then 15 gets the $. Whoever ultimately
gets the kids is the intended beneficiaryand this is unknown at
this point. There is no standing for 220 to sue on this agreement.
b. PROCESS:
i. mustdetermineifintendedorincidentalthenwhenrightsvest
1. dontgettovestmentquestionifincidentalbeneficiary
ii. prevestingKscanbemodified
iii. postvestingKscannotbemodified
c. RESTATMENT R2311:
i. K can determine when vesting takes placeif no vesting takes place then
changes can be made EXCEPT in the case of reliance where party
materially changes position (must have right to relyjustifiable reliance)
1. If the intended third party benefiary RELIES (reliance means
taking action OR not taken action that is specifically connected to
the promise)
a. Prevesting Ks can be modified unless reliance
b. Parties are free to make changes if there is nothing in the
agreement that says, you cant make changes.
2. In the absences of such a term, the promisor and promisee retain
power to discharge of modify the duty by subseqeuent agreement
3. Such a power terminates when the beneficiary, before he receives
notification of the discharge or modification, materially changes
his position in justifiable reliance on the promise or brings suit on
it or manifests assent to it at the request of the promisor or
promisee.

d. Parties power to modify or terminate contractSEE BELOW PROBLEM 181

Problem 180:
a. No vesting
b. They can change until reliancethey did not relyno vestingapplication of rule 311
c. This is an act of relianceat this point, rights vested

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d. Not supposed to matter on Hollys financescourt using its equitable powers canbut basic
rule is its not supposed to matter. Ways to get around it, but not supposed to matter.
PROBLEM181:thirdpartybeneficiaryrightsarederivativeoftherightsofthepromisee
Parties:
o Promisor:henrywork
o Promisee:johngood
o Thirdpartybenif:ABCcollege
PromisethatHenryhasmadetoJohnthatpaymentswillbemadetoABCcollege(doneebeneficiary)
paymentsaremade(RIGHTSVESTED)thenJohnandHenrymodifiedtherent.Aretheyfreetoenterinto
agreementtoreducetherent?
o DoesABChavetoacceptthemodification?ORisHenryboundtopay$1200permonth?
Basicprinciple:PARITESAREALWAYSFREETOABANDONTHECONTRACT
(commonlawprinciple)partiescandecidetheynolongerwanttobeinKwitheachother
(effectis:noliabilitysincebothagree)
MademodificationsenforceablelessorsandleseeeareALWAYSfreetochange
theiragreements
o HERE:theyaremodifyingandthecommonlawacceptsthatbasedonthe
abandonmentprinciples
o CanCollegeforcethesetwopartiestomaintainlandlordtenantpropositionwhentheydontwantto?
OnlyiftheycanassertsomesortofRELIANCEargument
Getsusbacktogiftanalysismustshowconsiderationorrelianceonpromise
RULE:(p834)ThirdpartybeneficiaryrightsareDERIVATIVEoftherightsofthe
promisee(subjecttotherightsthatthepromisorandpromiseehavevisavitheirownk)
NOTHECOLLEGECANNOTFORCETHEYMUSTACCEPTTHE
MODIFICATION,EVENTHOUGHTHERIGHTSHAVEVESTED(rightsvest
consistentwithwhateverrightsflowwiththepromise(partieshavearighttochange
theiragreementandpromiseeflowswiththemodificatiion

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IV. MORTGAGES AND THIRD PARTY BENEFICIARIES:

1. Mortgage agreement: contract where consideration flows from one to anotherthe
lendor is being given a consensual lien on the propertythat allows the creditor to
foreclose on property to satisfy the debt (Right being given to a lendor from a specific
piece of real property)
a. Mortgage (property) and article 9 secure transaction (personal property)they
are the same thing, they are set up different
i. Borrower gives the lendor the right to go after the property
1. If secure transaction (personal property): lender is free to knock
on the door and take your computerif you put up a fight = breach
of peace and must go to the court, if dont then its fine
2. Mortgage: cant just throw you outmust go through a procedure,
but it is simplified
b. NO consensual lien: if someone owes you money, you cannot go after specific
propertyyou must sue, win and file a judgment lien and take the judgment lien
to sheriff now called execution lien and sheriff goes and takes property
c. Consensual lien: lendor can go after the specific property and if there is any amt
owed that is not received from foreclosure then lender and sue debtor who is
liable
i. Foreclosure: if debt is 100K and sells for 50K, debtor is liable for other
50Klender would have to sue the person
2. PROBLEM 182:
a. Scarlett was having trouble making mortgage payments to the bank and decided
to sell her equity in her property to Vivien. Vivien couldnt finance her own
mortgage so Scarlett agreed to let Vivien assume (promise to pay) her mortgage
commitment to bank. Vivien makes payments then stops after 2 yrs. Bank
foreclosed on property and sold it. Sale didnt cover debtthere was deficiency
of $8K
i. Promisor: vivien; promisee: scarlet; thid party: bank
1. Vivien promised to pay the debt, NOT to take over the debt (not
promising to assume the debt, promising to assume the duty to
pay)she didnt assume the liability of the debt
2. SCARLETT STILL OWES DUTY TO BANK
ii. Only way Scarlett wouldnt owe bank was if they had a NOVATIONall
3 agreed that Vivien would substitute for Scarlet and Vivien would take on
the debt no indication here that there was a novation.
Problem 183:
a) She took subject tothere is still a debtso she still owes
this debt

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b) No: it would not prevail

c) She was hoping to pay off the mortgage and would own it
outright

3. PROBLEM 184:
a. Scarlett sold equity in property to Vivien who took SUBJECT TO the mortgage
(ill give you equity and pay mortgage, but not assuming the liability of mortage,
so if bank forecloses they fo after Scarlett).
i. Vivien then sells her equity to a third party, Clark, who promises to pay
equity AND promises to assume the mortgage debt (become liable for
debt)
1. Can bank go after third party? YES they assumed the debt

SUMMARYOFTHIS

1.understandamortgageandtherightsofthepartiesinthemortgage

2.understandthatshortofanovation,themortgagor(borrower)remainsliablenomatter
whattransactionsentersintowithotherparties,UNLESSbankhasagreedtonovation

3.andwhetherthethirdpartyisliabletobankormortegeeewillbeafunctionofinterpreting
thelanguagetoreachoneof2conclusions(FOCUSONTHIS)
theywereassumingliability(bankcangoagainstthem)
theywereNOTassumingliability(bankcannotgoagainstthem)

CHAPTER 10: ASSIGNMENT AND DELEGATION

Assignment: just supposed to be for RIGHTs, not for dutieslook at the language of the K.
I. OVERVIEW:
1. Two areas of law that are intertwinedmost Ks are about both
a. Assignment law: transfer of contract RIGHTS from one party to a third party
b. Delegation law: transfer of contract DUTIES/obligations from one party to a
third party
2. **Generally, contracts involve both rights and duties** on occasion dealing with
pure transfer or rights and pure transfer of duty
a. assignment can be used to discuss pure and mixed assignment/delegation
situation (BE CAREFUL YOU UNDERSTAND)
i. is it being used in pure context (transfer of right)
ii. OR is assignment being used to describe the WHOLE picture (assignment
and delegation)
b. **interpret the languagedo not assume assignment or delegation is being used
in pure senselook at context**
c. The cases use these interchangeablyso focus on the INTENT of the parties.

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3. TERMINOLOGY:
a. Bilateral executory K:
i. each party is owed a performance obligation = contract right
ii. each owes or will owe performance obligation = contract duty
b. rights/duties are transferable to othersYou can give these to someone
else
i. assignment of rights
ii. delegation of duties
c. In assignment of rights
i. PARTIES:
1. Assignor (one of original K parties) = one transferring the rights
2. Assignee (stranger of original K) = one to whom rights transferred
to (assigned to)
3. Obligor: original contracting party whose obligation is assigned,
the one who owes the duty
4. These became FREELY TRANSFERABLE over timeshould
be able to give/sell the rights as collateral.
d. In delegation of duties an OBLIGATION
i. PARTIES:
1. Delegator: (one of original K parties) one delegating the duty
2. Delegatee: (stranger of original K) one to whom duty is delegated
3. Obligee: original K party who duty is delegated
4. Not as freely alienabledifferent rules arise, cannot freely give
these out
II. VALIDITY OF ASSIGNMENT/DELEGATION
*Key: it is a transfor, it is original, which takes the assignor out of the picure and the assignor is
substituted by the assignee
1. PERFORMANCE OBLIGATIONS:
a. UCC 2-210; Delegation of Performance; Assignment of Rights
i. delegation: delegation is proper unless there is something special about
the K that requires the obligor (one obligated to perform) to be the one to
carry about performanceif so then no delegation
1. Duties under a K to provide personal services may never be
delegated no rights can be assigned under a K where Delectus
persona (the taste of the person) is an agreement to the bargain
If something unique about the K then it should not be delegable
ii. assignment: free alienability of rights w/ pure rightunless the
assignment would materially change the duty of the other party or increase
materially the burden or risk imposed on him by his K
1. this comes in when the right being assigned is a performance
obligation
a. if someones performance is materially alteredif what he
is to do changes then we have the idea that assignment may
be improper

CONTRACTS 131

i. look at what person has to do and see if materially

changes so that person will say they dont want to
assignment bc of that change
2. doesnt really work out when all we are talking about is the pure
right to payjust the act of paying (not personal, someone else
can pay_
a. if all you are doing is transferring rights that you have, we
will view this as an important asset that should be freely
transferred
3. Sometimes the words are in fact misuseddo not get lulled into
the sense that you know what is going on
4. Subsection 4: Unless the circumstances indicate to the contrarary a
probhibition
*Anti-assignment clauses are almost never given affect when it comes to a transfer of rightsif
we are talking about a transfer of DUTIES.then the cts. Will engage in an analysis. (Like we
did in class with Pizza)
2. Problem 185:
3. Problem 186: Joseph is obligee, new owners delegates, old owners delegators
i. MACKE CO v PIZZA OF GAITHERSBURGH:
ii. Guy owns 5/6 pizza shops[Pizza cos contracted with Virginia for
installation and service of vending machines. (K between Virginia and
the Pizza shopsprovide the drinks, Pizza shop will pay VA company)
1. Generally this K, has personal and unique characteristics of
duties attached?
2. RULE: unless there is something personal about the duties
involved in the transaction between Pizza and VA, both can be
transferred.
a. If this is a pure commercial transaction and individual
likes and performance are not involved, it is
transferable
iii. VAs assets were bought by Macke and all 6 Ks were assigned to Macke.
iv. Pizza attempting to terminate Ks.give notice that they want out of K
v. Macke sued for damages on breach.
vi. Pizza claiming delectus persona K by explaining uniqueness of VAtried
to turn it into personal services.
1. Trying to say they are relying on VA skill level, dont want to deal
with Macke, and did not wan themtrying to claim that there was
something personal about the services in order to avoid delegation
vii. HOLD: contract was a right to pay someone, it was not a K for personal
services]NOTHING personal about servicing the machines
viii. As long as the K: does not say it cannot be delageableit can be
assigned.

CONTRACTS 132

1. CT says: either VA was leasing the space (a right to do so) in

Pizza shops, Pizza has the right to receive a certain % of the money
and the duty to allow VA to put its stuff in (space, electricity, etc)
2. Both parties: have rights and duties
3. Rights are freely alienableduties are subject to scrutinty
4. BECAUSE of this DUTY: we have to engage in discussion, if
this is transferable.
ix. Sometimes situations are difficult to interpret public policy may come
into play
1. How far do we go saying only Ks that are not assignable are those
that invoke delectus personae? Where do we draw the line?
2. Examples of ppl getting assigned Ks on basis of
color/race/gender---they will probably not have to deal with the
assignment of K
3. But if its like We dont like them because they are shitty
manufacturersprob. Will not change assignment of K
4. K principles play a major role, coupled with constitutional
principles
b. RESTATEMENT 317 assignment of a right
i. an assignment of a right is a manifestation of the assignors intention to
transfer it by virtue of which assignors right to performance by the
obligor is extinguished in whole or in part and the assignee acquires a
right to such performance
ii. can be assigned unless
1. materially change duty of obligor or materially increase burden or
risk imposed, etc
2. assignment is forbidden by statute or inoperative on grounds of
public policy
3. validly precluded by K
c. Restatement 318
d. Restatement 322
e. Seems to say that if you agree not to delegateyou will find this
unenforceable, and then the ctsanalysis will come into play
f. ways to contest delegation of performance:
i. 2 ways to contest delegation:
1. ifimproperassurancescancontestdelegation
2. ifnotingoodfaithcancontestthedelegation
ii. UCC 2-210 (6): the other party may treat any assignment which delegates
performance creating reasonable grounds for insecurity and may without
prejudice to his rights against the assignor demand assurances from
assignee

CONTRACTS 133

1. SideNOTE:Delegationautomaticallygivesyoureasonable
assurancesthatallowsforassurance
iii. UCC2306:inanyrequirementsKputintooriginalKthatany
demandsmustbemadeingoodfaith
1. Iftheassigneedemandssomethingthatisinbadfaith
a. unreasonabledisproportionateordisproportionateintoo
muchortoolowfromwhatwasstatedifnotstatesuse
historicalpurchases
*Look up Restatement 317
4. PAYMENT OBLIGATIONS
a. Requirement of valid assignment: assignor must relinquish complete control
over whatever right was assigned
b. Technically there must have been a K..agreement was madethis must be
enforceableor it is not an assignment.(must notify as well)
i. Obligor must pay the assigneeif the obligor pays the assignor, the
assignee can go after the obligor
1. If you dont give up complete right then you can risk being sued
twice
2. Only one party being liableor being liable
3. If the assignor does not back out, then who does the one that owes
the moneypay?!
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.

HERZOG v IRACE: attempted assignment, transfer of rights

[Jones was in motorcycle accident and entered personal injury suit.
Got hurt against and went to Dr H for med care.
Jones was going to get some moneywas going to then transfer this to the
Dr.
Dr H agrees to let Jones (assigned letter) pay for services based on
assignment of settlement proceeds, assigned for the treatment
They said that there was a LACK of control of the right that they are
assigning, must relingquish complete control over the right which they are
assigning
Lawyer knew of assignmenthad it written on the Drs letterhead
Then Jones told them not to give money to Dr H, and they paid rest of
creditors.
Jones sends Dr H a bounced checkDr. was never paid.
Dr. sues the attorneys that are involved
HOLD: lawyer should not have paid the client, should have directly paid
the doctor. ]
1. All the Dr needs to prove: is that the patient did transfor his
rights
2. The writing signed is unequivicoalyou do not need anything
more, this is your proof

CONTRACTS 134

3. Does the assignor/patient, have to say I take myself out of the

picture? No, by definition this is what hes doing.
4. Once they get notice of the assignement Obligor, the obligor is
not free to disregard the assigneehis duty is now to the
assignee
5. Lawyers disregard it.they did so at their peril. They were
supposed to pay the doctorand now they have to pay the
doctor
6. They would have to go after their client to go after the
money../for the money they should not have given them.
III. FORMALITIES OF AN ASSIGNMENT:
1. GIFTS:
a. RESTATEMENT 332: revocability of gratuitous assignments
i. Unless a contrary intention, gratuitous assignment is irrevocable if in
writing.
ii. Pre-transferrevocable by the assignors death (prior to actual transfer)
however if transfer takes place this is a difference story
iii. Subsection 4: if some act has been taken or some act not taken based on
assignment then you can evoke equity
Problem 189:
Assignor: Lynn Brown
Assignee: Polly travis
Obligor: Bank
Lynn dies in a car accident, Octopus Bank obligor does not want to turn over the $ that was
promised by Lynn to Polly. Can Polly recoversection 332. This is gratutuitousin order to
irrevocable must be in writing. Was Lynns promise to Polly in writing, no so it is revocable.
The executor can assert the right to revoke here. This is not binding.
-If for some reason, based on Lynns promise, Polly engaged in activity that could invoke the
reliance analysis, then subsection 4, gratuitious assignment is revocable if not in writingto the
extent necessary to avoid injusiticesounds like section 90, promissory estoppel, 45, 87, all
reliance principles are founded on the idea that someone does something to their detriment
-Then the gratuitious transfer might no longer be revocable

2. ASSIGMENTS FOR CONSIDERATION

a. Partial assignments
i. UCC 2-210: specifically does NOT prohibit partial assignments
ii. RESTATEMENT 326. Partial assignments are ok
iii. Howeverthe rules for partial assignment are the same for total
assignments can assign subject to the idea that the assignment doesnt

CONTRACTS 135

alter performance obligations but is still subject to risk allocation and

material alterations.
VI. LIMITATIONS ON THE ASSIGNMENT
1. Express contractual provision against assignment
a. ASSIGNMENT OF THE CONTRACT
i. Absent circumstances suggesting otherwise, a clause prohibiting the
assignment of the contract will be construed as barring only the
delegation of the assignors duties (R2 322 and UCC 210
2. UCC 2-210: party may perform his duty through a delegate unless otherwise agreed to
(same language for assignment)
a. Inferenceyou can agree that duties cannot be assigned or delegated
i. HOWEVER: a right to damages for breach of the whole K or right
arising out assignors due performance of his entire obligation cab be
assigned despite agreement otherwise
b. When it comes to the right of paymentthe clause about not being able to
assign is MEANINGLESS shouldnt make a difference who is being paid/
who is paying as long as payment is taken care of
i. It depends on what is being assigned
Problem 191:
-We have rights and duties, there may be something that says you cannot assign
o If the only thing we are looking at is the right to payment, with no duty, if the
performance obligation has already been performedthe right to payment can be
transferred period.
o You cannot block the assignment of payment
3. Cheney v Jemmett:
a. Jemmetts bought property from Cheney.
b. Non-assignment clause in agreement that Jemmett cannot assign/transfer
interest without consent to Cheney.(w/out first getting Cheneys permission)
c. Jemmetts pays off the debt for a few years, and then decides he wants to assign..
d. Jemmett tried to assign and Cheney refused to give permission and says HELL
NO.
e. Buyers attorney tries to get around assignment clause by calling it a rental with
an option to purchase clause. Saying once the amount owed to the seller is
payed, the buyer/landlord will sell to the new buyer. Buyer never defaulted, so
no breach. But the seller wants to now call in the debt, based on the assignment.
f. HOLD: grant Jemmetts dismissal and held that Cheney was unreasonable and
arbitrarily withheld his consent for assignment.
i. Language in the K does not PROHIBIT assignment, this isnt about
going into an anti-assignment clause (courts do nto like dealing with
these) but this is not one of those.

CONTRACTS 136

ii. K said that the buyer needed sellers permission to assignthis is not a
total prohibitionso fall back on basic K principals
iii. RESTATEMENT 205: duty of good faith and fair dealing
1. Every K imposes each party a duty of good faith and fair
dealing in performance and its enforcement of K (deal fairly
in BOTH)
2. You do not have to negotiate in good faith (not in UCC nor
restatement) YOU DONt NEED ITunless the person lied
or misrepresented, and you cant point to something that
they did that was badwe can make big fools of ourselves as
we want --so we have to look at the conduct that we are
complaining about
a. Lying: warranties, misrepresentations
iv. Needing the sellers permission: is a performance obligation, and if
he just staright up says NOthat is NOT good faith
v. The assignment would be valid
g. RESTATEMENT 322 Contractual provision of assignment
i. Ways to get around the terms in a K that says you cannot assign
1. Because of FREE ALIENABILITYunless there is something
special about the agreement OR it would materially alter the
situationhowever if not, then can get around the terms
a. If payment is only thing left then unless something
special or materially altersusually can get around terms
that say cannot assign
h. MUST HAVE A REALLY GOOD REASON TO PROHIBIT ASSIGMENT
i. THIS IS ALL ABOUT ACTING IN GOOD FAITH
1. Is contract about:
a. Objective standard of reasonableness/ good faith we
look to see what that means in the reasonable commercial
standard
b. Subjective, personal standard: need honesty in factas
long as being truthful that is enough
c. DEFENSES OF THE OBLIGOR:
*For this class, we really do not need to know article 3get relevance that is being raised for our
course
*Same really with article 9just need to get the basic points
Problem 193:
o Holder in Due course --our economy works w/companies that BUY up debt.
o Ex) if A is owed 1,000 of debt, B then buys the paper that says the debt is owed at a
discount for $500but risk that the debtor will never pay
o Holder in Due course: someone who is in the business of buying debt and does so in
good faith, basic idea is that the party who owes on that debt may not assert certain kinds
of defenses that the indebt party may have had against holder.
o If holder has paper, debtor has to pay.
o EXCEPTIONS:
CONTRACTS 137

o Rights of the assignee are derivative, EXCEPTIONholder in due course

o If I acquire rights and those rights are no greater than the rights of the party
which assigns the rights. If the in debt party can assert a claim against the
assignor, then as a starting prop. The in debt party can assert the claim
against the assignee
o DOES not apply to duties, you cannot escape the liability of a duty, even if
you are passing K on. EXCEPTION: holder in due course.
o Ex) Alex has a K with Albert, K requires that Alex paint Alberts house. Caraballo buys
Alexs K to paint the house. IN buying the K, Albert is the Obligee, the one who is owed
the obligation, by Alex. When Alex transfers,she is the Delegator, Caraballo is the
delegatee. C. has assumed the responsibility. As long as we are not in a delectus
personae situation (that Albert contracted with Alex for her particular skill), Alex can
delegate to C. C. screws up. Does Albert have to only go after C. or can he go after
AlexAlbert can go after Alex, there was NO novation (no subbed agreement), if
novation---Alex would be out of the pictutre and then Alberts recourse is to go after C.
o BUT with no novationAlbert can go after Alex or C.
o Traditionally in context of selling obligation: Now, Albert owes Blex 1,000 dollars. Blex
transfers right to collect 1,000 to Caraballo. Albert owes the grande to B because he
bought something from B. B sells the note to C. B. can arrive at 1,000 through interest,
time allowed to pay, value to B of $ (maybe she will sell for 700, today, instead of 1,000
over a year). C. is willing to pay for it, because he is a dealer in debt and makes his
living this way, and is willing to wait for 1,000.
o Starting Prop: when C. buys this paper, assuming he is buying in good faith, A. is stuck
and has to pay C.
o POINT OF 193: holder in due course takes free of most defensesIf A. tries to assert a
defense against B, if holder in due course applies, he is stuck and cannot assert defense
against C.
o *FOCUS ON: holder in due course principlePOINT: if the HIDC Principle applies,
then the assignee/delegatee takes free of any defenses that could have been asserted
against the delegator. HDIC changes things(this is the exception)
o Normally, you CANNOT avoid the duty.
1. WAIVER OF DEFENSE CLAUSES:
a. Holder in due course (an innocent party acquiring the instrument, who didnt
know there was a defect) takes free of most defenses but not very serious ones
b. FORD MOTOR CREDIT v MORGAN:
i. Morgan bought care from Ford and financed it with installment Ford
Motor CreditFord assignee
ii. Clause that said any claims that could be brought against the dealer could
be brought against Ford
iii. He makes some payments then turned out car was piece of crapstopped
making payments and hid car (trying to prevent them from
repossessing the car)We know you give the right for the credit
company to repossess if you default.
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1. Generally, ford credit would be immune from consumer who was

trying to force rights on them b/c they were not part of the original
K
a. HOWEVERhere we have FTC rules
iv. MORGAN (CONSUMER) DEFENSE: FTC REGULATION (normally
creates an affirmative cause of action) HERE: Ford Credit can be liable
for the defects that may have been occasioned in the deal btwn the debtor
and seller
v. Morgans is trying to get his money back from Ford. Ford is the assignee
creditor.
vi. WHEN FORD bought this paperit thought it was buying the debt (JUST
THE RIGHT TO PAYMENT), not the duties the dealer had to Morgans.
(starting prop), no novation, dealer still has duties
1. Think: if you sell a K, you sell the rights AND duties
vii. What would change this? We move away from this when we look at the
Holder in Due course principle: if the buyer of the paper/instrament can be
clothed with holder in due course identity, they take FREE AND CLEAR
viii. THE CURVE: BUT we have the FTC RULES: FTC is supposed to
protect consumerswhen you buy a care you do not expect that you
should have to pay on that car even if it turns out that every rep. Made was
false and that every warranty doesnt exist, you want to have recourse to
whomeverwhoever promised to give you what you bought, dont want
to have to pay w/out benefit of the car (LOGIC)
ix. NOTE: there are cases that say the exact opposite of what this case
holdsthis is to bring out the point, you should ask why arent there 2
opinionsbecause thats the way it works.? LOOK AT THE FACTS.
FACTS affect how court approaches analysis.
1. But the Morgans were acting like sleazeballs, should have persued
the complaint, not hid the car and shit.
c. OVERALL:
i. Without this FTC rule, buyers cannot assert a claim against creditors
1. HOWEVER, FTC takes away this right of creditorsthereby
letting debtors defend against claims that they may have had
against the seller and making the claim against the creditor
a. HERE: only have a right to stop paying, can only get back
money back you paid unless defect was such that you got
NOTHING for your money
i. Morgans can only recover what he DID PAY for
can, but cannot recover MORE. They want what
they paid from Ford.
ii. It makes it clear that you can get it from FORD:
any holder of consumer credit K
iii. BUT this is where the IS THIS RIGHT COMES
IN because the court says you cant get the money
back but you dont have to pay future payments. If
you want your money back, go after the dealer.

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(THIS IS AGAINST THE TERMS OF THE K and

the FTC clause/rule)
1. Then dealer will have to go after ford,
interesting cuz ford paid dealer for the K
2. This makes the Morgans jump through
hoops
iv. The court does this BECAUSE THE MORGANS
are D-Bags
b. OTHER COURTS: say you can raise defenses irrespective
of substantial defect
c. FTC clauses preclude creditors from getting Holder in Due
Course status (which is what the creditor would always
want)
2. SETOFF AND RECOUPMENT:
a. SEATTLE-FIRST NATIONAL BANK v OREGON PACIFIC:
i. Centralia Plywood company (SELLER) = assignor; Bank = assignee;
Oregon Pac (BUYER, purchasing on credit) = obligor
1. HERE: we have an assignment (sell the paper, debt) from Centralia
to Bank and Bank (assignee) is demanding that obligor (buyer)
live up to his responsibilities and pay
a. Payment is supposed to go from Obligor to assignee (from
Oregon Pac to Bank)
b. Obligor says he will not pay the assignee b/c the assignor
owes him money based on a previous transaction (seller
never performed on these other Ks, other deals)
c. Obligor is trying here to claim SET OFFsaying they are
caused damages from other deals
2. HERE: the rights are not based on the same contracts different
transactionsan right to set off arose AFTER the assignment, thus
Obligor cannot assert his right to set off
3.
b. BASIC SET OFF:
i. Usual context: if you default on a payment for a loan or credit cardthen
the Bank has the right to go after your savings account (with the same
Bank) to take the money and satisfy the debt = SET OFF.
1. ex: you write a check that overdrafts from checking, bank can take
it from your savings.
2. As long as same company/Bank are holding the accounts, the
bank HAS THE RIGHT TO DO THIS.
3. Also: think of Keep the changethis is security for the bank for
set off
ii. 2 parties that deal w/each other and both claims rights FROM each
other. A says I owe you 100, but B you owe me 200. Im not going to
pay the 100, Im going to use it as a set off toward the 200 you owe me.
iii. CONTEXT OF DERIVATIVE RIGHTS/2 kinds of SET OFF:

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1. Rights of assignee are derivative of the assignor (unless they are a

holder in due course)
a. Related Set-off, Same transaction RECOUPMENT OF
SETTOFF:
i. If it turns out that any right that Obligor has are
connected to the debt that has been assigned then
Obligor can assert the rights against the assignee if
they are derived from the SAME K, if arise from
same transaction, the only question is, do you have
a right to assert this?
b. UNRELATED SET OFF/CLAIM Different transaction:
(different rule) (just called a set off)
i. b/c the rights are not related, depends on WHEN the
rights arose
1. PRENOTIFICATION OF ASSIGNMENT
= can assert the right
a.
if the right to SET OFF arose PRIOR
TO THE ASSIGNMENT and
PRIOR to OBLIGOR being notified
of assignment then obligor can
assign the right against the assignee
b.
IF claim arose BEFORE the assignee
is given NOTICE of assignment,
then the obligor can assign the right
against the assigneecan SET OFF.
c.
HERE, we look at when the
BREACH occurs, when they failed
to deliver: first claim of breach after
Dec. 13th
d.
Notification of assignment was ON
Dec. 13th. CANNOT SET OFF.
e.
If A and B are dealing in transactions
that lead to the creation of credit in a
transferable form (paper that can be
sold), then A and B over the course
of dealings are going to be making
set-off claims. Practicalbut not
transfer of account to 3rd party who
might be able to claim HOLDER IN
DUE COURSE STATUS. (AND as
a starting prop, they are NOT
liable for what happened between
original creditor and debtor,
exception: FTC, exception:
related set off)

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2. POST NOTIFICATION OF
ASSIGNMENT = cannot assert the rights
a.
If the right to set off arose AFTER
the assignmentthen cannot assert
that right
b.
Here we look at the BREACH and it
was AFTER the notification of the
assignmentwe know the order was
before the notification of the
assignmentbut does not matter
3. Starting principle, when an assignment takes place and when you are assigning rights
and delegating duties, the delegator remains liable. Does this mean the delegatee is
also liable?
a. Some cases yes
b. Some cases NO
i. Holder in due course is NOT liable as a general proposition
1. SUBJECT TO:
a. FTC RULES
b. SET-OFF that involves a related transaction (recoupment),
that occurs before the date on which the obligor is notified
of the transfer.
VII DELEGATION OF DUTIES
1. LANGEL v BETZ
a. Langel made K with Hurwitz and Hollander for sale of real propertythen buyer
assigned the K to a third party (assignee) Benedict, who then assigned to Betz
b. K between the Seller and 3rd party is INTENDED TO benefit the sellerthis is
important to understand how the seller is supposed to benefit
c. Fall back on 3rd party beneficiary law---reference to Lawrence v. Foxpg 889
i. Always talk about 3rd Party beneficiary law when you deal with
assignmentUNLESS THERE IS A NOVATION.
ii. Third party asked for extension of the time for the closingdate shows up
and 3rd party does show, 3rd party does not want to purchase the property
1. Third party claims: NO NOVATION and NO express assumption
of the obligations of assignor he claims he assumed the RIGHT
TO PURCHASE, but NOT THE DUTY TO PURCHASE
therefore he is not liable, I dont have a duty, you cant sue me!
2. Seller claims/wants to enforce the K, goes against the 3rd party: 3rd
party assumed the duty when he asked for an extension, why
else would he ask for it, he has to BUY the property. (Seller
would argue that not only is the 3rd party GOING to buy it, but
he is recognizing his OBLIGATION to buy it
realizing/acknowledging duty)
iii. COURT:

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1. Asking for an extension is an equivocal actand it can be

interepreted in many ways, and you cannot read into the act the
proposition that the assignee is accepting the obligation to buy
a. There is NO NOVATIONthe three parties didnt get
together and say that the 3rd party would take over the
rights of the buyer and replace him
2. THUS: seller cannot hold the 3rd party liable even by implication,
Seller would need a NOVATION, or the 3rd party would have to
have a duty to the Seller (IN the K or impliedly)
2. If we have a NOVATION then that relieves the delegator of the liability
a. HOWEVER, if NO novationthen delegator is not relieved of liability
i. Just b/c you delegate doesnt mean that you are NOT liable, only way to
not be liable is if you have a novation
3. When we are dealing with Assignment law---look at the parties intent, what was being
transferredduty or rights?
Problem 197:
Vera is obligated to perform and Carla who promises to take Veras placeassumes Veras
duties. Vera is the delegator. Carla delegatee. WADC: obligee/3rd party beneificiary of the
agreement between Vera and Carla. Carla doesnt show.
Is Vera Liable?
Is Carla Liable?
*If receiving permission from WADC amounts ot a movationthen Vera is relieved of all
liability. Carla is then liable, she has assumed the duties (this is most likely the case)
*If that language is not deemed to be sufficient to be a novation, then both are liable and WA can
go after EITHER or BOTH.
4. ROUSE v US:
a. Winston sells house to Rouse and with it the debt to pay for a heating plant
certain asserctions made about this furnace
b. Delegator = Winston; delegatee = Rouse; Bank, goes to the Fedsobligee/3rd
Party beneficiary = US (bank assigns to US)
c. Rouse has to pay the remaining balance on the heating plant
d. Rouse claims the furnace was defective
e. US as assignee if trying to go after Rouse, delegatee
i. Rouse claims: Winston fraudueltnly misrepresented the house and that he
not under an obligation to Winston and thus does owe anything to US
either Does not want to pay the gov.,
1. Rouse Trying to raise defense he has against Winston, delegator
against the obligee (U.S.)
2. Rouse wants to get the balance or Winston has to repair the furnace
(go back to the beginning and see how they got here and what each
is claiming from each other)
ii. US: wants to claim that they are the HOLDER in DUE COURSE, and thus
Rouse could not make those claims against US (US was purchaser in good
faith)

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f. HERE: rouse gets away with it b/c he didnt assume the liability, he just promised
to pay RIGHTS THAT ARE ASSIGNED ARE DERIVATIVE, unless holder in
due course
i. If US was holder in due course then Rouse owes the money (do not
have that here)
ii. HOWEVER, Rouse did NOT sign the note, and he is not liable on It
1. Gov. can not SUE if Rouse did not sign the note.
2. Winston assigned his note to the US
3. The only way Rouse is liable if the agreement btwn the US and
Winston specifically said that Rouse assumed the liability to the
US
a. Parties are only bound by what is in the contract
g. Court seems to be ducking what they feel is a BAD RESULT. Rouse never
promised and signed the note, Rouse is not a party to the transaction.
5. RIGHTS AND DUTIES TO NON-PARTIES OF THE K
a. Novation substitutes a new party for the original party to the K
i. If requires the assent of all parties and completely releases the original
party
1. The consent of the party may be express or by implication of the
acceptance of performance by the new party with knowledge that
novation is intended

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