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I. What is a contract?.....................................................................................................................................................................

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II. Classifications (1.8).....................................................................................................................................................................3
III. Miscellaneous.........................................................................................................................................................................3
b. Question of FACT v. Law (2.7).............................................................................................................................................3
IV. ONCE we HAVE OFFER AND ACCEPTANCE ISSUES to CONSIDER...................................................................3
a. Intent to Contract? (2.1).......................................................................................................................................................3
b. Was there Intent to Memorialize?........................................................................................................................................4
c. TERMS INDEFINITE? (2.9)...............................................................................................................................................5
V. Offer and Acceptance...............................................................................................................................................................10
a. Offer (or Preliminary Discussion)? (2.5)...........................................................................................................................10
iii. Non-Offers (2.6)..........................................................................................................................................................10
b. Acceptance............................................................................................................................................................................12
i. Unilateral OR Bilateral? (2.10).....................................................................................................................................12
ii. Must the Offeree know of the offer? (2.11)...................................................................................................................15
iii. Warranties in a Box; Shrinkwrap; Clickwrap (2.12).............................................................................................15
iv. Must the offeree intend to accept? When? (2.13)....................................................................................................15
v. Who may accept the offer? (2.14)..................................................................................................................................16
vi. Must the offeree give notice of acceptance of an offer to a unilateral contract? (2.15).......................................16
vii. Acceptance of an offer looking to a series of contracts (2.16)................................................................................17
viii. Communicating Acceptance of an Offer to a bilateral contract (2.17).................................................................17
ix. Acceptance by Silence Implied-in-Fact Contracts (2.18)....................................................................................18
x. Acceptance by Conduct or Act of Dominion (2.19)......................................................................................................19
xi. Effect on Part performance on an offer to a unilateral contract (2.22)................................................................20
xii. Time of acceptance of an offer to a bilateral contract (2.23).................................................................................22
xiii. Mistake in transmission (2.24)..................................................................................................................................25
xiv. Termination of the Power of Acceptance (2.20).......................................................................................................25
xv. Acceptance varying from offer (2.21).......................................................................................................................28
xvi. Option Contracts Irrevocable Offers (2.25).........................................................................................................32
VI. Consideration................................................................................................................................................................33
a. Gifts.......................................................................................................................................................................................33
b. Elements (4.2, 4.5, 4.7).........................................................................................................................................................33
c. Conditions to Gift Distinguished (4.5)...............................................................................................................................34
d. Motive and past consideration (4.3)...................................................................................................................................34
e. Adequacy (4.4).....................................................................................................................................................................35
f. Sham and Nominal Consideration (4.6)............................................................................................................................36
g. Mixture of bargain and Gift (4.7).......................................................................................................................................36
h. Must all the consideration be valid? (4.14 4.15)............................................................................................................36
i. Invalid Claims (4.8).............................................................................................................................................................36
j. The Pre-Existing Duty Rule (4.9).......................................................................................................................................37
iii. Pre Existing Duty Rule: Contract Duties / Modifications......................................................................................37
iv. Discharge of an obligation (not just debt any discharge i.e. lease obligation)......................................................42
v. Agreement to Accept Part payment in Satisfaction of a Debt -- liquidated claims!................................................42
vi. Accord and Satisfaction (4.10 - 4.11) unliquidated claims..................................................................................42
k. DURESS (5.15, 9.6)..............................................................................................................................................................46
l. Bilateral Contracts (4.12-4.16)...........................................................................................................................................47
v. Illusory Promises.............................................................................................................................................................48
vi. Alternative Promises (4.14).......................................................................................................................................48
vii. Circumventing Illusory Promises.............................................................................................................................48
viii. Termination Option...................................................................................................................................................48
x. Forging a good unilateral out of a bad bilateral..........................................................................................................49
m. Requirement and Output Contracts (4.13)...................................................................................................................51
VII. Unconscionability................................................................................................................................................................53
VIII. Promissory Estoppel was there reliance on a promise?................................................................................................54
IX. Parol Evidence if there is a writing.................................................................................................................................57
X. Interpretation............................................................................................................................................................................63
XI. Conditions............................................................................................................................................................................68
o. Sale of goods PERFECT TENDER RULE (11.20)........................................................................................................77

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XII. Excuse of Condition [waiver, election, forfeiture, treated as promise, contrary to public policy, unconscionable,
impossibility]......................................................................................................................................................................................84
XIII. Anticipatory Breach and Prospective Non-Performance................................................................................................95
XIV. Impracticability (Defense)................................................................................................................................................101
XV. Frustration of the Venture (13.12)....................................................................................................................................106
XVI. Remedies (restatement)......................................................................................................................................111
d. Expectation.........................................................................................................................................................................111
j. Reliance Interest................................................................................................................................................................117
k. Restitution..........................................................................................................................................................................118
XVII. Statute of Frauds (19.1)................................................................................................................................................120
XVIII. Third Party Beneficiaries (17.1)..................................................................................................................................127
XIX. Assignment and Delegation (18.1)....................................................................................................................................133
XX. Executory Accord Accord and Satisfaction Substitution Agreement (21.4)...........................................................140

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I. What is a contract?
a. Every contract involves at least ONE promise that has legal consequences usually enforceable by $$ or specific
performance
b. While restatement 2 is influenced by UCC, UCC is LAW whereas restatement is merely persuasive authority
II. Classifications (1.8)
a. Formal v. Informal:
i. Early common law: promise was not binding unless accompanied by certain formalities
1. contracts under seal
2. Recognizances (made when the recognizer acknowledges in open court a duty to make a
certain payment unless a specified condition is performed)
3. Negotiable instruments (and letters of credit UCC article 3 and 5)
ii. Informal: by the content they are contracts
b. Void: produces no legal obligation i.e. exchange of promises lacking consideration
c. Voidable: one or more parties has the power to elect to avoid the legal relations created by the contract (infected
with fraud, duress, mistake, lack of capacity)
d. Uneforceable: have some legal consequences but which may not be enforced in an action for damages or specific
performance in the face of certain defenses such as Statute of Frauds and SOL or maybe tainted with illegality
(subject to the defense of the S of Frauds or SOL) and they can be indirectly enforced
e. Implied-in-fact contract: a contract that is not solely express
f. Implied in law: quasi contract
i. Non-contractual obligation that used to be treated procedurally as if it were a contract
ii. Purpose: prevention of unjust enrichment
iii. Obligation by law to do justice even though it is clear that no promise was ever made or intended
iv. Quasi contractual remedies in contractual contexts (It is the law of quasi contracts that is looked to for a
determination of to what extent any performance rendered under the agreement, or other acts in reliance
on the agreement are to be compensated)
1. When parties negotiate an agreement which fails b/c OF (interplay of rules of contract and
quasi contract at work)
a. Fatal indefiniteness
b. Agent for one of the parties had NO power to bind the principal
c. Parties each had a different reasonable understanding of agreement
d. Illegal Agreement
e. Incapacity
f. Mistake
g. Fraud
h. Duress
i. Unenforceable (i.e. statute of frauds)
j. Discharge for impossibility or frustration
g. Cases: Problem 31, Page 92, Gem, Problem 62-64, Page 123,
III. Miscellaneous
a. When to use the UCC
i. Ask whether the sale of goods aspects predominates
1. Yes: use UCC
2. NO: could apply by analogy
b. Question of FACT v. Law (2.7)
i. Trier of fact questions of fact
ii. Judge questions of law
1. If there is only one reasonable conclusion becomes a question of LAW
2. Even where a reasonable persons could reach different conclusions, question is often held to be
one of law when it involves the interpretation of a writing or other record
IV. ONCE we HAVE OFFER AND ACCEPTANCE ISSUES to CONSIDER
a. Intent to Contract? (2.1)
i. Essential prerequisite: Mutual assent
1. Objective Theory (dominant theory): applies the test of what the person in the position of each
of the respective parties would be led to believe by the words/conduct of the parties
a. Acts manifested must still be intentional or negligent

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b. Viewed from the reasonable vantage point of a person in the position of the other
party
c. JOKE? Only to what extent the person in the other position would think

Lucy v. Zehmer: Zehmer was joking but Lucy had no reason to know or believe he was joking. K stuck.

2. Subjective Theory (allowed in some situations) what the actual belief of some parties /
Actual mental assent so there is a meeting of the minds subjective
a. Allowed in traditional view (first restatement) of acceptance to a unilateral contract
(2.13)
b. Allowed when silence is used as acceptance but the fault of the offeror (2.18)
c. Late Acceptances (2nd view rejected by 2nd Restatment): offeror may treat the late
acceptance as an acceptance by waiving lateness ONLY where the offerorss
subjective intent to enter into the contract is objectively manifested (2.20)
d. Majority view of death terminating the power of acceptance (2.20): its a relic of
subjective theory
e. Allowed in Corbin PER, and various interpretation
ii. If two people exchange a horse for a cow there is a contract even if the parties didnt know contractual
remedies existed in society
1. Because: one need not manifest intent to be bound or think about any legal consequences that
might flow from their agreement
a. Mistake as to a rule of law does not necessarily deprive an agreement of legal effect
iii. If manifestly express an intent not to be bound, then no K. (if there would be unjust enrichment then
perhaps a quasi contract OR promissory esstoppel)
1. Inferable:
a. i.e. social situation
b. pre-election promises
2. Other Nonbinding
a. Husband and wife living together amicably and make agreement with respect to
housekeeping allowances and even if there is express statement for legal
consequences NOT binding (public policy)
b. Promising a gift is generally NOT binding
c. Gentlemens Agreement NOT binding
d. Sham agreement NOT binding

Balfour v. Balfour: Married couple who enter into an agreement and one sues other for breach of contract. HOLDING/Reasoning:
ONE: factual presumption they intend no contract (i.e. by marriage) and because of the nature of the contract TWO: Policy of
avoiding interfering w/ marriage.

Sanchez v. Life Care Centers: Contrary to Balfour, it is not obvious there is no intent to be bound by the circumstances; D trying
to do eliminate intent to be bound w/ express provision (disclaimer in the handbook). Court says that disclaimer wasnt bold
enough for reasonable person to understand; it was buried in language that was somewhat contrary to the disclaimer saying
(employment at will). Sanchez believed cause was needed for her termination based on what handbook said. Company tried to
eliminate the legally binding aspect of the employment agreement through a disclaimer. Court found for P b/c of her reliance on
the fact that handbook suggested cause was necessary for termination. K of adhesion: weaker party is seen as adhering without
choice to terms dictated by the stronger. Here not honored.

K.D. v. ETS: P claimed that the contract was a K of Adhesion and should be void. To contrast w/ Sanchez this was a contract of
adhesion that was honored.

MCC-Marble: The language was foreign so P claimed not bound by K. In this case, foreign language doesnt nullifymeant again
to contrast w/ Sanchez. Also shows that duty to read is very important

b.
Was there Intent to Memorialize?
i. Does a K arise when the parties reach an otherwise binding agreement or is there NO K unless the
formal document is adopted by both parties? (2.8)
Could be a c/p to formation

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ii. 3 scenarios:
1. If parties make it clear that they do not intend that there should be a legal consequences unless
and until a formal record is executed there is NO contract
2. If they make it clear that the prospective record is merely to be convenient memorial of the
agreement, it is binding even though a memorial is never adopted. In this case, a partys refusal
to execute the memorial constitutes a breach of contract
3. Difficulty where parties have not expressly manifested their intent other than by the fact that
they intended there will be a record
a. If a reasonable person in the position of the other party either knew or should have
known that the other party did not intend to be bound in absence of a formal
agreement: NO K until formal K is executed
i. Factors to consider
1. the extent to which express agreement has been reached on all terms
to be included
2. whether the contract is a type usually put in writing [or otherwise
recorded]
3. whether it needs a formal writing or [record] for its full expression
4. whether it has a few or many details
5. whether the amount involved is large or small
6. whether it is a common or unusual contract
7. whether a standard form of contract is widely used in similar
transactions
8. whether either party takes any action in preparation for performance
during the negotiations

Pennzoil/Texaco case: Pennzoil and Getty had an agreement and signed a 4 page merger agreement that was subject to the
approval of the boards with transaction agreement in progress. After memo was signed and both parties released press releases,
Texaco came in with a higher bid and Getty decided to break agreement with Pennzoil to merge with Texaco. The main issue is
INTENT.

Under NY Law: if parties do not intend to be bound to an agreement until it is reduced to writing and signed by both parties, then
there is NO contract until that event occurs. If there is NO understanding that a signed writing is necessary before the parties will
be bound, and the parties have agreed upon all substantial terms, then an informal agreement can be binding even though the
parties contemplated evidencing their agreement in a formal document later. If the parties do intend to contract orally the mere
intention to commit the agreement to writing does not prevent contract formation before execution of that writing. However, if
either party communicates the intent not to be bound before a final formal document is executed, then no oral expression of
agreement to specific terms will constitute a binding contract.

THUS: SO parties are given power to obligate themselves informally or only by a formal signed writing as they wish SO INTENT
is the decisive component NOT the form
There was an agreement in principle as used in the press release which more or less indicates an agreement to agree
according to the defense
Three possible scenarios:
1. Intent to merge (Expectation damages) THIS IS WHAT THEY GO FOR and then the transaction agreement was JUST a
memorialization
2. Agreement to negotiate in good faith (reliance damages) [b/c agreement in principle] could have gone for
3. No contract (just had an agreement to agree i.e. agreement in principle
To prove intent to merge here NEEDED:
1. Language of correspondence terms used? Agreement in principle, subject to all terms of intent in the merger environment
2. Agreement of material terms there was agreement to material terms with some details left out
3. Performance what has been done since? No relevant partial performance BUT too short a time
4. Complexity / Magnitude normally require writing but here there was the Memo of Agreement

See also Baskin Robbins

c. TERMS INDEFINITE? (2.9)

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Curing indefiniteness by resolving ambiguity through extrinsic evidence, supply gap fillers
when there is silence if there is fatal indefiniteness but performance, there could be
restitution for work done a la forging, recovery gained through promissory estoppel if
preparation not performance (reliance recovery), specific restitution, or specific
performance might be granted if restitution isnt possible
i. The more terms omitted the more likely the parties didnt intend to contract. Even if the intent is
obvious, if the content is unduly certain, NO K
1. Think that the terms must be definite enough for a court to determine whether there was a
breach and to what extend
ii. An offer must be so definite as to material terms or require such definite terms in the acceptance that
the performance to be rendered by each party is reasonably certain
1. Material terms: subject matter, price, payment, quantity, quality, duration and work to
be done (immaterial indefiniteness not fatal)
2. Indefiniteness to an immaterial term is not fatal
3. Contract, NOT the OFFER that must be indefinite
iii. If intent to contract is established
1. Voiding on indefiniteness is a matter of law
2. Court reviews material terms
iv. TYPES
1. Common Law:
2. VAGUENESS/AMBIGUITY (more than one meaning): Indefinite Purported Agreement on a
material term but have left it indefinite i.e. fair share of the profits
a. Ask is there intent to be bound?
b. Are the vague terms material? (subject matter, price, payment, quantity, quality,
duration, work to be done)
i. If yes, probably indefinite UNLESS
1. You can imply any facts from the circumstances i.e. hired for a role
in a play duration likely til the end of the play
ii. CURE:
1. Expectation
a. Subsequent actions
i. conduct tailor starts to make suit with certain
fabric
ii. New agreement cured by a new agreement
2. Restitution
a. When not cured but there has been performance.
Where NOT cured, limited to quantum meruit
(sometimes described as quasi contractual and sometimes
as a contract implied in fact)
i. FORGING. this would NOT produce
the expectation damages that
might be produced by an actual
CURE b/c the entire bilateral
contract wasnt cured, rather a
unilateral contract was extracted
from the bad bilateral
3. Specific performance:
a. Some performance and too hard to pay in restitution
4. Reliance
a. Preparation under promissory estoppel

c. If A says to B: If you work for me for 1 year, I will pay you a fair share of the
profits; held that the promise is too vague and indefinite to be enforced. If B
performs under agreement B may recover the reasonable value of services rather than
by a share of the profits; which is known as Quantum meruit: quasi contractual and
sometimes as a contract implied in fact
d. P sold real property to D. In addition to paying the owners price, D promised to build
a first class theater whereas here P desired to enhance value. After property sold, D

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resold property to third party without theater court ruled for P court leans against
destruction of contracts (here there was full or part performance)
e. Example: Problem 31, page 92: O owned a resort hotel. O was approached by the
defendant railroad company which asked for a right-of-way across Os land adjacent
to the hotel. O granted the right-of-way in exchange for the railroads promise to build
a neat and tasteful railway station at a specified spot near Os hotel. The railroad
was built on the right of way but no station was built at or near the specified spot.
Does O have a contractual right to have a station built? There is unjust enrichment so
maybe specific performance if damages too hard to calculate and pulling up tracts
hard.
f. Example: Is an agreement to remodel in accordance with blueprints for $27,000 void
where the blueprints do not specify the materials to be used? Impossible to tell what a
contractor would charge fatally indefinite.
3. OMISSION: Where the parties are silent as to a material term
a. Strong possibility a term may be either implied from surrounding circumstances
or supplied by a court using gap fillers
1. Exception
a. Fatal indefiniteness: if silent on quantity or specifications
of a building contract b/c no objective standard can
reasonably be used
ii. Term may be either implied from the surrounding circumstances
1. Standard term, trade or local usage, course of dealing between
parties and course of performance after it
iii. Supplied by a court using a gap-filler
1. Gap Filler: use if court thought parties would agree to it or it is fair
within the community
2. Court should take into account
a. Intention of the parties
b. Nature and purpose of the contract
c. Good faith and fair dealings
d. Reasonableness
iv. UCC gap fillers exist see below
b. DURATION:
i. Silence in Employment Contracts: A and B agree A will work for B for
$52,000 but no duration stated
1. Majority: hiring at will despite salary indicating per year (if hired
permanent or lifetime, at will)
a. Hiring may be terminated for good cause, no cause or
immoral cause but this is being overturned in many
jurisdictions (see Wagenseller)
2. Minority: per year is a binding contract for one year (permanent or
lifetime until retirement or what is stated i.e. reasonable time
(factual issue))
a. Hiring may be terminated for good cause or no cause but
not for wrong cause
ii. If there is very specific language, then contract is formed on that basis (so
the views above are for when the language is VAGUE and/or silence)

Haines v. City of NY: Duration is left silent; Court applies duration of a reasonable time to find that contract is only good as
long as NYs interest remains intact NON-UCC case

Wagenseller: Employment contract where there is SILENCE on how long she will be there; NO DURATION = AT-WILL
English presumption is that if there is a yearly salary the person stays 1 year. American presumption is that if there is no agreed
upon durationeither party can terminate at any timeBUT IT CAN BE ABUSED so there are exceptions
brings wrongful termination even though she was at will Court held her firing was against public policy. The issue of the
employment manual being an implied in fact contract was remanded for fact finding. There was no breach of covenant in good
faith (such a concept would totally undermine the idea behind hiring-at-will)

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Sanchez: on the issue of implied in fact contract was whether the disclaimer could nullify the contractual intent

4. Agree to agree OR Agree to Negotiate


a. Agreement to negotiate does inherently carry with it an implied necessity to negotiate
in good faith (negotiations themselves dont have to be in good faith but if there is
an agreement than good faith necessary)
b. Deliberate postponement -- EE
c. Traditional rule: NO contract if material term (shows lack of present agreement) NO
K/no recovery
d. Modern view: an agreement to agree carries with it an implied promise to negotiate in
good faith (see Baskin Robbins below) - -this arises when there is an agreement in
principle (see Pennzoil above)
i. B/c recognized that the traditional rule may operate unfairly (example being
option case in lease situation) -- RELIANCE recovery/ breach of
implied promise
e. More Modern view II (UCC and 2nd restatement in accord): an agreement to agree
could be filled i.e. agree to provide reasonable rent (even without relying on UCC)
this would be more like a specific performance remedy
f. UCC: use gap fillers

Martin Deli: Duration is for 5 years for a leaseclause giving tenant option to renew tenant tries to exercise the option but they
hadnt stated the renewal rental to be agreed upon Agreement and Agree.court says agreements to agree cannot be enforced
whole contract is VOIDagreement to agree to material terms.EASIEST RULE WE WILL EVER LEARN

g. Examples:
i. A agrees to sell and B agrees to buy 1000 widgets. All material terms agreed
on except that the parties agree to agree on the price later.
1. Traditional view: FATAL indefiniteness
2. Modern common law: court could use a reasonable price gap filler
3. UCC: reasonable price at time of delivery but if there was no intent
to be bound, NO K (2-305 specifically dealing with price at time of
delivery)
ii. A and B negotiate oral agreement that they intend to be bound but have not
agreed on price. Later reaffirm agreement and agree that shall make effort to
reach agreement on price. A b/c of change in market conditions refuses to
negotiate on price. A breached duty to negotiate good faith. This problem
doesnt involve an agreement to agree. NO agreement to agree HERE.
iii. P obtained an option to buy parcel of real property for sum of 23,500 on
payment terms to be negotiated provided the same is exercised by June 1.
May 15, P sought to exercise the option. P offered to pay 5,300 in cash and
to assume 2 mortgages in combined amount of 18,200. D changed mind
about selling and refused to negotiate. Didnt agree to negotiate
1. Traditional common law: Too vague indefinite
2. Modern view (and held): court obligated to negotiate in good faith
and Ds refusal amounted to a breach (goes beyond most precedent)
v. Indefiniteness under the UCC:
vi. First question: was there intent to contract
vii. Second question: whether there is a reasonable certain basis for giving appropriate remedy
viii. General provision 2-204(3): Even if one or more terms are left open, a contract for sale of goods does
not fail for indefiniteness if the parties have intended to make a contract and there is a reasonable
certain basis for giving appropriate remedy.
i. THUS, Gap filler can be used in all above scenarios
ii. Main issues for court: intent, remedy and breach (identifying which party has
breached)

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iii. RS 2 is in accord with UCC and also considers questions of detrimental
reliance in this context
iv. Remember to think that you are curing the entire contract here so think that
expectation remedy should be an option not just reliance.
ix. Specific Provisions (2-300s)
1. Place of delivery (2-308)
a. If not stated, sellers place of business or if the seller has none, at sellers residence
2. Time for Shipment or delivery (2-309(1))
a. The time for shipment or delivery or any other action under a contract if not provided
in this article or agreed upon shall be a reasonable time
b. Where the contract provides for successive performances but is indefinite in duration
it is valid for a reasonable time but unless otherwise agreed may be terminated at any
time by either party
c. Termination of a contract by one party except on the happening of an agreed event
requires that reasonable notification be received by the other party and an agreement
dispensing with notification is invalid if its operation would be unconscionable.
3. Open Price Term 2-305: reasonable price at the time of delivery (if silent, the price was left
to be agreed upon, price is to be fixed in terms of some agreed market or other standard) one
can cancel if the other party was supposed to fix price but didnt or he can just apply a
reasonable price
a. Where the parties intent not to be bound unless the price be fixed or agreed and it is
not fixed or agreed there is NO contract Buyer must return any goods already
received OR if unable so to do must pay their reasonable value at the time of delivery
and the seller must return any portion of the price paid
4. Time for Payment (2-310(a))
a. If not specified, due at the time and place where buyer is to receive the goods
payment is DUE on receipt
5. Output requirements see output requirement (2-306)
6. Example: S agrees to sell and B agrees to buy 5000 gallons of motor oil designating seven
weights of oil. Price for each weight is definite. Before any weight specifications were
submitted, B repudiated agreement. Under 2-311: contract b/c buyer is bound to specify and
the seller is bound to permit the buyer to specify. Made in good faith and within limits set by
commercial reasonableness

Southwest Engineering Case: There was original price quote $18,500 [for runway lights] and P asked D for price quoteissue
could have been whether that price quote was an offerbut here there was an increased price of $21,500 and sitting down and
discussing the terms.they have quantity and pricenot totally determined that payment terms i.e. when will the price be paid
turned to UCC for gap filler

Baskin Robbins: Copeland is agreeing to buy BR plant but the whole deal was not feasible unless BR was going to buy the
icecream from the plant [co-packing] where they were still negotiating a number of provisionseventually the negotiations broke
downNOT able to finalize the copacking agreement
3 possible outcomes
1. No contract at all
2. Agreement to negotiate in good faith the copacking the agreement
3. Intended to be bound by the copacking agreement which would require the court to supply the terms missinginviting to fill the
gapscontract is copacking contract
Copeland does not try to argue what Pennzoil did that they agreed to Mergehe isnt going there but rather the 2nd step (Pennzoil
is 1 or 3-jury found 3) here going to 2not arguing we reached the final agreement but we agreed to negotiate in good faithand
jury recognizes it as an agreement to negotiateno reason we shouldnt recognize that we cant negotiate in good faith

REMEDY: only a reliance b/c its impossible to prove the expectation recovery that the WOULD have reached agreement
Copeland doesnt even try to show reliance b/c Copelands case dismissedon theory its a good argument b/c there was
an agreement to negotiate in good faith

Oglebay: Service contract therefore relies on 2nd restatement; Court enforced agreement to agree due to the extremely close
business relationship between companies and performance of ; AGREEMENT TO AGREE modern view following second

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restatementcourt can supply the reasonable price.plaintiff is asking for equitable remedies apply failed to negotiate in good
faith so the court applied gap fillers

Sharman: Material Terms left indefinite? Matters of fact must be tried by the jury even with severability clause. Owner of the
UTAH stars sues their coach Sharman for breach of contract; if these offending provisions the two indefinite can be severed or
removed from the contract, the rest of the contract can be enforced there are arguments for both (i.e. coach let terms go for 3
years, but would he have contracted without those terms??)
JURY would have to assess on REMAND b/c there are arguments in both ways

V. Offer and Acceptance


a. Offer (or Preliminary Discussion)? (2.5)
i. Traditional/Rs 1: With minor exceptions is a promise to do or refrain from doing some specified thing in
the future (exception is offer to a reverse unilateral contract) EMPOWERING OFFEREE TO CREATE
a K by ACCEPTANCE (need immediate power of acceptance)
1. Promise: is a manifestation of intent that gives assurance that a thing will be done or will not
be done
a. Signing forms at a car dealership constitutes a promise b/c the promissory language
gets adopted as the shoppers (that is not acceptance)
b. Insurance situation is the reverse unilateral
ii. Rs. 2: does NOT include promise b/c of:
1. Barters and sales
2. Reverse unilateral contract situations
iii. Non-Offers (2.6)
1. Expressions of Opinions and Predictions
a. opinion are not promise so cant be offers (i.e. doc statements)
i. USE reasonable person test
ii. Issue of fact

Hawkins v. McGee: Doc chased the patient to get the elective surgery and made promises of a certain result I will guarantee to
make the hand 100% perfect hand or a 100% good hand.if these were the only words uttered, there wouldnt be contract b/c
typical to make assertions by a surgeon. But the fact that doc solicited work, he meant words to be taken at face valuethis was
elective surgery, it was not necessary, so the doc did not need to give words like you will be 100% and therefore used it to
contract with patient. THIS WAS OFFER.
Case demonstrates that whole context needs to be taken into account (SEE remedies analysis)

iii. Dont worry, youll be back to work in 3 or 4 days no promise. A


reasonable patient would conclude that this is an expression of opinion or
words of reassurance
iv. Doctor says, Electroshock treatment are 100% safe I promise to perform
a c-section OR I guarantee you will have perfect vision. A reasonable
person would conclude that a promise was being made BUT these are
questions of fact whether promises.
2. Statements of Intention, Hopes and Desires, Estimates
a. Reasonable person conclude that there is not promissory language
i. A says to B, I am going to sell my car for $500. This is not an offer but a
statement of intention
ii. Letters of intent are usually non-committal

U.S. v. Briggs: Aberration case where the court is able to pull out of the air equitable esstoppel and protect RELIANCE on the
estimate. Briggs is the seller and Toombs the buyer is responsible for shipping/port charges under contract seller gets buyer to
agree to port charges which seller estimates X amountport charges are actually charges by the US govt and seller Briggs is
obligated to pay US charges in Alaskaactual port charges were X+5000seller resists payingUS sues seller Briggsso what
port charges does Toombs owe? Based on questions 24 and 25, would owe X+5000 but b/c of equitable estoppel obligation is only
X
So, if there was a case where there was an estimate not actionable but if the estimate was a misrepresentation of
ascertainable information could apply equitable estoppel

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3. Inquiry or Invitation to Make an Offer

Lonergan v. Scolnick: Land sale casebecause sale of land may expect a more slow moving transactionD seller places ad that
WAS NOT AN OFFER (also was in a newspaper).doesnt have commitment language and terms arent crystal clearP buyer
sends an inquiry (opposite of offer, non committal)D gives info and says he has a rock bottom price and says this is a form
letter still doesnt say I will sell to you or first personFORM letter is less of an offerD says have to decide fast b/c expects to
have a buyer in the next week or so.D sold to earlyP says I acceptif you just looked at I have a buyer soon, have to decide
fast could have been looked at.but its the entirety of the situation that court has to look atno commitment to sell to the
plaintiff

4. Advertisements, Catalogs, Circular Letters


i. Usually advertisements invite offers but often terms can be included from an advertisement
into the later terms of the contract
ii. Advertisement = OFFER when you have: quantity (and price) and commitment (First
come first served)
1. A wrote to B, I have 18,000 bu. of millet seed of which I am
mailing you a sample. I want $2.25 per bushel for this seed letter
indicating sending to others. Not an offer b/c there is a fixed
quantity and can not give to all that accept
2. Example: 1 Black Lapin Stole, Beautiful, Worth $139.50 -- $1.00
FIRST COME FIRST SERVED. The P was the first in line when
store opened.
a. Quantity and promissory language = promise
iii. Display of goods generally NOT an offer; HOWEVER some case law has held that the
displays are offers
iv. (rationale that there is an actual price but there is still the unlimited nature of
the item that presents itself as a problem)
b. French law: advertisement is deemed to be a conditional offer which may be accepted
by any member of the public subject to offerors power to reject an unreasonable
acceptance
c. Professor Murray: Store display should be treated as irrevocable offer; customer who
removes the goods from the shelf becomes an option holder who exercises the option
at the check-out (see Pro-CD and Hill v. Gateway)
i. Subject to a condition subsequentof putting back
d. Courts have stated that acceptance occurs when the customer places the goods in the
shopping cart subject to the customers power to terminate the contract before going
through the check-out counter BUT this is not so pleasing so prefer Professor
Murrays explanation
e. RANDOM: could carry an implied promise of first come first
served.

Leonard v. Pepsico: Leonard believed he was entitled to a harrier jet based on the commercial (which Bender calls
puffery).however, harrier jet was not in the actual catalog that was referred to in the commercial. However what is crucial to this
case is that there is no mention of quantity and no mention of limiting the people that could accept. Farnsworth: A customer
would not usually have reason to believe that the shopkeeper intended exposure to the risk of a multitude of acceptances resulting
in a number of contracts exceeding the shopkeepers inventory. So the entire catalog was not an offer.

5. Invitation to Bid
i. Invitation to bid ordinarily specify in detail the work to be done and invites
the recipient to state its price for the work
6. Price QuotationsGoods and Real Property
i. Goods: when quotation is addressed to many people and this fact is
disclosed, a quote is similar to an advertisement

Fairmount Glass Works v. Martin: Buyer sent initial communication with inquiry asking for price on their order (inquiry seeking
an offer from the seller) quantity of 1000 gross stated BUT here, the sellers quote was an expression of commitment at the price
b/c said for immediate acceptance AND quantity terms were specificagreeing to sell specific quantities in the offerknew

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what buyer wanted . . . SO inquiry sought offer and there were detailed terms and seller was sending directly to buyer so different
from the typical price listeven without for immediate acceptance compare w/ Harvey v Facey below.

Rs. 2nd (influenced by Corbin) does not think that for immediate acceptance was crucial in terms of creating an offer but is it??
Williston seems to have gone too far with this case and b/c he said that if there is a message communicated to one person price and
quantity from the seller, than its an offer to sell. But Bender thinks this goes too far b/c she thinks you still need promissory
language

ii. Real Property: often similar interpretations

Harvey v. Facey: (REAL PROPERTY) P telegraphs will you sell us B.H. Penn (real property)? Telegraph lowest cash price
Lowest cash price is 900 lbs P telegraphs back I acceptNO Kresponse doesnt answer whether they will actually sell, just
gives the price. Held that b/c the P first question concerning willingness to sell property had not been answered, Ds
communication did not contain a promise to sell.

Comparing B.H. Penn to Fairmount: Even though in the absence of for immediate acceptance the cases seem very similar but
had different rulings

Other information reveals that seller was negotiating with others; Also, courts are quite properly reluctant to construe a
communication as an offer unless it is quite clear that a promise has been made there was lack of intent to commit

7. Offer v. Preliminary NegotiationsFactors to Consider


i. Most of the above are preliminary negotiations etc.
ii. Test is whether a reasonable person in the position of the plaintiff would
conclude that the defendant had made a commitment
1. Is it initial communication as opposed to answer to inquiry answer
to inquiry more likely to be an offer
a. Language used in inquiry i.e. Fairmount
2. Words used?? Promises or noncommittal
3. Terms detailed or are only a few terms included? Quantity and
quality included?
4. Selectivity of communication is it clear that the party who sends
the communication is treating with other people with respect to
same subject matter
5. Real property or goods? Courts less likely to interpret a message
about real property as an offer than a similar message about goods
6. Relationship of parties: husband and wife?
7. Surrounding circumstances: whether physician is treating patient
under emergency?
8. Usage of the trade prior practice of the parties (course of dealings)
b. Acceptance
i. Unilateral OR Bilateral? (2.10)
1. Classic Approach
a. Offeror is master of the offer and free to indicate in what manner the offeree can
assent
i. Offer to a bilateral contract
1. Accept by promise
a. NOT at distance
i. Notice part of acceptance all bound/no revoking
upon notice/assent
b. At a distance
i. Acceptance valid when sent
ii. See mailbox rule
2. Accept by beginning of performance (implied in fact K must be
done in front of offeror)
a. Accept by implied promise

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i. Notice part of acceptance all bound/no revoking
upon notice/assent
3. Accept by full performance; If offeree completes entire
performance could be acceptance (minority) BUT
i. Notice part of acceptance all bound/no revoking
upon notice/assent
4. Signing agreement generally shows bilateral commitment (signature
is NOT performance in such a context if signature is what is
bargained for that would be different)
a. If you dont read, that isnt fair to the offeror b/c of
objective K theory, so you would be bound
ii. Offer to a unilateral contract: PERFORMANCE required
1. Accept by performance three views on whether notice is
required see below. Assuming performance is sufficient, both
bound on performance.
2. Part performance could create an irrevocable offer under
restatement 45 (other views to the contrary see below). notice is
NOT necessary [offeror bound, offeree NOT bound but cant
abandon], not free to revoke must intend to finish
b. Reverse unilateral: calls for promise in response to performance i.e. insurance
premium but wouldnt be in effect without a fire so fire is a condition precedent to
the obligation of insurance company
i. 45. S has been Bs regular supplier of various component parts for
machinery manufactured by B. Lately S has been unwilling to sell to B on
credit terms. B sends a telex message to S, reading Will you ship 15,
catalog No. 337K at $5,000 each? Urgent. Need to have your reply today. We
have deposited $75,000 to your account in Geneva. Does this order look to
a unilateral or bilateral contract or some variation? Looking toward promise
BUT the offeror has already performed so this could be a unilateral
contractwhen the return promise is madeTHIS IS A REVERSE
UNILATERAL CONTRACT
ii. If a kid sends in check with school application, this is offer to reverse uni
that invites promise to evaluate (offer includes performance)
2. Is it offer to uni-K or bi-K?
a. Restatement 1: Ambiguous offer as to unilateral or bilateral: assume bilateral and so
could be accepted either by promise or impliedly through commencing performance
in front of offeror
b. Restatement 2: indifferent could accept either way
i. Notice is required so pretty much like the UCC.
ii. Offeree would be bound until notice and then offeror bound but offeror could
proceed onward.
3. UCC: 2-206
a. Rs. 2d: adopts same approach
b. (1): Unless otherwise unambiguously indicated by the language or circumstances:

i. (A) an offer to make a contract shall be construed as inviting acceptance in


any manner and by any medium reasonable in the circumstances
1. If the offer is indifferent any reasonable means of acceptance are
possible
a. Performance
b. Promise
c. Part performance
ii. (B) an order or other offer to buy goods for prompt or current shipment
shall be construed as inviting acceptance either by a prompt promise to ship
or by the prompt or current shipment of conforming or non-conforming
goods, but such a shipment of nonconforming goods does not constitute an
acceptance if the seller seasonably notifies the buyer that the shipment is
offered only as an accommodation to the buyer.

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a. If the offeree performs by sending goods, NEED notice of
shipment under 2-504; so failure to notify is grounds for
rejection if there is a material delay in shipment or if loss
ensues
i. BUT Rs. 2. says notification NOT necessary; but
sale of goods UCC prevails
2. THUS, Promise or performance is appropriate for prompt shipment
of goods
a. NOTE: SHIPMENT = performance (notice is c/p)
b. loading goods performance i.e. could be
c. preparation or just beginning performance so unless there
is notice to the offeror, not binding yet.
3. Unilateral contract trick
a. Common law: shipment of non-conforming goods is a
counter offer
i. The buyer is stuck if he keeps and has to pay for
the non-conforming goods (becomes a reverse
unilateral contract sent goods and asks for
return promise to pay)
b. UCC/2d. RS: if seller sends non-conforming goods,
CONTRACT it is the acceptance and simultaneous
breach.
i. Breach: means that a bilateral contract emerges
for the conforming goods
ii. TO avoid the K from forming: the seller can
seasonably notify the buyer that the shipment is
offered only as an accommodation to the buyer
so becomes a counter offer
c. (2): Where the beginning of a requested performance is a reasonable mode of
acceptance, an offeror who is not notified of acceptance within a reasonable time may
treat the offer as having lapsed before acceptance.
i. Determine whether beginning of performance is reasonable mode of
acceptance
1. When is it reasonable to accept by part performance? IT is not
always reasonable
a. If it is in offerors presence, could be implied-in-fact
b. Trier of fact could conclude that beginning performance
constitutes a promise to complete
c. Compare the lawn mowing example to the mechanic
example
i. Mechanic offered $100 to fix engine and he
starts poking around there NO commitment b/c
there was no assent and could come across more
expensive work
ii. Lawn mowing: if the performance is relatively
definite easy to assume that part performance is
acceptance important to look at scope of work
ii. IF beginning of performance is a reasonable mode of acceptance
1. Offeree is bound on commencement of performance provided that
the beginning of contract expresses the offerees intent to
commit to contract
2. Offerees beginning of performance operates as if the offeree had
made a promise to complete performance
a. Cant revoke within the reasonable time for
notice
b. Offeror is NOT bound unless given notice, but the offeree
is bound by beginning performance

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3. If timely notice is not given, the offeror although not bound to
perform, has the option to proceed as if there is a contract (b/c
offeree is BOUND)

Illustration: 76. B sent a purchase order to S which amounted to an offer to buy goods. S began to execute Bs order. B knew that S
was beginning performance. (a) was B entitled to cancel the order? (IF TOTALLY SHIPPED THIS WOULD BE COVERED
UNDER earlier subsection of performance) but here there has to be an indication of commitment UCC: B not entitled to cancel
assuming bilateral contract createdno longer possibility of revoking order but youd have to make sure part performance
was a reasonable mode of acceptance so if reasonable and there was notice given, CANT revoke
(b) Would B be entitled to cancel the order if B was unaware of the beginning performance? Under the UCC notice would be
required but as a condition precedent not as part of the acceptance . So here you would look to the timing has a reasonable
time passed? If so, then can cancel. If not, no cancel.

ii. Must the Offeree know of the offer? (2.11)


1. Bilateral: Not necessarily. Objective theory of contracts relevant: possible offeree may be
bound without knowledge of contracts
2. Unilateral: have to know (think rewards) identical cross offers NOT contract
a. Rewards are one of the few offers that only look to a unilateral acceptance...find X get
Y
b. If you dont know, the reward couldnt have been bargained for

State v. Malm: She tried to get a reward but didnt know of the offer so she didnt.

c. Rs. 2d: 2 offerors could assent in advance to cross offers and suggests that such assent
may be inferred when both parties think a contract has been made
3. When must offeree know? This really only has to do with unilateral b/c in (bilateral: the
offerees promise creates the contract and the question of when the offeree starts to perform is
NOT usually relevant on the issue of acceptance)
a. 1st Rs: whole consideration requested by an offer must be given after the offeree
knows of the offer
b. Rs 2 - More modern view: sufficient that the offeree completes performance with
knowledge of offer
iii. Warranties in a Box; Shrinkwrap; Clickwrap (2.12)
a. Issue involves what to do with terms within a box
i. Some: say terms are binding (see Hill but this reasoning was flawed b/c that
contract was made over the phone and the terms were additional that by the
terms of UCC 2-207 do not become part of the contract); FIX by reading
terms over the phone
ii. Other courts: disagree holding the package terms are NOT binding (see
Klocek)
iii. If there is an intermediary the terms would likely be binding on the end
buyer (but not tort litigation)
b. Software licensing: if the terms are on the shrinkwrap opening would be acceptance
OR by clicking I agree cases are divided though
i. Internet? Clicking I agree is binding

Pro-CD: [Judge Easterbrook and Posner in the 7th circuit] Placing package on the shelf is AN offer which customer accepts by
paying (see also Hill). does not apply 2-207 b/c allege that only one form. Applies 2-204(1) to emphasize that a contract may be
made in any manner to show agreement. additionally saying that an offeror as master of the offer may invite acceptance as
he/she wishes HERE: ProCd proposed a contract that a buyer would accept by using the software after having had the
opportunity to read the license agreement. 2-206(1)(b) court says reinforces this: b/c if nonconforming goods are sent, buyer can
seasonably notify the seller to negate the acceptance. Thus, accepting the terms was part of the acceptance and the license was
VALID

Specht: plaintiff downloaded netscape navigator but didnt realize they were also accepting the smartdownload and its terms
thus, those terms were not part of the contract
iv. Must the offeree intend to accept? When? (2.13)

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1. Offeree must manifest intent to accept (not enough just to know)
a. Bilateral: subjective intent usually irrelevant so its up to objective (so if there is a
promise intent to accept is there unless reason of offeror to think otherwise to think
otherwise)
b. Unilateral: often tough to see so:
i. PMR: If there is ambiguity in the acceptance, subjective intent is allowed to
be introduced to determine what the manifestation was
ii. Restatement 2: NO subjective intent and thinks intent to accept is presumed
in the absence of words or conduct indicating the contrary [rebuttable see
Industrial]
1. If the offeree manifests intent NOT to accept before offeror
performs, the disclaimer is effective and promise inoperative
2. ISSUE OF INTENT IS A QUESTION OF FACT

Industrial Case: Question was did the P have the burden of proving subjective intent on the part of Deutsch to accept the offer of
guaranty which had been made in the advertisement by Fulton under the jurys findings [jury found as fact that P was the procuring
cause of the merger]. Invoked the Rs. 2 approach as above that acceptance by performance is consummated unless intent NOT to
contract is indicated THIS can be rebutted. So they had to prove 1. whether Fultons offer to guarantee invited acceptance,
whether Deutsches knew of the offer; and 3. whether Deutschs course of action constituted a performance amounting to an
acceptance. It was sufficient that Fultons knowledge of an act constituted acceptance.
RAISES issue of subjective intent in a unilateral, whether the offeree must know of the offer and sufficient notification of
unilateral
Court held there was no relevant issue of fact as to the Ps subjective reliance upon the offer. As a matter of law, it appears
unquestionable that the offer invited acceptance by performance; he knew of the offer; and there was no manifestation of assent to
the contrary.

v. Who may accept the offer? (2.14)


1. the person who offered to or duly authorized agent
a. Example: A individually is doing business under the trade name of Acme C who
has bought out A, including the name, fills the order. The question to be answered is
whether a reasonable person would conclude that B manifested an intention to make
the offer to Acme irrespective of who owns it. If so, C may accept. Countrawise, C
may not accept if a reasonable person would conclude Bs manifested intention was to
make an offer to Acme alone so long as A was the proprietor. Question of Fact. If the
offer is NOT made to C, there may still be a quasi-contractual recovery where B has
received and kept valuable goods.
vi. Must the offeree give notice of acceptance of an offer to a unilateral contract? (2.15)
1. Three views (no need for intent):
a. Both Restatements / majority view: contract arises on performance, but if offeree has
reason to know that the offeror has no adequate means of learning of performance
with reasonable promptness or certitude, the duty of the offeror is discharged
i. UNLESS the offeree exercises reasonable diligence to notify the offeror OR
the offeror otherwise indicates notice is NOT necessary
b. 2nd view: if notice is required, no contract is consummated unless and until notice of
performance is communicated
c. Minority view: Notice is NOT required unless requested by the offer.
2. 50. D, harry eations brother, in nova Scotia, wrote P, in Illinois: If Harry needs money, let
him have it, or assist him in getting it, and I will see that it is paid. The following month P
helped Harry borrow money by siging Harrys note as guarantor. After signing, P so notified D
by letter which D never received. Harry did not pay the debt at maturity. P paid and sued D.
What result? Performance is rendered but the question is theredo you need notification?
Here notice is required. Rather rare occasionnotice is needed under restatement view..it
was effective if sent in reasonable time

Carlill v. Carbolic Smoke Ball: in this case it was an ad stating that if you get the flu and you use carbolic smoke ball, you will get
1000 lb. Anyone can accept by performance.as many that fit the description. What type of performance?? Buy and use it. B/c the
flu is not a voluntary act, that is NOT the performance, but rather it is the condition precedent to Ds duty to perform. Duty to

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perform arises when the flu is caught. If she never caught flu and reasonable time goes by, expires. A contract is formed but duty is
contingent on condition precedent here there is the burden to notify b/c how would offeror be able to ascertain; NOTICE (SEE
below): Defendant doesnt want/need notice of buying and using smoke ball but needs notice of flu.have to bring a reasonable
time

OFFER? Compare to Leonard : Other "reward" cases underscore the distinction between typical advertisements, in which the
alleged offer is merely an invitation to negotiate for purchase of commercial goods, and promises of reward, in which the alleged
offer is intended to induce a potential offeree to perform a specific action, often for noncommercial reasons

vii. Acceptance of an offer looking to a series of contracts (2.16)


1. Distinguish series of contracts (unilateral or bilateral) v. a contract w/ an acceptance including
a series of performances
a. Unilateral (series)
i. Example: A writes to B on Jan 1, in consideration of your advancing money
from time to time over next 12 months up to 5000, to X at Xs request at
your option I hereby undertake to make good any losses you may sustain in
consequence B lends 1000 to X on Feb 1, and another 1000 on March 1. A
then revokes the offer. B makes an additional loan of 1000 on March 15. As
offer looked to a series of unilateral contracts
b. Bilateral (series of)
i. A offers B stated quantities of certain goods as B may order from time to
time during the next year at fixed prices. The series is bilateral b/c each time
B places an order B impliedly promises to pay.
1. One notification may be ok, even though there are multiple
acceptances
2. Each time B places an order B impliedly
promises to pay so one bilateral K arises but
as to the future, the offer remains revocable
ii. This comes up in the void scenario
c. One contract series of performances
i. A offers to sell B 6000 tons of coal deliveries to be made in equal [equal
installments NOT necessary] installments during the months of
May, June, July, August. B accepts. One bilateral contract created. Series of
performances.

viii. Communicating Acceptance of an Offer to a bilateral contract (2.17)


1. To create a bilateral contact, the offeres promise must be communicated to the offeror
2. As master of the offer, the offeror may dispense with the requirement for communication
(afterall the notice is really for the benefit of the offeror)
3. Even if dispensed with, it would appear reasonable to require subsequent notice of acceptance
by analogy to the rules established for giving notice of performance of a unilateral contract;
such notice would not be necessary for the formation of the contract, but the failure to give
notice would discharge the obligation of the offeror and could amount to a breach
a. Example: A an agent for B corp presents C with doc stating terms of bilateral
arrangement but adds that this will become a contract when approved by the
executive office of B. C signs document. B corp. has not made an offer b/c B did not
commit to anything. C became the offeror by signing the document. Cs offer includes
the terms relating to approval by B when the offer is approved by Bs executive office
even though acceptance is not communicated.
i. Some: say offer is accepted without notice as soon as approved by home
office
ii. Hornbook/Rs. 2: seems to say that notice should still be required
1. MAKE SURE TO JUST ANALYZE THE ENTIRE FACT
PATTERN b/c you still made need notice even the wording of the
contract suggests otherwise
b. Example: 51. On Mar. 15, P signed an agreement to purchase specific residential
property from D corp. The agreement was not signed by anyone for D Corp. The

17
agreement provided as follows: This Agreement has been obtained by Sellers
salesman or agent who has no authority to bind Seller to this agreement. This
agreement becomes a contract when accepted by Buyer and signed by Seller at its
executive office within thirty calendar days from the date below. A. D corp. never
signed the agreement. No contract?
c. Example: Would the result be different if D Corp. signed within 30 days but did not
notify P and later attempted to withdraw? Because the language of the contract
points out the exact moment in time when contract becomes enforceable, notice isnt
necessary.
d. C. suppose the language had been, This agreement shall not be binding upon Seller
unless signed by Seller within 30 days. So here b/c there is no exact language, so it
wont be binding on either partyso here you need to notify.Does not dispense with
a need (do away with need) to communicate the promise. SO YOU MUST NOTIFY

ix. Acceptance by Silence Implied-in-Fact Contracts (2.18)


1. Generally: Silence ordinarily does not give rise to an acceptance of an offer or a counter offer
but there are exceptions. When silence would be deceptive, there is a duty to speak
2. Instances that may amount to a promise
a. Offeror has give the offeree reason to believe that silence will act as an acceptance
and the offeree intends by silence to accept
i. Rs 2: Subjective intent is relevant in determining intent to accept b/c the
fault is on the offeror
b. The parties have mutually agreed that silence will operate as assent
i. A form agreement pursuant to which bank cards were issued to depositors
contains a provision with respect to changes in the agreement which
provides as follows: We can change this agreement at any time. We will
mail you a copy of any changes by ordinary mail. You must notify us within
ten days of your nonaccpetance of the changes. If you do not, you will have
agreed to the changes.
c. CATHALL CATEGORY: Course of dealing whereby silence has come to mean assent
(can be where goods shipped for acceptance or orders solicited but look to the
offeree)
i. Rs 2: Not allowed to testify as to subjective intent when in a prior course of
dealings whereby acceptance of goods occurred, buyer held the goods for a
long period of time fault on the offeree
d. Retention of Insurance Premium may amount to acceptance
e. Take services with reasonable opportunity to reject them and with reason to believe
that they are offered with expectation of compensation
i. offeree takes offered services
ii. offeree has reasonable opportunity to reject them
iii. reasonable for the person to understand that the services are offered with
expectation of payment
f. Services rendered in the family (presumption without compensation) BUT if no family
relationship compensation expected
i. Presumption may be rebutted
ii. Issue of FACT
1. Party seeking payment must show that services were carried out
under such circumstances as to give the recipient reason to
understand that the services were rendered for the recipient and not
for some other person
2. Not rendered gratuitously but actually provided some benefit i.e.
they were bargained for (element 2 under consideration) [think
about Kirskey]
g. Services rendered prior to the formation of a contract i.e. legal evaluation
i. Architect might get whereas insurance company wouldnt

Gem: these consulting services did not benefit the person, but that argument does not succeed, b/c there is no need for a benefit
when talking about an implied-in-fact contract but needed for quasi contract (implied in law) receiving services as implied

18
promise to pay the reasonable value. Reason court brings out reason of benefit, that is only relevant if suit is in quasi contract for
unjust enrichment.

Hobbs: Plaintiff is seller, D is buyer.eel skins used for whipsthere is an ongoing relationshipsent eel skins a few times P
sent, and buyer who would normally just pay, BUT this time said NOTHING. The skins got destroyed so buyer didnt want to pay
for them Had been dealing with this before, so prior dealings gives this seller reason to believe that buyers silence constitutes
acceptanceprior dealings is what constitutes acceptance[subjective intent not considered b/c fault on offeree rather it was
objectively believed so by the offeror and so an acceptance amounted]

Wilhoit: 2nd or 3rd cousin comes to stay. Never expressly promised to pay. Definitely given services with reasonable opportunity to
reject. However, because they were second or third cousins cant say obvious gratuity and can if they are living like family. All this
can be rebutted if there is evidence of a contract. The question was did she impliedly make a promise to pay? She may have
expressly but there is not good evidence b/c of dead mans statute. So in this case there was an implied promise to pay based on
Flossies personality: she was very independent, never wanted handouts and charity and housemade of Ruth kept an eye on her. So
here, even there was a family relationship which as a matter of law would eliminate the contractual relationship, it was rebutted by
personality.

x. Acceptance by Conduct or Act of Dominion (2.19)


1. UCC not at variance to COMMON LAW (but there isnt total specification with regards to the
UCCs handling)
2. UCC 2-204(1): A contract for the sale of goods may be made in any manner sufficient to
show agreement, including conduct by both parties which recognizes the existence of such a
contract.
3. When on exercises dominion over the personal property of another, without authorization, one
commits conversion. Exercise of dominion creates contract irrespective of conditions
a. Old common law doctrine that is also enacted by UCC 2-606(1)(c): Acceptance of
goods occurs when the buyer does any act inconsistent with the sellers
ownership; but if such act is wrongful as against the seller it is acceptance only if
ratified by him.
4. If the goods are taken volitionally i.e. A offers Tractor to B and B
goes and takes make sure to think about whether there was an
offer
i. If the act was consistent with the offer CONTRACT
ii. If the act was wrongful i.e. not consistent with the offer (it was an offer to
bilateral contract and he just took or the offer lapsed) sue in tort OR
contract (cant escape contractual obligations by claiming tortfeaser as
opposed to contract breacher Rs. 69) or Quasi?? at the option of the
offeror he may be held to an acceptance despite his manifestation of a
contrary intention. Such an obligation may fairly be characterized as quasi-
contractual rather than contractual, but its terms are fixed by the offer rather
than by the fair value of the property An exception is made where the
offered terms are manifestly unreasonable. In such cases the offeror has
reason to know that no acceptance is intended, and the offered terms do not
serve as an administratively convenient substitute for fair value. Particularly
where the offeror seeks to take unconscionable advantage of a mistake made
in good faith, no social purpose is served by an award plainly in excess of
reasonable value even though the exercise of dominion is tortious. REST
2d CONTR 69
5. If the goods are RETAINED i.e. A sends a book to B and B keeps
a. With acceptance but no reply to seller = acceptance by conduct (lawful)
i. Contractual remedies available
b. With express rejection acceptance by conduct (wrongful)
i. Tort action for trespass or conversion
ii. Quasi K action for equity
iii. Breach of K (even though not a K) at option of the seller if price is
reasonable
c. With possession but NO acceptance NOT an exercise of dominion

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i. NO acceptance NO contract
ii. No need to keep for a reasonable period of time

6. Statutory Exceptions
a. In order to discourage the unsolicited sending of goods to unwary customers, several
states have enacted legislation making it unlawful to offer merchandise for sale by the
unsolicited sending of goods. Generally these statutes also provide that a person who
receives such goods has complete defense to an action by the offeror.
i. UCC doesnt cover everything
ii. 39 USCA 3009: The Postal Reorganization Act of 1970 provides that one
who receives unordered merchandise by mail may treat the transaction as a
gift. Examples A and B now changed by these statutes.
7. Examples:
a. A sends a book to B saying, if you wish to buy this book, send me $26.50 within one
week after receipt hereof, otherwise notify me, and I will forward postage for return.
B without replying, makes a gift of it to her husband. Bs act is an act of dominion
referable to the offer. B has accepted the offer. (so contractual recovery is the
option) if apply the 39 USCA 3009 treat as a gift
b. Instead B writes to A stating that she has taken the book but that it is worth only
$15.00 and that she will pay no more. Here B acts of dominion is wrongful, b/c it is
not justified by the terms of As offer. Bs letter shows that B does not intend to accept
the offered price. Nonetheless, the offeror may sue either on a theory of contract or
conversion. A fictitious contract is created by preventing [b/c it would be wrong to
say B accepts b/c really giving a counter offer] B from testifying that Bs own
conduct is wrongful when it could be referable to the lawful intent. But A may not sue
on a contract theory if the offered terms are manifestly unreasonable. The measure of
damages will be different depending on the theory selected. Again 39 USCA negates
this and treat like a gift.
c. Instead of replying puts on shelf to await messenger. No contract in common law
and no contract under 39 USCA 3009
d. 64. Under a claim of right made in error but in good faith, B digs a well on As unused
land and take water therefrom which has no market value and no value to A, doing no
injury to the value of the land. A notifies B that B will have to pay 500 a day for every
day on which B takes water from this source. Does B accept As offer by taking
water? If B takes the water after A made the offer: is B impliedly promising to pay
different about problem? The water is valueless but the price being charged is
manifestly unreasonable.not bound if manifestly unreasonable so treat as rejection
of offer and thus can sue in either contract, tort, quasi contract .concerned that A
doesnt have good remedysue for the tort of trespass/conversion [but still zero
recovery, b/c no damage is being done to the land]remedy would be an
injunctionto prevent
e. 66. P and D the City of Shade Grove entered into an agreement by which P gave D an
option to acquire a perpetual right of way for sewer lines across Ps property. In
exchange, P was to be allowed a specified number of sewer connections. By the terms
of the agreement, D was to exercise the option by giving written notice in a specified
way. D never gave such notice but it did proceed to install sewer lines across Ps
property. When P discovered this, P asked for the promised sewer connections and D
refused. In an action by P against D what resulted? This was an offer to an option
that was supported by consideration and thus if D exercised, P entitled to what he
gets. So b/c acceptance by dominion, but also there was trespass can sue either in tort
or contracts either way come to a contractual liabilityONLY if suing for trespass
would court really have to figure out if non-acceptance OR acceptance [if acceptance,
NO tort], non-acceptance [tort or contract at option of plaintiff]allowed contractual
recovery; exception where the price was manifestly unreasonably

xi. Effect on Part performance on an offer to a unilateral contract (2.22)


1. Can an offer to a unilateral contract be revoked after partial performance?
a. Common law

20
i. Classic: offer may be revoked any time before the complete performance
requested by the offer (Petterson)
ii. 2nd view and now obsolete: bilateral contract arises when starts to perform
iii. RS. 45: Once the offeree begins to perform, the offer becomes irrevocable /
option contract
1. Offeree does not become bound to complete performance, but the
offeree will not be entitled to a contractual recovery unless
performance is completed within the time allowed or excused
(cant abandon performance)
a. Performance Excused: if the offeror repudiates the
promise after the offeree has commenced performance
must show ready, willing and ableness but for the
repudiation DAMAGES are the same for a
bilateral repudiation
Substantial performance wouldnt apply b/c there is no such thing really as a constructive
condition performance is an express condition precedent
i. But if the offeror did reject the promise, the
offeree must prove a readiness, willingness and
ability to have performed but for the rejection
ii. Aggrieved must mitigate damages usually by
ceasing performance
iv. Mere preparation beginning performance
1. However: Generous application of promissory estoppel: preparation
for performance by offeree may create a right to relief under the
doctrine of promissory estoppel when only preparation commenced
NOT performance
v. IF Performance requires the cooperation of the offeror and such cooperation
is withheld, tender of part performance is the equivalent of part performance
b. Example: A, manufacturer of racing cars, says to B, a race car driver, If you enter
every race on this list, driving our new super-model that we have sold you, we will
pay you a fee of $200,000. After B has raced in half the races on the list, A says, We
have changed our minds. The offer no longer holds.
i. First view: that is an effective revocation, but is entitled to quasi-contractual
relief for the value of his performance up to the revocation
ii. Second view, the beginning of performance creates a bilateral contract and
there is no longer any possibility of revocation.
iii. Third view: the offer became irrevocable when B began to perform. A may
not revoke.
iv. Nevertheless, under the 2nd and 3rd view, B should quit entering the races if
such quitting would mitigate damages. If B continues racing, B cannot claim
any compensation for activities after the repudiation, but can claim damages
for total breach.
c. Example: A makes an offer to B looking to a unilateral contract. B starts to perform
and A dies.
i. First view: offer is terminated
ii. Second view: there is a bilateral contract
iii. Third view: the offer is irrevocable and not terminated.

Petterson v. Pattberg: Petterson is mortgagor; Pattberg is lending the moneyAn OFFER to accept lesser amount in satisfaction
of entire debt provided it is paid sooner (consideration). If you pay balance by date, I will accept $780 lessThis case follows
traditional rule that an offer can be revoked before completion of the performance.
Didnt agree on PERFORMANCE
a. Complete act of PAYMENT (TENDER AND TAKE) is the view of Kellogg so offer could be revoked prior to full acceptance
b. Everything that paying person could do; tender the MONEY is what majority says
c. EVERYTHING that happened here (offer to perform, with the present ability to do so). DISSENT SAYS THAT is enough (#3);
dissent sees two separate acts: offer to perform and present ability to do so.
**Result: the revocation came before the tender. Kellogg disagreed and thought that tender and take is necessary but it doesnt
matter b/c the offer wasnt valid anyway.

21
Brackenbury: Involves Mother sending letter to daughter and her husband saying If you move to Lewiston, and pay expenses and
care for me for the rest of my life, you can use the house etc. and the house will be yours when I die. This is an offer and if this
accepted there is a contractual obligation to give the house to the daughter and son-in law and even if the will doesnt provide for
this: there would be contractual obligation of the estate to transfer and this would take precedence over the will; its an obligation
and she sends the letter. They move and they run into difficulties FOR just a few weeks; mother transferred property to get them
evicted off the property so THEY sue to get property transferred back

Brackenbury Analysis: Mother is trying to revoke the offer and the court sees this as this as a unilateral CONTRACT so
we have two tenable rules:

o Minority rule: revoke? Yes. No cause of actionpetterson b/c you need full performance
If you are in a minority jurisdiction, for the revocation to be unlawful, you have to argue that there has
been FULL performancethey completely moved so you could try to argue that the performance which
constitutes acceptance is the move
(BENDER DOESNT THINK that works).we know caring has to occur, you would have to argue
that---
Caring is not part of the acceptance but actually a condition precedent meaning that the
contract was formed by MOVING and so there is that condition that unless met would prevent
the mother giving of the house but would make the contract irrevocable. i.e. Carbolic
that use of the product --but you still had to have the flu before performance of paymentso
you had formation of unilateral and condition had to occur---would be so unfair to allow the
mother to revoke---
o Majority (BOTH Rs. 45): Part performance doctrine so you need beginning of performance; no question you
have it MOVE to Lewiston and CARE = performance; certainly moved and begun to care which makes the
offer irrevocable; REVOKING is a breach cause of action
BUT offeree doesnt have to complete performance they are NOT bound so Mother cant sue to
recover performance
o Suppose we might have seen this as ambiguous from traditional issues??? Then look to bilateral contract..
Ambiguous: BILATERAL. Implied promise b/c in presence of other party BUT still have to look to
commitment need to show that beginning of performance amounts to commitment but could be
implied promise..in presence of the OTHER party though still under the class approach
o Modern approach (2nd restatement not sale of goods but would be UCC if sale of goods): could be looked at as
indifferent and so any reasonable manner of acceptance; beginning of performance is sufficient; if beginning of
performance indicates commitment to finish, you would have a bilateral contract
BUT NOW that means they have to care for her
Cant just assume that beginning of performance has to communicate commitment
Doesnt have to be in front of party
Bender doesnt think it is clear that here there is a true bilateral
o UNDER all approaches daughter has a cause of action: only the minority view (petterson) no cause

xii. Time of acceptance of an offer to a bilateral contract (2.23)


1. Revocable? Any time before acceptance
Parties at a distance
2. Most communications i.e. rejection, offer, counter offer, revocation are effective when
received (see 2.20)
3. However, mailbox rule = acceptance effective when SENT
a. BUT, mailbox rule does NOT apply when offer prescribes exclusive place, time
or medium of acceptance -- so if someone sends wrongly that would be
construed as counter offer
b. But if prescribed and adhered to mailbox rule applies (unless it says must be
received to be effective)
i. Example: A offers to sell land to B on certain items. The offer states, You
must accept this, if at all, in person, in my office at ten oclock tomorrow. B
sends a messenger who is on time and accepts the offer. The words if at

22
all make it clear that in person prescribed as an exclusive method of
acceptance and so sending the messenger is a counter offer.
4. RATIONALE for MAILBOX RULE
a. Offeree benefits b/c prevents offeror from revoking the offer for a longer period OF
TIME
b. Continuing justification is that offeror has advantage being able to revoke the offer
and Mailbox rule cuts short that PERIOD
c. Pick offeror to be inconvenienced in order to cut short the period of revocability of
the offer and to prove that this is true there is the opposite rule when the offer is
irrevocable
i. When the offer is irrevocable, ACCEPTANCE is effective on receipt
ii. THERFORE, Require a revocable offer for the mailbox rules
Satisfy Mailbox RULE
1. Revocable offer
2. Proper medium with respect to offer
d. 1st Rs. / Traditional: must be authorized if NOT authorized effective upon receipt
e. UCC (2-206 cmt 1) and 2d restatement: must be reasonable
i. Exception: if not reasonable BUT seasonably dispatched and arrives
seasonably, effective when SENT. BUT If not seasonable (and not
reasonable), effective on receipt
3. Responsible sending: properly stamped etc (usually when looking at notices of termination)
f. Traditional: requires responsibility
i. No responsibility = effective on receipt provided still open
g. 2d restatement: requires responsibility
i. Exception: NO responsibility but seasonably dispatched and arrived
seasonably (when responsibility addressed mail would arrive) = effective
when sent
ii. Not seasonable =effective on receipt
h. Examples
i. A made an offer to B. The offer stated: Email me yes or no. If I dont
hear from you by the 20th, I shall conclude no. B immediately emailed an
acceptance which was never received by A. There is no contract b/c the
language, if I dont hear from you, negates the mailbox rule.
ii. A sent offer to B by mail. The last sentence of the offer read: as soon as
acceptance is received we shall send amongst the farmers and secure the first
lots. B promptly sent a letter of acceptance which was lost and never
received. Here, there is a contract The language does not negate the mailbox
rule b/c it can be interpreted to mean that the offeror will act promptly once
the acceptance is received, rather than that the acceptance is contingent on
receipt.
a. What happens if lost in the mail? If sent and lost in the mail, mailbox rule still in
effect but the offeror will not be guilty of a breach of contract unless the offeror
receives notice that a contract has been formed
iii. Even though effective when sent, receipt of acceptance is a condition
precedent to obligation of performanceso even though a contract was
formed, there was no obligation to perform. Notice is really a condition
precedent (argue both sides of this)
i. Be sure to take into account what the OFFER says i.e. effective when sent and
received Must be received

Cantu: In this case it was reasonable to think that sending in the mail was OK and therefore effective when sent (mailbox rule
applies) mailbox rule; plus they quickly had to make decisions and just before the school YEAR so acceptance by MAIL. Under
the test of authorized they often just throw it all together so she could not revoke

23
FUJIMOTO: Company promising a bonus and they were first making oral promises b/c the wanted in writingthey continued to
work really based on the contract, the company say they accepted correctly but didnt sign and send them back?? No medium was
really specified even if with shall courts say not enough. Shows that remaining on job was acceptance.

4. BOTH REJECTION and ACCEPTANCE SENT


a. could lose benefit of mailbox rule (acceptance being effective when sent)
b. Rejection sent and then acceptance sent
i. An acceptance dispatched after a rejection has been sent can be effective if
and only if the acceptance is received prior to the rejection; such an
acceptance is not governed by the mailbox rule and is effective on receipt if
it arrives prior to the rejection so which ever arrives first wins
1. If rejection sent, acceptance sent, rejection received, acceptance
received acceptance treated as counter-offer
2. If rejection sent, acceptance sent, acceptance received, rejection
received contract
j. Acceptance and then rejection
i. Acceptance sent, rejection sent, rejection received, acceptance received a
contract was formed of the acceptance.
1. Otherwise the offeree could speculate at the offerors expense by
seeing how the market went (like take advantage of the fact that he
already accepted and then screw him if by pulling out if doesnt like
the price)
2. However, if the offeror relies on the rejection before receiving the
acceptance, the offeree may be estopped from enforcing the
agreement. The overtaking rejection may be looked on as an offer to
rescind the contract or a repudiation.
k. Example: 84. What legal error appears in this excerpt from the NYTimes obituary of
MH? For all the glory of his career with the giants it happened largely by accident
and through a violation of sacred postal regulations. In 1931, Mr. Hein wrote to
several NFL teams, including the giants and the Providence Steamrollers, offering his
services. When the Providence team was the first to respond, offering him a 125 a
game contract, Mr Hein signed it and mailed it back. The next day a Giants contract,
offering him $150 a game, arrived, and Mr. Hein sent a wire begging the postmaster
in Providence to intercept the other contract and return it. The official obliged and the
rest is Giants history. Bound by when it was sent.not received. b/c it was sent
properly there and timely ven though you can get post office to retrieve it, this person
tried to reach in and get the letter back it does not work.acceptance was effective
when SENT

5. Parties in the presence of one another


l. No mailbox rule
m. Acceptance operative only if offeror hears it or is at fault in not hearing it (but if the
offeree has reason to know offeror didnt hear, no contract)
n. Telephone?
i. Almost unanimous: treat as if in the presence of one another
ii. CASE decisions: as if the parties are at a distance and thus the acceptance
treated when SENT
1. But these cases have arisen in the context of conflict of laws and
concern the question of where the contract was formed rather than
whether the contract was formed
2. These cases dont involve a break in connection
iii. Break in communication
1. Rs. 2: even if treated at a distance, issue of fault
a. Least blameworthy person prevails
b. No contract if equal blameworthy OR equally blameless
iv. 81. A calls B on the telephone. A is in NY and B is in NJ. A makes an offer.
B speaks words of acceptance into the phone which A does not hear b/c of

24
the fault of the phone company. Is there a contract? IF APPLY at a distance
rule i.e. mailbox rule: NO contract b/c neither party at fault IF APPLY in
presence of one another: NO contract b/c there would be reason to know
offeror didnt hear
v. 85. A makes B an offer to be accepted by mail or messenger and B promptly
sends an acceptance by his own employee. When does the contract arise?
Would the result be different if the acceptance were given to a private
messenger service? hen employee arrives b/c own employee is STILL
yourself and you have not separated from it messenger is considered third
party MAILBOX RULE doesnt apply / putting in mail, giving up
possession

xiii. Mistake in transmission (2.24)


1. Minority view: no contract will arise where there is a mistake in transmission of an offer or
acceptance; thus, not responsible for a 3rd party mistake
2. Majority view: message as transmitted is operative unless the other party knows or has reason
to know of the mistake
a. More consistent with the objective theory of contracts b/c the recipient of the
erroneous telegram would normally take it at face value
3. Misdirected acceptances (sent in the wrong way)
a. MAILBOX RULE (SEE ABOVE)
4. 87. A writes an offer to B which he encloses in an envelop and addresses and stamps. Shortly
afterwards A decides not to send the offer by mistake deposits it in the mail. It is delivered to B
who accepts the offer. What result? Would the result be different if A sent the offer while
sleepwalking? Here A was at fault for his own mistake and objective theory would hold
responsible for this manifestation of assent

xiv. Termination of the Power of Acceptance (2.20)


1. Lapse of Time
a. If duration is stated, open for that duration
i. On January 29, D sent a letter dated January 29th, which stated, Will give
you eight days to accept or reject. P received the offer on Feb. 2 and on Feb.
8, P sent an acceptance which was received by D on February 9th. (a) Was
acceptance timely? (b) Would the result be different if there was a delay in
transmission of the offer and without the delay the offer would have arrived
on January 30th?
ii. Williston (minority): times starts when offeror sends
1. B/c the offeree should realize the ambiguity and the limitation
imposed for the benefit of the offeror
iii. Corbin (majority): time starts upon receipt of offer
1. Fractions of days NOT counted
b. Delay in transmission of offer?
i. Offeree knows or has reason to know of the delay, should be measured from
the date it should have been received
1. Corbin says look to all evidence like postmark etc.
ii. Not known? Could be extended
iii. Delay outside of deadline? Could be extended
c. OFFER w/out indicated time
i. Reasonable TIME question of FACT
d. Offer with stipulations of a revocation upon an event
i. If event occurs, offer is terminated regardless of informing the offeree
e. Face to face or even telephone: offer open only when parties are conversing
2. Effect of late acceptance
a. Classic view: If an offer lapses before an acceptance becomes effective counter
offer
b. 2nd view: Offeror may treat the late acceptance as an acceptance by waiving the
lateness

25
i. Should be followed ONLY in cases where the offerors subjective intent to
enter in to the contract is objectively manifested (Rs. 2nd rejects)
c. 3rd and intermediate view: if the acceptance is late but sent in what could plausibly be
argued to be a reasonable time, the original offeror has a burden to reply within a
reasonable time; if the offeror fails to do so, there is a contract (Not clear if 2d
restatement accepts in a case where it could be argued that late acceptance was
timely)
1. Rs. 2 says: the failure of the original offeror to object to an
acceptance and his subsequent preparation for performance may be
evidence that the acceptance was made within a reasonable time.
Rs. 70 cmmt B
ii. Another exception to an acceptance by silence very limited in scope
and only when there is NO way to know what a reasonable time is
iii. Example: A mails an offer to B. A week after receiving the offer, B mails an
acceptance. A jury would conclude that a week is beyond a reasonable time.
A does not reply to the late acceptance.
1. Classic view: there is no contract (it doesnt matter whether A is
happy with the purported acceptance or not)
2. Second view: the existence of a contract depends on As subjective
intention. If A is please by the letter of acceptance (and relies on it),
there is a contract; otherwise, there is no contract.
3. Third view: there is a contract unless A notifies B within a
reasonable time that the acceptance is too late.
3. Death or lack of capacity of the offeror or offeree
a. Minority view:
i. if the offeree knows of death, obvious termination however
ii. if offeree doesnt know not terminated
b. Majority view: offer is terminated even if the offeree is unaware of the offerors death
i. Same rule applies to unilateral contracts but the issue will be if whether it
was irrevocable/ if irrevocable: offer doesnt terminate (see irrevocable
offers below)
ii. Criticized relic of the subjective theory; doesnt conform to objective theory
b/ c the offeree should be charged only with what the offeree knows or
should know of the offerors situation
c. Incapacity
i. Adjudication of Incapacity (operates like death)
1. Where there is a prior adjudication of mental illness or defect of the
offeror, and, as a result, the property of the offeror is placed under
guardianship, any of the offerors outstanding offers are terminated.
This is so even though the offeree is unaware of what has occurred.
a. Majority view: The adjudication is treated as the
equivalent of the offerors death and terminates with or
without knowledge
b. Minority view: offer is not terminated unless the offeree
knows of the adjudication
ii. No Adjudication:
1. Supervening mental incapacity terminates the offer only if the
offeree is or should be aware of
a. But not the duty of the offeror to find out of the mental
capacity like in Swift

Swift & Co. v. Smigel: Smigel makes an offer to a series of unilateral contracts for continuing guarantee and he bargains for Swift
and Company to sell goods to Pine Haven nursing home which is half owned by Smigel. Payment terms default rule is cash on
receipt so there is no risk if Pine Haven is willing to pay cash for delivery but they dont want to have to pay cash and Much easier
to have deliveries on credit (get a bill at the end of the month rather, etc.). HELD: too much of a burden for the offeree to inquire
as to the mental health of the offeror every time (death would be easier to discover)

4. Revocation

26
a. Normal revocation: If an offer has not been accepted, it may be terminated by a
communicated revocation
i. Effective (not on dispatch) but when it is received
ii. Example: A mails an offer to B in the morning. At 1:00 the same day, A
mails a letter of revocation that is received the next morning. At 2:00, one
hour after A deposited the revocation, B mails an acceptance. Two rules are
involved here. Under the mailbox rule, the acceptance is effective at 2:00
pm. Under the majority view, the revocation is effective only when received.
Therefore, there is a contract. Under the statutes mentioned, there is a
contract because the revocation is effective when dispatched.
b. Equal publication: when an offer is made to a number of persons whose identity is
unknown to the offeror, as for example a reward offer in a newspaper, the offer may
be revoked by equal publication of the revocation.
i. But even here, if the offeror knows of the identity of persons who are taking
action on the offer, the offeror must make reasonable efforts to communicate
the revocation directly to them
c. Indirect revocation: occurs when the offeree acquires reasonable reliable
information that the offeror has engaged in conduct that would indicate to a
reasonable offeror that the offeror no longer wishes to make the offer.
i. Traditional: only applies to sale of land and chattels
ii. 2d Rs: applies to anything as long as information is from reliable source
iii. Reliable information: look to both objectivity and subjectivity reliable.
1. Objectively reliable information mean that the information must be
true.
2. Subjectively reliable means that the information must come from a
reliable source.
3. If the source is not reliable, it may be ignored: if it is subjectively
reliable, the offeree should inquire into its accuracy.
iv. Example: D is the owner of real property. D made an offer to sell the
property to P. Later, while the offer to P was still open, D contracted to sell
the same property to A. After P had received reliable information of Ds
contract with A, P attempted to accept. The doctrine of indirect revocation
applies, because there was reliable information about conduct the contract
of salethat reasonably indicated to P that D no longer wished to keep the
offer alive. D would not wish to be under an obligation to sell the same
property twice when only one sale could be made.
v. Assume instead, that P hears that D has made an offer to sell the same
property to A. Would a reasonable person in Ps position conclude that the
offeror no longer wished to keep open the offer to P? It could be argued
that P should conclude that D did not wish exposure to double liability,
but it oculd also be concluded that because D did not want to bother to
communicate a revocation, D is willing to run the risk of making two
offers.
5. Supervening Death, Destruction, or Illegality
a. Death or destruction: Death or destruction of a person or thing essential for the
performance of the offered contract terminates the offer if it occurs before acceptance
whether or not the offeree is aware of the death or destruction.
b. Supervening illegality: if between the time of the making off and the acceptance, a
change of law or regulation renders the proposed contract illegal, the offer is
terminated whether or not the offeree is aware of the change.
6. Rejection Counter Offer
a. A rejection or counter-offer terminates an offerees power of acceptance, unless the
offereor or the offeree manifests a contrary intention
i. A rejection is a statement by the offeree declining to accept the offer
ii. A rejection is effective when received
iii. A counter offer, in contrast, is a response to an offer that adds qualifications
or conditions.

27
b. Counter offer distinguished from other communications: a counter offer must be
distinguished from a:
1. counter inquiry
2. comment on the terms
3. a request for the modification of an offer
4. a request for a modification of the contract
5. a grumbling assent
6. an acceptance plus a separate offer
7. a future acceptance.
ii. Additionally, if an acceptance contains a term that is not expressly
stated in the offer, but is implied in it, the acceptance is good and is not a
counter offer
102. A offers to sell B Blackacre for $5,000, the offer to be open for 30 days.
(A) B replies immediately, Ill pay $4,800. A refuses; B accepts within 30 days. Is there a contract? Offeror is NOT
bound at all by the fact that they say offer is open for 30 days lapse of time it will terminate; Even though states
duration, revocable offer. B was a counter offer. So depends on if A meant to keep the original offer open. SO here, we
have a counter offer 4800 is a new offer. Issue we are talking about is, can B thereafter still accept original offer since
A didnt NOT give offer again, B cannot accept power of acceptance is terminated. Counter offer when one deal is put
on the table, then when a second deal is put on the table it kicks off the second deal implicit is I am rejecting offer
when B tries to accept, NOT acceptance it would be another OFFER to pay $5,000
(B) B replies immediately, Ill pay $4,800. A replies, Cannot reduce price. B accepts within 30 days Is there a
contract? Still have a counter offer and rejection A is still selling for $5000 so its refreshing the offer new offer
therefore B accepts (different than NO b/c here expresses continuation of offer)
(C) B says, Wont you take $4,800? A refuses. B accepts. Contract? Here just negotiating As communication is just a
counter-inquiry and therefore does not operation as a rejection
(D) B says, I am keeping your offer under advisement but if you wish to close the deal now, Ill give you $4,800. A
refuses. B accepts. Its not rejecting As offer b/c B is saying still considering offer; not a rejection either party can
manifest a contract intention
(E) B replies immediately, I accept but still insist that you are driving a hard bargain. Contract? Yes. Grumbling assent.
(F) I accept if the price is $4800 NOT acceptance; counter offer; qualifies and states a different price
(G) I accept and the price is $4800 results in no commitment would be a counteroffer
(H) I accept and you have to promptly acknowledge receipt of this letter that is a counter OFFFER

xv. Acceptance varying from offer (2.21)


1. Common Law
a. Ribbon Matching/Mirror Image a counter-offer acts as a rejection/counter offer even
if the qualification relates to a trivial matter.
b. Last shot principle: the last person to get terms in wins
c. Prior to effective date of UCC, the last shot principle determined the terms of the
contract
1. If the buyer made an offer, and the sellers reply was a counter
offer, the purchasers acceptance of delivery of the sellers shipment
of the goods was deemed to be acceptance of the sellers terms.
d. IF there are terms that differ but the dickered terms are the same and a party accepts
subject to the last shot principle
e. Seller generally wins b/c the last terms will typically be included in an invoice so
seller always gets the last say
2. UCC Section 2-207:
a. 2-207(1) A definite and seasonable expression of acceptance [or a written
confirmation which is sent within a reasonable time] operates as an acceptance even
though it states terms additional to or different from those offered or agreed upon,
unless acceptance is expressly made conditional on assent to the additional or
different terms.
i. at common law there would be a counter offer -- there is acceptance/contract
provided THAT
1. Definite and seasonable expression of acceptance

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a. Definite Look to dickered terms i.e. goods, price,
quantity, and delivery terms. (if there are different dickered
terms, NO expression of acceptance)
i. COULD also look to the reasonable commercial
person in the position of the buyer would
conclude has a deal been closed?
b. Seasonable come within reasonable time??
c. Ask whether a reasonable commercial person in the
position of the buyer would conclude that a deal has been
closed
2. The acceptance is not expressly made conditional on assent to the
additional or different terms. (subject to isnt enough) --- has to
show an unwillingness to proceed and there can
be implicit acceptance so if they object to one
out of three terms probably assent to the other
two
ii. Example: A makes an offer to buy a drum of emulsion from B. B
immediately sends an acknowledgment and an invoice repeating the
dickered terms but negating implied warranties and ships the emulsion. This
combination is clearly a definite and seasonable expression of acceptance.
Warranties are not generally considered to be dickered terms There is a
contract (Subsection 2 would deal with exactly what terms are included)
iii. A makes an offer to sell B 10 drums of emulsion. B sends a communication
purporting to accept 5 drums. The communication is not a definite and
seasonable expression of acceptance. Quantity is a dickered term NO
contract.
1. HOWEVER there are contradictory cases so if there is a dispute
over quantity ARGUE both sides
iv. A makes an offer to buy widgets from B. B sends an acknowledgement and
invoice that repeats the dickered terms of the offer and adds: All goods sold
without warranties express or implied. Sellers liability hereunder shall be
limited to the replacement of any goods that materially differ from the
sellers sample. The acceptance is not expressly made conditional on assent
to the additional or different terms, b/c the words used are not conditional on
the assent of A to the additional terms (warranty is not a dickered term so go
on to subsection 2)
3. IF DETERMINED CONTRACT is FORMED FROM 2-207(1) THE TERMS ARE
BASED ON:
a. 2-207(2): The additional terms are to be construed as proposals for addition to the
contract. Between merchants such terms become part of the contract unless:
i. the offer expressly limits acceptance to the terms of the offer
ii. they materially alter it; or
iii. notification of objection to them has already been given or is given within a
reasonable time after notice of them is received
b. Additional terms
i. When one or more parties is a non-merchant
1. Terms of the original OFFER constitute K w/out modification
UNLESS there is express assent to the new terms
a. In the above warranties example, if one person is not
merchant, unless A assents to warranty term, not part of
contract
ii. When both parties are merchants
1. Additional terms (added but do not conflict with original term)
become part of contract UNLESS
a. Offer expressly limits acceptance to term of offer using
strong language
b. Reasonable notification of rejection
c. Materially alter

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i. Disclaimer of warranty material
ii. Arbitration clause split
iii. If there is a trade usage that disputes are handled
by arbitration but the offerors form does NOT
include and the offerees does, does the arbitration
become part of the contract? CASES are in
conflict SAY BOTH
iv. What if the offer has an arbitration clause if the
acceptance is seasonable and definite there is
agreement
c. Different Terms between merchants (terms that change original offer)
i. Three Views:
1. Majority: Different terms cancel each other out and gap-filler
under UCC provides (professor White)
2. Different terms do not become part of the agreement unless
accepted by the offeror.
a. If the terms conflicting are gap-filler terms, you might
apply the knock out rule but the UCC would fill the
gap (ie. If one party was silent as to the UCC term)
3. Different terms should be treated as additional terms (Comment 3 to
UCC 2-207 Prof. Summer).
a. Non-merchant: different terms do not become part of the
agreement unless accepted by the offeror.
b. Between merchants: have to meet 3 provisions. BUT:
according to 2(c) notification was theoretically already
given SO: different terms do not become part of the
agreement unless in turn accepted by the offeror.
4. IF NO CONTRACT IS FORMED BASED ON 2-207(1), GO TO 2-207(3)
a. 2-207(3): Conduct by both parties which recognizes the existence of a contract is
sufficient to establish a contract for sale although the writings of the parties do not
otherwise establish a contract. In such cases the terms of the particular contract
consists of those terms on which the writings of the parties agree, together with
supplementary terms incorporated under any other provisions of the Act.
b. Even if the exchange of forms doesnt create a contract, conduct could
i. Terms are those that are agreed upon plus any relevant gap fillers
ii. Warranty of merchantability is a gap filler whereas
arbitration NO gap filler
1. Example: B a buyer makes an offer to S that includes a warranty of
merchantability. Ss reply is expressly conditioned on Bs assent to
a no-warranty provision. No contract is formed by the
communications of the parties, b/c S expressly conditioned
acceptance on Bs assent to the no-warranty clause Therefore, S has
not made an acceptance and contract exists. Suppose thereafter B
does not reply and S sends the goods. B takes them and uses them;
that is B exercises dominion over them. The goods are defective,
and B sues for breach of warranty of merchantability.
a. At common law: under the last shot principle, Ss
sending of the goods was looked on as a performance of
the counter offer, in turn, accepted by the exercise of
dominion over the goods, thereby (intentionally or
unintentionally) accepting Ss offer, including the no-
warranty provision.
b. Under 2-207(3): however, there is a contract but on a
different theory. The terms of the contract are those on
which the parties agree plus any supplementary terms
incorporated under any other provision of this [UCC].
Thus, the question is, does the UCC contain a provision
creating warranties of merchantability. It does. Thus, a

30
warranty of merchantability based on the provisions of the
UCC would be a term of the contract. If B had expressly
conditioned acceptance on an arbitration clause, the
analysis would be the same, except that the arbitration
clause would not be in the contract, b/c the UCC does
not have a provision relating to arbitration clauses.
5. Confirmations
a. 2-207 also governs confirmations. It provides that 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 agreed upon. It appears strange to say that a
written confirmation may operate as an acceptance, b/c a confirmation confirms a
contract that has already been formed.
i. Ask yourself if despite the word confirmation, perhaps there is actually JUST
AN ACCEPTANCE but make sure to discuss both sides b/c could have
been an oral agreement
ii. Occurs if the parties reach oral contract or informal correspondence
and there is formal confirmation of what the terms currently are and
terms NOT discussed (By nature of a confirmation go to 2-207(2) to
determine terms)
1. Assumption is additional terms DO NOT conflict, so go through
the same test as additional terms in an acceptance (but for non-
merchants proposals)
a. Offer expressly limits acceptance to term of offer using
strong language
b. Reasonable notification of rejection
c. Materially alter (arbitration clause, warranty)
2. IF a confirmation says expressly conditional that doesnt work
AFTER agreement made
iii. Additional terms in the memoranda, THAT conflict, each party is
deemed to object to the terms and they do not become a part of the K.
1. These terms knock each other out b/c each party deemed to reject
the conflicting terms. The K consists of the terms originally agreed
upon, terms on which the confirmations agree, and terms supplied
by the Act including additional or different terms that become part
of the K under the rules stated in UCC 2-207(2).
iv. If written confirmation contains terms that differ from the agreement actually
reached, actual terms agreed on may be proved and will govern the
transaction however, this situation presents problem with parol evidence
rule
1. 7th circuit has ruled that 2-207 does NOT apply to a situation where
an order is placed and accepted by telephone followed by the
sellers sending a record containing additional terms
a. 2-207 they say was designed for the battle of the forms and
these fact patterns only involve one form (Hill v. Gateway
and Pro-CD)
i. BUT this has opposition (Klocek v. Gatway)
v. Examples: X and Y exchange correspondence and enter into a contract
containing terms: A, B, and C. X sends a written confirmation listing
terms, A, B, C, and D D is an additional term. Whether D becomes
part of the contract depends on the rules for additional (i.e. subsection 2)
vi. In example (1) assume that both parties send memos. Xs memo lists terms,
A, B, C, and D. And Ys memo sets forth terms, A, B, C and specifically
states, not D. Since D and not D are conflicting terms neither term
becomes part of the contract.
vii. In example (1) assume that Xs memo mentions terms, A and B but does
not mention C. Y should be able to show the existence of term C even
though it is not in the memorandum. The problem involves the parol
evidence rule.

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Dorton v. Collins & Aikman Corp: Buyer (Dorton) is offeror and Seller (Aikman) is offeree The first issue is whether the
acknowledgment form was an acceptance or a confirmation. Despite saying acknowledgment, had subject to on it. So the
court considers both.

If acceptance court held subject to is not expressly conditional upon assent; next question would be material alteration b/c
both are merchants.
If confirmation again look to material alteration factor (assuming not treated as different terms)

Diamond Fruit Growers v. Krack Corp: Buyer (Krack) is offeror and seller (Metal-Matic): third party lawsuit b/c Krack sold to
Diamond and was faulty so Diamond sued Krack but Krack bought from M-M. M&M had made terms disclaimer of liability
expressly conditional on assent and Krack disputed over and over but by their conduct they accepted the contract. So then the
terms became what the agreed to according to 2-207(3) and fillers by UCC so the terms werent included. Protection could have
been afforded by withholding the goods!!!!!

Easterbrook opinions
Seller is the offeror and the buyer is the offeree who accepts with conduct
Refuse to apply 2-207 when only ONE form
Hill v. Gateway (Pro-CD similarities): offeror is seller and said that 2-207 didnt apply b/c ONE FORM (but Dorton applied w/
one form) so the terms were accepted and therefore bound by arbitration clause
Retention for 30 days governs acceptance was of buyer and at the point of 30 day expiration vender proposed a contract that the
buyer could accept by using the software after having an opportunity to read the license **creates bilateral K where acceptance is
completed (dispense with notice) upon retaining the goods (approve or return) agree to price but have the
opportunity to reject but it wouldnt be an irrevocable offer!!
Applying 2-207/Traditional
Buyer is the offeror and seller is the offeree who accepts upon tender of payment
Applies 2-207 where there is one form
Klocek v. Gateway: typical consumer transaction, purchaser is the offeror and vender is the offeree; AND 2-207 DOES apply
even w/ only one form Standard Terms (with questionable terms) are either acceptance OR confirmation and b/c the terms
were not made expressly conditional, section 2 applies and b/c not merchants, the terms were NOT included b/c keeping the
computer for 5 days WAS NOT sufficient express consent

xvi. Option Contracts Irrevocable Offers (2.25)


1. Option is a promise to keep an offer open (that is, not to revoke it) for a specified period of
TIME (Example and Explanations)
2. Irrevocable offer and option contracts are interchangeable (generally)
3. How to get an irrevocable offer??
4. Option contract could be if there is a clause stating option to renew or buy more
a. By consideration
i. A states to B that the offer is irrevocable for 10 days provided that B pays
$100 for this privilege. B pays A $100. The offer is irrevocable b/c B has
given consideration to make the offer irrevocable
ii. Note: option to purchase at the end of a lease is held open by consideration
by rent payments. If the option is in the original instrument, then any
consideration will bind all offered promises [part of the rent payment]
b. By Statute
i. UCC 2-205: an offer by a merchant to buy or sell goods in a record which by
its terms gives assurance that it will be held open is not revocable, for lack of
consideration, during the time stated or if no time is stated for a reasonable
time, but in no event may such period of irrevocability exceed three months;
but any such term of assurance in a form record supplied by the offeree must
be separately signed by the offeror.
1. Must be signed or written record
2. offer by a merchant
3. contain language of irrevocability
4. may not exceed three month

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5. if the language of irrevocability is on a form supplied by the
offeree, the offeror must sign twice once to make the offer and
must separately sign the clause providing for irrevocability
6. (looser than GOL in that doesnt need to state that it is
irrevocable or firm)
ii. GOL 5-1109: if the offeror in a signed writing states that the offer is
irrevocable, it is irrevocable despite the absence of consideration (for
reasonable time if period not stated)
1. signed writing
2. MUST STATE IRREVOCABLE OR FIRM
3. Doesnt include merchant clause
4. Time is reasonable
c. By Part Performance or tender of performance under an offer to a unilateral
contract
i. A says to B, If you run the marathon and finish, I promise to pay you
$1000. B starts to run in the race. A attempts to revoke the offer. Under the
prevailing view (RS. 45), relating to the termination of an offer looking to a
unilateral contract, Bs commencement of performance makes the offer
irrevocable.
d. Promissory Estoppel gives option based on reliance (usually due to expensive
preparation) go back to part performance and generous application -- so this limits
ability to revoke.
e. Sealed Instrument under older common law and still in some jurisdictions would
be irrevocable if under seal
5. Nature of Option Contract
a. Not only a contract but also an offer
b. Contract is the binding promise that makes the offer irrevocable
c. Offer that the offeree has the option to accept during period of time
6. Termination of Irrevocable Offers
a. Lapse of time will terminate
b. Death OR destruction of a person or thing essential to the performance of the offered
contract
c. Supervening legal prohibition
7. NOT terminable by
a. Revocation
b. Death OR supervening incapacity of the offeror OR offeree
c. Rejection
i. Earlier view: rejection terminated an irrevocable offer
ii. Modern view: rejection should not terminate an irrevocable offer b/c usually
the offeree has paid a consideration for irrevocability and contract rights are
generally lost by the rejection of a tendered performance
1. A offers to sell house to B for $250,000 and B pays $100 to keep
open for 10 days.B rejects the offer but later, within the 10 day
period attempts to accept. A relies on the rejection and sells to
another party The offer is irrevocable. Under the earlier view, the
irrevocable offer would be terminated. Under the modern view, it
would not. There would be a a contract, except that B would be
estopped b/c A relied on the rejection
iii. A counter offer does not normally operate as a rejection where the offer is
irrevocable however a purported acceptance that varies the terms is not valid
8. Acceptance to irrevocable offer
a. is effective when received (not when sent b/c cant maintain benefit of the mailbox
rule)

Plantation Key Developers: Offer to extend on same terms is held open by single consideration of payment of lease

VI. Consideration
a. Gifts

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i. Informal, unrelied on gratuitous promise generally will not be enforced
ii. Donative promise is to make a gift
iii. Dont say gratuitous when referring to a gift, say donative (b/c gratuitous promises could include a
change in price to reflect mkt conditions)
b. Elements (4.2, 4.5, 4.7)
i. The promisee (or third party on the promisees behalf) must incur legal detriment, that is, do what the
promisee (or 3rd Party) is NOT legally obligated to do; or refrain from doing what the promisee (or 3rd
Party) is legally privileged to do
1. legal detriment to the promisee or legal benefit to the promisor if the promisee incurred legal
detriment, the promisor incurred legal benefit AND doesnt have to be the legal detriment of
the promisee
ii. The detriment must induce the promise. The promisor must have made the promise in exchange, at least
in part, because he wants the detriment to occur (or the 3rd Party) OFFER (COULD ARGUE AN
OFFER TO GIVE A GIFT dont say gratuitous as counterclaim b/c all promises are gratuitous
unless binding)
1. Can benefit just by incurring good constitute as legal detriment this approach is really
the Williston approach which isnt that useful use the restatement second to argue both
sides (in reference to the jockey case)
2. Manifested an offering state of mind rather than a gift-making state of mind
3. Bargaining for it, not just offering as a gift
a. This wouldnt work for gifts especially in the situation where there is a condition
of the gift (i.e. if you walk over to the car, I will give you $100 the offeror is
NOT bargaining for that detriment)
iii. The promise must induce the detriment. This means that the promisee MUST know of the offer and
intent to accept it by providing legal detriment. In other words, the offeree is induced to act b/c of the
offer. ACCEPTANCE
1. The offeree must know about the promise and manifest intent to accept
iv. EXAMPLE: L offered to extend Ts lease for additional 4 years if T promised to make improvements
that would cost approximately $10,000. At Ls suggestion, T hired an architect to check figures on the
proposed immediate improvements. When L decided not to renew the lease, T argued that the offer
became irrevocable claiming that the consideration of hiring architect made offer irrevocable. The court
sustained the finding of fact made my trial court that hiring of architect was not consideration, b/c it was
merely suggested and not bargained for.
v. Example: A moved by friendship promises to sell a motorcycle worth 3000 fro 500 to B. B/c bargained
for detriment was 500 that was bargained for exchange
vi. Example: A promises B to pay $5,000 if Bs son, C, paints As house. A is promisor B is promisee and C
is offeree. Although detriment comes from C, B may enforce As promise.

c. Conditions to Gift Distinguished (4.5)


i. A says to B: If it rains tomorrow I promise to pay you $10.
1. B may not enforce the promise even if it rains
a. A has made an unenforceable conditional promise to make a gift
b. See Kirsky: Offer to give a gift
ii. Although adequacy (see below) is not import in itself, it is relevant in determining whether the
promisor manifests a gift-making state of mind or a contract making state of mind
iii. Whether the happening of the contingency would be a benefit to the promisor indicates
contractual not altruism

Hamer v. Sidway: Consideration for uncles promise to pay the nephew that if he gave up drinking, smoking, etc. until 21, uncle
would give him $5,000: -- this promise was made at a party -- surrendering of the right to nephew ASSENTED but ignoring to
look at the FIRST promise there was legal detriment b/c he gave up his right to do bad things and you could say the uncle got the
benefit of control

Kirksey v. Kirksey: He felt bad for the widow of his brother and wanted to help her. Says, if you move here, I will give you a
place to raise your family she moved gets up and leaves and moves that is the only thing that she does he lets her stay for a
couple of years (maybe he performed were not sure how old the kids are, etc. issue of whether HE BREACHED??) but
really the question is there consideration?! She was not legally obligation to move, so she is suffering the legal detriment element

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DID the promise induce her to move?? YES (element C).SO the big issue is element B??? is he bargaining for it (inducing the
promise??) Held: is that it was a promise to give a gift and that it was not enforceable..maybe if she gave the household
services that would have been bargained for.
A gratuitous promise does not satisfy the exchange state of mind necessary for B EVEN WHEN THERE IS A CONDITION
The condition to the gift is really just a condition not what was bargained for.
d. Motive and past consideration (4.3)
i. Past consideration and motive NOT consideration
1. Past consideration: cant bargain for something that already happened
a. Missing the 2nd and 3rd requirement b/c there was detriment but it was not what
induced the promise and the promise didnt induce the detriment
2. Motive:
a. Not consideration but can be used as evidence of issue of intent to exchange
i. If the promise incurs detriment, the promisors motive in entering into the
transaction is relevant b/c it throws light on the issue of whether there is
exchange look toward objectivity
ii. In consideration of the fact that you are NOT as wealthy as your brothers, I
promise to pay you $5,000 within 30 days just stating motive for gratuitous
gift
3. If something looks like paying for past consideration consider whether there is something
bargained for in the future
ii. But can achieve by statute
1. NY GOL 5-1105: A promise in writing and signed by the promisor or by his agent shall not be
denied effect as a valid contractual obligation on the ground that consideration for the promise
is past or executed, if the consideration is expressed in the writing and is proved to have been
given or performed and would be a valid consideration but for the time when it was given or
performed.
a. 4. H and W were living in a house owned by Hs father (F). H made valuable
improvements upon the property. Upon Hs death F wrote to W and state, In view of
the fact that my son has made improvements upon the property for which I feel that
you should receive adequate compensation, I give you the privilege of purchasing
said property for the sum of 230 at my death. F signed and mailed the letter which
was received by W. F is now deceased and W wishes to purchase the property. Does
she have an enforceable right to purchase it? Promise by the father to sell to the
daughter to have his estate sell and is it conditioned on her paying for it but he has
to die first the power of acceptance terminates when he dies the offer self-
destructs. Here the last out could be that this offer was irrevocable b/c death wouldnt
destroy irrevocable offer try to argue the consideration of the improvements BUT
they are PAST consideration
i. Despite consideration if in NY could look at this as option contract and
under GOL 5-1109 but b/c no words of irrevocability, not a true option.
ii. Had there been some NEW consideration the option would be valid.
iii. 1105 is what is relevant
e. Adequacy (4.4)
i. Subject to exceptions no matter how economically inadequate, the detriment is bargained for
1. If court is looking at dubious bargains, then look toward the adequacy
ii. Exceptions
1. Court will review the equivalence of the exchange under UNCONSCIONABILITY
2. Court can always review the fairness of a lawyers fee agreement or other agreement with a
client
3. A promise to exchange a specific amount of money or fungible goods for a lesser amount of
money or goods at the same time and place

Illustration: R Corp. owns a restaurant. S is a supplier of restaurant equipment. D is R Corp.s principal shareholder. D gave S the
following guarantee signed by D: For and in consideration of $1 paid by S (receipt of which is hereby acknowledged) I hereby
guarantee to S any indebtedness of R. Corp. to the extent of $10,000. The $1 mentioned was not in fact paid. At the time D gave S
the guarantee, R Corp. was not indebted to S but did become indebted to S in the amount f $5,000 for restaurant equipment
delivered on credit. Is the guarantee enforceable? What result if the $5,000 debt had been incurred before the guarantee was given?

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(offer to unilateral contract when S supplies to R corp on credit to the extent of $5000)
Legal detriment: Delivery of the goods (whatever the acceptance is the consideration unless you have some other issue)
NOW the problem: promise to guarantee up to $10,000 what happens if there was a $5000 indebtedness before the promise
was made???? The guarantee is up to 10,000 if R corp orders one more piece of equipment for $50 and S delivers on credit
can S sue the defendant for $5050????? The $50 dollar POT one good consideration is ALL you need the defendant is
promising to guarantee everything up to 10,000 so all you need is S can enforce the promise to the tune of $5050

Gottlieb: P was part of diamond club and membership was free and get card and card allows casino track your gambling habits;
diamond club members entitled to one free spin dollar wheel Gottlieb first swipes the card and spins the wheel and she alleges
landed on the million dollar prize but the attendant reset too quickly claims contractual right to the million dollars

Casino: is claiming that she didnt provide consideration for the promise to give million dollars and only possible consideration is
swiping of the card [BUT swiping the card is shopping there] Held: it is consideration b/c it doesnt matter HOW small the
detriment is as long as she had no preexisting obligation

f. Sham and Nominal Consideration (4.6)


i. Lie: when the instrument states that consideration has been given but it hasnt
1. MAJORITY: if it can be shown that consideration has not been paid and that no other
consideration has been given, NO K
2. Minority: Pretend exchange is accepted as real
3. Options and Guarantees (give special treatment b/c of economic utility and with writing
there was reflection)
a. Restatement 2nd (87) synthesis : an offer is binding as an option contract if it is in
writing and signed by the offeror, recites a purported consideration for the making of
the offer, and proposes an exchange on fair terms within a reasonable time
i. A executes and delivers to B a written agreement "in consideration of one
dollar in hand paid" giving B an option to buy described land belonging to A
for $15,000, the option to expire at noon six days later. The fact that the
dollar is not in fact paid does not prevent the offer from being irrevocable.
ii. For GUARANTEES (restatement 88): a promise to be a surety for the
performance of a contractual obligation made to the oblige is binding if the
promise is in writing and signed by the promisor and recites a purported
consideration.
b. So the restatement recognizes these are enforceable transactions in which there is no
exchange.
c. Options and Guarantees have economic utility
ii. Nominal: Knowing gratuitous promise is unenforceable, attempt to cloak gratuitous promise with the
form of a bargain
1. RS. 1: there ought to be a way of making a gratuitous promise binding especially in
jurisdictions where this cannot be done through the mechanism of a seal K if nominal
2. Rs. 2: promise should not be enforced b/c the alleged consideration is NOT truly bargained for
a. If a pretence is accepted as consideration than the doctrine of consideration is
undermined

g. Mixture of bargain and Gift (4.7)


i. How does one determine if there is a mixture of bargain and gift or whether any named consideration is
not bargained for? Question of fact.
1. ULTIMATELY Rs. 2: if the promisee does NOT know or does not have reason to know that
the promisor is introducing detriment into the transaction as a pretense, than the promise
should be enforced under the objective theory, but if it is clear from the facts that the
consideration is merely pretense the promise will not be enforced.
h. Must all the consideration be valid? (4.14 4.15)
i. Conjunctive Promises
1. If one of the conjunctive promises is consideration it is sufficient to support a counter-promise
[think also options here]
a. NO need for double consideration
ii. Alternative promises (see below under bilateral)

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1. The rule is that each alternative must be detrimental
iii. One Consideration will support many promises
i. Invalid Claims (4.8)
i. Valid claim: A promise to surrender a valid claim constitutes detriment and if bargained for constitutes
consideration.
ii. Invalid Claim (when there is a defense to it i.e its voidable or unenforceable or void): There are a
number of views as to whether the bargained-for surrender of or forbearance to assert and invalid claim
is detriment
1. Earliest view: surrender an invalid claim does not constitute a detriment (abandoned)
2. 1st. Rs.: surrender of an invalid claim serves as a detriment if the claimant has asserted it in
good faith and the reasonable person would believe that the claim is well founded
a. Other courts held that the only requirement is good faith but some of these courts
require that the invalidity of the claim not be patently obvious
3. 2nd Rs: either good faith or objective uncertainty as to the validity of an invalid claim is
sufficient
a. That a dispute be honest and reasonable was dropped from the 1st restatement b/c
lawyers and layman have difficulty in determining whether a particular claim is
reasonable and that one has a legal and moral right to assert honest claims
4. Example: D guaranteed in writing an obligation of a third party to P. The guarantee was NOT
enforceable under the existing law, b/c a stamp tax had not been paid. D promised P that D
would pay the amount stated in the writing if P returned the written document of guaranty. The
return of the paper is detriment and the court held that this is what D bargained for. Therefore
the promise was binding. Bu the court could have as easily discussed the case under the
heading of invalid claims. In that event the rules stated above would have applied. If the case
had been analyzed from that perspective, the good faith of the promise would be in issue.

Fiege v. Boehm: in the event that the child is mine, I promise to pay would have been better OR suppose he said, I will pay if you
hand over a release to in order to support a compromise, it is sufficient that the parties entering into it thought at the time that
there was a bona fide question between them (even though it turned out to be invalid), although it may eventually be found that
there was in fact no such question apply objective basis Rs. 2

Thomas v. Thomas: KEY: There is a tendancy to mix up where to look look to see if the promisee is suffering a legal detriment
does the other party suffer the legal detriment, was it bargained for and given in exchange (look to promisee or the offeree) a
promise to be able to stay is supported by rent of 1/month and upkeep

j. The Pre-Existing Duty Rule (4.9)


i. If parties (a) do what they are legally obligated to do, or (b) refrain from doing what they are not legally
privileged to do, they have NOT incurred legal detriment, because performing a legal obligation is NOT
a detriment.
1. Criticism: it is unreasonable for the law to prevent competent parties from modifying their
legal obligations, absent duress, even if there is no consideration for the modification. The
trend in law is moving slowly toward enforcement of modifications that lack consideration. At
the same time, the law of duress is evolving to make it easier to set aside a modification on the
ground of duress.
ii. Duties imposed by law
1. Official duties BUT also duties imposed on a person as a member of the public or as a member
of a family i.e. caring for child or sheriff making an arrest is not entitled to reward b/c part of
scope of job
a. Examples: promising to pay spouse money for household work no consideration
iii. Pre Existing Duty Rule: Contract Duties / Modifications
1. Two Party Case
a. Modification of a contract: where there is still a future activity (not a pure check
cashing thing b/c that doesnt purport to create a future obligation rather that is likely
just a discharge)
b. General Rule: Modification must be supported by new consideration of an
incurrence of legal detriment to be enforceable
i. For a modification to be enforceable under PED:

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1. Slightest addition to duties would suffice OR
2. Rescission but would need:
a. original agreement
b. the agreement of rescission
c. subsequent employment agreement
c. Minority: modifications may not require NEW consideration
i. Exceptions / Courts have upheld that
1. Simultaneous rescission with new agreement could work
a. BUT this is a violation b/c the parties clearly intend the
rescission to be contingent on the new contract which in
turn is contingent on the rescission
i. RS 2: says this is fiction
ii. Does violate PED
2. Unforeseen difficulties could lead to a court to allow modification
a. This is inconsistent with PED unless the unforeseen
difficulties amount to impossibility or impracticability of
performance in which event the excuse given by the law
for non-performance would erase the PED problem

Classical PED rule is not violated in case of impossibility and impracticabilityhowever, still
there is an unforeseen difficulties exception
If it says no oral modification not a common law problem may modify!

d. Rs. 2: (strongly influenced by UCC 2-209) Agrees that consideration is needed but
makes an exception that when, circumstances NOT anticipated arise that werent
accounted for at the time of the contract
1. An event that is foreseen as a remote possibility may according to
the Restatement second, be unanticipated for this purpose if it was
not adequately covered in the agreement
e. Theories adopted to defeat the PED rule
i. A party incurs a legal detriment by giving up the right to breach the contract
ii. Wisconsin rule: employs the fiction that the original consideration is
imported into the new agreement
iii. Other cases have looked upon the modification as an attempt to mitigate
damages
iv. A few jurisdictions have even held that no consideration is required for
modifying an agreement
v. Others have looked at modification as mitigation of damages
vi. Enforced modifications for promissory estoppel (see below) in the case
the lease that lowered the rent and so for that period ok, but for the
subsequent periods NOT ok
vii. If change is mere pretense look into it like a sham!
f. Statutory NO Need for consideration (5.14)
i. NY GOL 5-1103: Permit modification without consideration provided that
modification is in a signed writing or other record
1. An agreement, promise or undertaking to change or modify, or to
discharge in whole or in part, any contract, obligation, or lease,
or any mortgage or other security interest in personal or real
property, shall not be invalid because of the absence of
consideration, provided that the agreement, promise or undertaking
changing, modifying, or discharging such contract, obligation,
lease, mortgage or security interest, shall be in writing and signed
by the party against whom it is sought to enforce the change,
modification or discharge, or by his agent.
2. Rationale: ensure it was a deliberate act of will
3. UNDER NY statute you dont have to make distinction between
discharge (see below) and modification permits modifications
without consideration provided they are in a signed writing

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ii. UCC 2-209(1)
1. (1) An agreement to modify a contract within this article needs no
consideration to be binding
2. (2) A signed writing which excludes modifications or rescission
except by a signed writing cannot be otherwise modified or
rescinded, but except as between merchants such a requirement on a
form supplied by the merchant must be separately signed by the
other party.
3. (3) The requirement of the statute of frauds section of this article
must be satisfied if the contract as modified is within its provision
4. (4) Although an attempt at modification or rescission does not
satisfy the requirements of subsection 2 or 3 it can operate as a
waiver
5. (5) A party who has made a waiver affecting an executory portion
of the contract may retract the waiver by reasonable notification
received by the other party that strict performance will be required
of any term waived, unless the retraction would be unjust in view of
a material change of position in reliance on the waiver.
iii. 2-209 SUMMARY
Modifications: under CL its OK if it says no oral modifications can still orally modify (keep
SOF and PER in mind) repeated waivers generally only work for 2-209 b/c they might lack
consideration
iv. A modification need no consideration to be binding
v. The code doesnt require written record of modification unless:
1. A writing or other record may be required if the contract as
modified is within the Statute of Frauds provision of the Code
2. If the original contract by its terms excludes modification or
rescission by mutual consent except by a signed writing or other
record
a. Except as between merchants describes (in subsection 2)
a situation where a merchant sends a form that contains the
provision excluding oral or unsigned modifications or
rescissions.
i. If one party is a non-merchant, the TERM
requiring signed writing must be separately
signed by the non-merchant otherwise ineffective
ii. If the case involves two merchants, no separate
signature is required.
3. If despite of a NOM clause, a party tries to orally modify a contract
2-209(4) provides that the attempted modification can operate as a
waiver. (this is true at common law when there is an express
provision a waiver can get rid of requirement) (modeled after
NYGOL 15-301)
a. A waiver is effective but retractable by giving reasonable
notification unless the retraction would be unjust in view
of a material change of position in reliance on the waiver.
i. If the oral modification is unretractable b/c of a
change in position it wouldnt bar a bona fide
purchaser for value from enforcing the original
writing.
vi. Doesnt have to be express / can be implied
1. This seems to only be true under UCC b/c lacking consideration
2. IF there is a course of dealings and a change in contract for part of
the contract, it can be assumed that it is for the remainder of the
contract (consistent with course of dealings discussion below)
vii. What if no express agreement and no course of dealings?

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1. Example: parties had reduced their agreement to writing; in a cover
letter, buyer specified a completion date although none had been set
in the original date
2. By conduct accepted modification
viii. Sales contracts can be modified even after goods have been delivered and
paid for
1. Warranties made after transaction closed are enforceable
modifications
2. However, where there was notification of sales increase and NO
acquiescence = NO modification
ix. Implicit in construction contracts:
1. If parties fail to follow agreed-upon change order processes and a
materially different project ensues, the contract is deemed to have
been abandoned and the contractors action is for quantum meruit.
x. To prevent coerced modifications under the statutes in light of the lack
of fresh consideration (see duress) (5.15)
1. PED was initially grounded in an effort to prevent coerced
consideration
2. Has to be Good faith
a. As the comments to 2-209 make clear, 2-103 is applicable
to modification: see: UCC 2-103: honesty in fact and
the observance of reasoanable commercial standards of fair
dealing in the trade.
i. THIS applies to modifications
b. Unforseen difficulties???
i. Sufficient to excuse performance for failure of
presupposed conditions modification is
permissible
ii. Less significant kind arise enforced
g. A agrees to do excavation work for B for a stated price. When sold rock is
unexpectedly encountered, A notifies B. They agree that A will complete the jojb but
B will pay double the price which is reasonable in relation to the work to be done. A
does not have the defense of impossibility of performance and therefore has a legal
duty to continue performance In completing work, A is only doing what the contract
requires and B is not obligated to pay the agreed additional sum classic view.
Modern view: modification will be upheld if it made after unforeseen difficulties even
without consideration. Rs. 2 adopts approach upholding modification if the
modification is fair and equitable in view of the circumstances not anticipated when
the contract was made.

Schwartzreich v. Bauman-Basch, Inc. NY CT APPEALS


salary was 90/week; he was hired as a designer (IF hiring at will and increase the compensation is there a pre-existing duty
ISSUE there is NO PED so by staying on the job that is always legal detriment) --- PED is duty to work for one year what if
employee gets another OFFER for 110/week??? As a result of the offer, employee tells the employer they raise the salary to 100
when the employee gives up the chance to work for other employer. NOT legal detriment no legal right to take the other offer
b/c that would be a breach GIVING up the power to take other job is NOT and breach your contract is NOT legal detriment (b/c
you are legally obligated to stay on job)
Held: that there is consideration for a simultaneous rescission/new contract if both parties agree. Might think the court is slipping
into a minority view that discharges consideration HOWEVER that is not the case b/c they are allowing the simultaneous
rescission saying that rescission must be express i.e. rescission through conduct

Angel v. Murray, Sup Court Rhode Island: garbage collector and the city series of 5 year contracts we were talking about
collecting all the garbage that was going to be the city and that was 1964 or 1965 what happens more houses are built 400
new units and the garbage collector says to the city BUT really we didnt anticipate growth and city promises to pay 10,000 more
and in the following years promise and actually paid it if this was private individual this would have been a gift absent
consideration 400 NEW UNITS are not legal detriment b/c included in ALL the garbage if an individual person it was a gift
paid so cant get back BUT THIS IS A CITY and is able to get the $$ back if this NOT a valid modification ????

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Held: GOES TO 2nd restatement: which takes minority view on unforeseen difficulties and expands it to cover unanticipated
circumstances it could be foreseen as remote possibility but wasnt expected or anticipated

What about Schwartzriech: NOT a difficulty to get offered more $$ NOT a difficulty but unanticipated uses fact
pattern of Schwartzreich as illustration of their rule they disagree with means BUT NOT the end (they like the result) but
not the thought process

2. Three party case


a. Classic Example: A, a jockey enters into a bilateral contract with B, the owner of a
horse, to ride in a race for 1000. C, an outsider who does not have the right to
performance under the contract, owns the dam (mother) of Bs horse and would
receive a prize if Bs horse wins. C promises to pay a bonus of 500 to A if Bs horse
wins. The horse wins.
b. Classic view: Agreement to perform a pre-existing duty to a third party is VOID
i. Thus, A may not recover the 500 b/c A was only performing an obligation
owed under the contract with B.
ii. BUT if C had bargained for A & B not to rescind that would be consideration
or A merely gives up the right to propose a rescission but it would have to
be proved that was what was bargained for (see De Cicco)
c. Second and untenable view: If the third party contract is bilateral and not unilateral
however that would be valid
i. BUT it doesnt matter if unilateral or bilateral b/c As promise can be
consideration only if the performance which is promised would be
consideration: under traditional view NOT (JUSTIFICATION FOR
MUTUALITY SEE BELOW)
1. Entirely circular and that is why it is wrong cant say jockey is
liable without saying there is a valid bilateral contract and we cant
say there is a valid bilateral without proper consideration
BOOTSTRAPPING argument
d. MODERN authority Both restatements: Cs third party promise is enforceable
i. Rationales:
1. Rs 1: Third party promise should be enforced b/c PED was owed to
original party, not third party and a benefit was conferred onto third
party and that should be enough consideration NOT very
persuasive do not really need to apply but could if it comes up I
suppose
2. Rs. 2: Less likelihood of duress or unfair pressure in 3rd party
scenario than in 2 party scenario
a. Exception: public e.g. where a police officer is promised a
reward for doing something within the scope of the
officers duties, promise not enforceable (rationale=less
likelihood of duress or that A owed no pre-existing duty to
C so there is a reasonable contract??
e. HOW to get a third party contract to work under the classic view
i. If the arrangement between the driver and the owner (A and B) was an offer
to a unilateral contract, the driver (A) would not be under a duty to perform
(has no duty b/c its unilateral thats just a c/p). Therefore, the promise
would be binding on the performance of the requested act. So this is a way to
get around!
ii. If C had offered TO both NOT to rescind like De Cicco. This is different
than an offer not to breach b/c allowed to rescind.
iii. If jockey had (A) promised to ride if C paid in advance (reverse unilateral)
contract that would have been acceptable under PED theory b/c there the
consideration is being supplied by C and consideration is ONLY needed on
one side in unilateral contracts.

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1. Had jockey promised to ride for Cs promise to pay: Not valid
b/c bilateral and you still need consideration on both sides

De Cicco v Schweizer, NY Ct Appeals, 1917, page 221: Father promises to pay the daughter an annuity to daughter who is
engaged to someone (at this time this was a bilateral contract to marry) this looks like C in the jockey case I will pay you money
if you go through with your contract here the father promises to pay if count marries daughter
Cardozo finds consideration here even though they are engaged they havent performed and they can both have a contract of
rescission New detriment is GIVING up right to a rescission
BUT: is that really what the father was bargaining for??? DID they know if the offer and intend to accept????? Obviously son-
in law does how do we know that blanche knew of the offer and intended to accept MONEY was transferred on the wedding
day and the relationship between her and the count infers from the circumstances that she knew of the offer and intended to
accept

iv. Discharge of an obligation (not just debt any discharge i.e. lease obligation)
1. Majority: need consideration to discharge
2. Minority: same states that say you dont need new consideration for modification say you
dont need new consideration to discharge
a. Rs 2: would also apply here
v. Agreement to Accept Part payment in Satisfaction of a Debt -- liquidated claims!
1. Majority: Part payment by a debtor of an amount here and now indisputably due is NOT
detriment to support a promise by the creditor to discharge the entire amount. The same is true
even if there is a purported discharge.
a. If creditor purported to accept part payment in exchange for a discharge, the debtor
has incurred no detriment and no discharge takes place (debtor is paying only part of
what already owes pre-existing duty) Foakes v. Beer
b. Release must have consideration too (except see NYGOL below)
c. Even if there was a token consideration given, the token has to be evaluated to
determine whether that was what was bargained for (but could be consideration)
i. Consideration has been found
1. Part payment was prior to the due date (Petterson)
2. Debtor gives security in addition to the part payment
3. Refrains from bankruptcy or insolvency proceedings which she
would otherwise employ
4. She arranges for a composition agreement in which several
creditors agree to take less the full amount due to them
5. She pays part of a claim the full amount of which is bona fide
dispute (unliquidated claims)
2. Minority view/2nd restatement: part payment is a discharge OR unforeseen hardship like in
modifications above
a. Other Exceptions where consideration NOT needed
i. Donative intent with delivery of the gift (if full delivery of the gift like
cashing the check but to future promises in the case of taking less rent was
not binding b/c gratuitous gifts arent binding) so would only work for
that discharge at that moment not whats in the future.
ii. Promissory estoppel
iii. Rs. 2: unforeseen difficulties
3. Example: A lease called for the payment of 1250 per quarter. The lessor agreed to accept and
accepted 875 per quarter and then brought action to recover the 375 difference
a. MAJORITY: would be successful b/c the lessee performed only part of the legal
obligation by paying 875
b. MINORITY many jurisdictions holding that when a person is entitled to money
payable in installments, acceptance of a lesser sum in full payment discharges the
debtor as to that installment despite the absence of detriment (esp. if said payment in
full)
c. RS 2d: Part payment is sufficient if unforeseen hardships makes full payment more
onerous than anticipated like economic depression
4. Example: D owes C 5000 here and now indisputably. D is in financial difficulty and C agrees
to accept 2500 in full payment.

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a. MAJORTIY Cs promise is not enforceable and D is liable for full
b. The result would be different if C bargains for D to refrain from bankruptcy
proceedings, in which D conceivably could obtain a full discharge of the debt
5. D owes C 5000 here and now indisputably due. C agrees to take 1000 plus a horse, hawk or
robe. The giving of horse hawk or robe is detriment but is it bargained for??
a. RS. 2d: If it is merely a token and therefore not bargained for, it is not consideration
according to Rs. 2d.
vi. Accord and Satisfaction (4.10 - 4.11) unliquidated claims
1. Rule in Foakes applies only to liquidated which are undisputed as to their existence and
amount; unliquidated can be discharged by any amount of money the parties can agree on.
a. Unliquidated: method of payment, amount due
i. Even if assertion is in good faith and if reasonably asserted in some
jurisdictions
b. Accord: agreement to give or to accept a stipulated performance in the future in
satisfaction or discharge of the obligors existing duty
c. Satisfaction: performance of this accord [how different from a rescission??] and if
agreement is NOT performed, executory accord (hasnt performed fully)
i. See last topic for what happens when there is no satisfaction
2. Questions to ask
a. Have the parties reached an accord? Normally done by offer and acceptance
i. Rule governing an offer of accord is that the offeror must make it clear that
the offeror seeks a total discharge. If it is not made clear, any payment made
and accepted will be treated as a part payment
b. Is there a satisfaction? Has the accord been carried out?
c. Is the accord supported by consideration?
d. Did the offeror of the accord make it clear he was seeking a total discharge?
i. NO? then check will be considered part payment
ii. Yes? Accepted by holding onto check, cashing, verbal assent
e. What if check is inadvertently cashed? Could one assert mistake??
i. Cases are split
1. Some: where a creditors business receives a lot of checks can
safeguard against the cashing of the checks / cant claim this when
the person directly involves handled the check
2. In cases 1 and 6 where there was a liquidated debt (see below), the
debt is NOT discharged even if D sends a check marked payment
in full for lack of consideration.
a. WOULD NY see this differently by combining:
i. NYGOL 15-303: which provides that release
signed by a creditor s effective without
consideration AND
ii. NYGOL 5-1103: which provides that discharge is
effective without consideration if it is expressed
in a writing sighed by the creditor (see below)
b. Could be argued language on the check is a writing the
creditors endorsement of the check is a signing and
therefore liquidated debt discharged.
c. HOWEVER, these statutes require more deliberation and
so this argument hasnt upheld
3. Affirmative defense: the burden is on the debtor (one who owes the money and who is likely
being sued) to prove that there was an accord and satisfaction so the original claim is off the
table
CASE ILLUSTRATIONS
vii. Example 1: D (debtor) owes C (creditor) $100 here and now indisputably due a liquidated debt. D
mails a check for $50 conspicuously marked payment in full and C cashes it. (LIQUIDATED)
1. Effect of Payment in full
a. MAJORITY: total discharge
b. Minority: want clearer language or more conspicuous language saying if C accepts C
is agreeing that he or she accepts it as full payment

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2. Effective Accord and Satisfaction?
a. Assuming OFFER, cashing of check (majority) seen as ACCEPTANCE of the check
the performance of satisfaction
3. Consideration?
a. No. There is no consideration to support Cs promise to take a lessor sum BECAUSE
IT IS UNDISPUTEDLY DUE/LIQUIDATED so according to Foakes v. Beer, C can
recover more $$
b. 2-209 if this was a sale of goods wouldnt change this outcome because there is NO
future obligation (THIS IS NOT A modification discharge)
viii. Example 2: Assume the same facts as example 1 that there is a good faith dispute. C tells D that C is
entitled to 100 and D tells C that is only entitled to 50. D sends a check for 75 marked payment in full
and C cashes it. (UNLIQUIDATED)
1. OFFER and acceptance and performance same as Example 1
2. Consideration?
a. Yes. B/c of the existence of good faith dispute and a settlement which involved the
incurrence of detriment by both parties.
3. C cant recover the additional 25 b/c accord and satisfaction supported by consideration
4. So when there is a law suit, DEBTOR ASSERTS affirmative defense that this accord and
satisfaction substituted and original claim is OFF THE TABLE and must show there was a
proper accord and satisfaction
ix. Example 3: Same facts as example 2 except that D sends a check for 50 not 75 and C cashes it
(UNLIQUIDATED)
1. Offer, Acceptance, Performance
2. Consideration?
a. MAJORITY: Because it was unliquidated there is consideration to support the
accord and satisfaction POLICY CONSIDERATION OF DISFAVORING
DISPUTES
b. MINORITY: Disagrees arguing that D is only doing what D acknowledges
x. Example 3a: Same facts as 3 except that C before cashing check strikes out the words payment in full
written on the check or notifies D that the check is accepted only in part payment. (UNLIQUIDATED).
1. Common Law: Cs action is of now availby cashing check in violation of the conditions
upon which is was tendered the creditor is held to assent to its terms (like dominion over
unordered goods)
a. So assent is imputed rather than actual
b. Just like a converter can be estopped from claiming converter so can a creditor
as a thief
2. Some cases held: that UCC changed result but article 1 and 3 of UCC overruled this idea; so
by cashing check there was acceptance
a. UCC 1-207: A party who with explicit reservation of rights performs OR promises
performance in a manner demanded or offered by the other party does not thereby
prejudice the rights reserved. Such words as without-prejudice, under protest or
the like are sufficient.
i. Added in 1990: (1) does not apply to an accord and satisfaction) NY did
not include this addition into its UCC so it is the only state allowing
protest
b. UCC 3-311: Accord and Satisfaction by Use of Instrument.
i. 1991 revision of article 3 covers accords and satisfactions by check like here
and it must be tendered in good faith and offer of accord must be
conspicuous and conspicuous is defined in another section in article 1
1. Provides detailed rules by which creditors can guard against full
payment checks by preemptive notice and by tendering the return of
the funds represented by the checks
c. NY: now stands alone in allowing creditor successfully to cash check under protest
and thereby reserving rights
i. SO all states but NY include check writing in their UCC interpretation
whereas NY does too but allows a grumbling assent so to speak with
regard to checks)

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xi. Example 4: P and D enter into agreement where P agrees to build a split level tree house for D, and D
promises to pay 6000. P does the work and there is a dispute as to whether the work was done properly.
The parties settle the controversy at 5500. (UNLIQUIDATED)
1. Like example 2, the claim is unliquidated b/c there is a good faith dispute as to the amount due.
Difference is that the accord (offer and acceptance) arose prior to any check being sent.
2. The offer and acceptance of accord took place prior to the sending and cashing of the check
and thus the sending and cashing to do not involve offer and acceptance but involve the
performance of the agreement.
3. In example 2, the cashing of the check amounts both to the acceptance and the performance of
the accord
4. Consideration?
a. Yes.
xii. Example 5: P owned a quantity of apples and requested D to obtain a purchaser. D did so and collected
the price. P claims that the service rendered by D was gratuitous. D claims there was an agreement to
pay a 10% commission. After collecting from the buyer, D sent a full-payment check for proceeds
less 10% and P cashed it. SHE USED A LAWYER EXAMPLE HERE lawyer agrees as agent of P
to get money for P and lawyer agreed to do it gratuitously. Upon getting money, though, he
deducts a fee and then P cashes the reduced amount but sues. (UNLIQUIDATED)
1. Like example 3 (dispute and one party makes decision) and the expected holding is there is
binding accord
2. But this is different b/c in example 3 the relationship was debtor/creditor whereas here
the relationship is principal/agent a fiduciary responsibility
3. Distinction between debtor/creditor and principal/agent
a. Debtor who pays with debtors money may attach the condition that the check is sent
in full payment but an agent who is accounting for money belonging to the principal
may not lawfully impose such a condition
b. To allow fiduciary to proceed is a flagrant abuse of the opportunities and powers of a
fiduciary position
c. No 10% for the agent no accord and satisfaction
xiii. Example 6: D in exchange for Ps promise to do certain work promised P among other things that P
would receive 1/3 of the receipts from the products of Ds dairy. Prior to this arrangement, P had been
working for D on a daily (per diem) basis and, the sum of $17.15 was concededly due on the per diem
arrangement. After long delay, P received the 17.15 from D and signed and delivered a receipt saying
that 17.15 was received in full payment of all accounts and demands to date. P brought action for 2nd
arrangementthe 1/3 of receipts. (LIQUIDATED)
1. Court assumed that situation was similar to 3 but held that there was no accord and satisfaction
b/c payment of a liquidated obligation is not consideration to support the surrender of a second
claim that is wholly distinct. so here the P was entitled to the additional work.
2. 2-209 if this was a sale of goods wouldnt change this outcome because there is NO future
obligation

xiv. Additional Example Book Problem 19. The plaintiff sold and delivered to defendant at various times
bricks for which defendant was billed for the total of 820. On May 12th P sent bricks which would have
been worth 448 if they had conformed to the contract. The defendant rejected them as non-conforming
and asked P what to do with the bricks. On august 3, the defendant wrote the plaintiff as follows:
enclosed find checks for 820 which pays our account up until July 1. We have deducted 448 for the
nonconforming bricks Please advise us what disposition we shall make of these bricks for you. P
received and cashed check and now sued for the 448, alleging that the bricks are conforming (from
class).
a. Dispute is whether the bricks were nonconforming (so there would be breach to
accept but if nonconforming then doesnt have to accept)
2. Consideration?
a. No. b/c payment of a liquidated obligation is NOT consideration to support the
surrender of a wholly distinct claim
b. So D couldnt surrender the claim and should pay P 1/3 payment
3. If the claims were closely related / no economic pressure or coercion
a. Might have a proper accord and satisfaction and is a good safety valve for courts

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KIBLER: P was hired by D to harvest wheat crop. No agreement on price to be paid. P told D if the wheat crop proved to be more
than 50 bushels the price would be 18 per bushel and perhaps more. He sent a bill for 25 cents per bushel but later corrected based
on 20 cents per bushel. There was a dispute as to the amount. D sent a payment for 10 cents per bushel and said billing is
ridiculous The check DID not say payment in full.
Claim was unliquidated, therefore, if the check was intended as full payment and that was communicated, cashing the check
completed accord. BUT letter doesnt say full payment and leaves open negotiation. Held: NO accord and satisfaction.

xv. STATUTORY DISCHARGE OF AN OBLIGATION (5.16)


1. When a discharge is operable as a modification, you can use 2-209 but would need some
sort of future obligation
2. NY GOL: 15-303. Release in writing without consideration or seal
a. A written instrument which purports to be a total or partial release of all claims,
debts, demands or obligations, or a total or partial release of any particular claim,
debt, demand or obligation, or a release or discharge in whole or in part of a
mortgage, lien, security interest or charge upon personal or real property, shall not be
invalid because of the absence of consideration or of a seal.
3. NY GOL 5-1103: Permit modification without consideration provided that modification is in a
signed writing or other record
a. An agreement, promise or undertaking to change or modify, or to discharge in
whole or in part, any contract, obligation, or lease, or any mortgage or other
security interest in personal or real property, shall not be invalid because of the
absence of consideration, provided that the agreement, promise or undertaking
changing, modifying, or discharging such contract, obligation, lease, mortgage or
security interest, shall be in writing and signed by the party against whom it is
sought to enforce the change, modification or discharge, or by his agent.
4. Cant just endorse a check to satisfy statute
a. To be effective as a release, the writing or other record must contain an
expression of present intention to renounce a claim
5. These wouldnt apply to check-cashing scenarios for the most part
k. DURESS (5.15, 9.6)
i. B/C statutes dispense with requirement of consideration: there has to be some means of protection
against coerced agreements (PED was a good safeguard)
1. Has to be Good faith
a. See: UCC 2-103: GOOD FAITH in the case of a merchant means honesty in fact
and the observance of a reasonable commercial standards of fair dealings in the trade
whereas 1-201 GOOD faith in general means honesty in fact in the conduct or
transaction concerned
b. 1-207: party can agree under protest see above which is additional vehicle to duress
(not accord and satisfaction unless in NY)
ii. BUT where the UCC is not available:
1. Common Law Doctrine of Duress: threat to break a contract was NOT duress unless the govt,
common carrier or a public utility made the threat
a. Compelling debt payments not necessarily duress
b. If a creditor agreed to take less $$ can sue under duress???
i. Not likely b/c money is fungible and could always get more so its
really when there is no great alternative
2. NOW: a threat to breach a contract constitutes duress if the threatened breach would, if carried
out, result in irreparable injury because of the absence of an adequate legal or equitable remedy
or other reasonable alternative
a. Example: A contracts to excavate a celler for B at a stated price. A unexpectedly
encounters solid rock and threatens not to finish the excavation unless B modifies the
contract to state a new price that is reasonable but is 9x the original price. B, having
no reasonable alternative, is induced by As threat to make the modification by a
signed writing that is enforceable by the statute without consideration. As threat is not
a breach of his duty of good faith and fair dealings., and the modification is not
voidable by B.
3. According to Rs 2: threatened breach must be a breach of they duty of good faith and fair
dealings (follows the UCC)

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4. Two vantage points of duress
a. Unjust enrichment
b. Policing bargaining process

ROTH CASE: initial contract price of steel was really low b/c the steel industry operating at low capacity AND then federal
price controls caused in 1973 and there was decrease in supply and so domestic producers shipped out so now the supply goes
way down and price goes UP in addition to supply going down there are other increased cost of raw material etc. they
delayed shipment and they demanded a price increase AND did they threaten not to deliver as to the price increase buyer finally
agrees to pay more and in 1974 different arrangement and
All along buyer is going along b/c think doing best but they also FIND out selling to subsidiary to secretly reap profits and
avoid federal price say forget it and they SUE NO consideration for the buyer agreeing to pay more money BUT not a problem
b/c of UCC still need good-faith under the UCC need good faith in negotiation of modification
***GOOD FAITH NEED OBJECTIVE (consistent with reasonable commercial standard of fair dealings) satisfied
***SUBJECTIVE (whether the parties were in fact motivated to seek modification by an honest desire to compensate for
commercial exigencies) failed but can be rebutted

Austin Case: Couldnt have applied the UCC b/c there actually was consideration b/c even though there was duress there was past
consideration but new consideration b/c of bargain for second contract (REMEMBER doesnt all need to be valid consideration for
a modification just enough in the future) there were no reasonable alternatives and it would have been economic suicide b/c
NAVY was the source of their business there was fresh consideration even though D was still bargaining for stuff in the past
economic duress

l. Bilateral Contracts (4.12-4.16)


i. Rule: Promise is consideration for the return promise if the performance that is promised would be
consideration
ii. Mutuality of OBLIGATION: both parties must be bound or no parties are bound but its really
mutuality of consideration
1. If one party has not made a promise, the performance of which would be detrimental, neither
party has to perform. If Bs promised performance is not consideration, B may not enforce As
promise. Conversely, A may not enforce Bs promise even though A has incurred detriment.
2. NOTE: LOOK to the promise and then go to the promisee to see what the detriment is
and whether that was what was bargained for (basically applying the 3 rules of
consideration) -- so if promisee NOT supplying detriment promisors
promise isnt enforceable
i. Example: A promises not to collect money due to her by B if B promises to
pay the amount without interest at the end of this period. As promise is NOT
supported by consideration b/c B is only doing what he already has to do
AND THUS NOT BINDING.
iii. 2d restatement: takes the position that non-binding promise constitutes consideration if its
performance would be detrimental if the promisor bargained for the non-binding promise, the
promisor should be held to the promise (so under the second restatement just b/c
one is promising to do something already obligated, b/c the performance
of that is legal detriment it is valid.) adequacy of the consideration
shouldnt be relevant will receive protection under constructive
conditions
1. So the promise does NOT add any more to the contract
a. Example: B says to A, if you promise to pay me the $50 that you owe me, I promise
to give you a baseball cap worth $10. A promises. Bs promise is not supported by
consideration b/c (1) the mere utterance of As promise does not constitute legal
detriment, and (2) the performance called for (payment of a debt here an now due)
would not be detrimental because A would only be doing what A is legally obligated
to do
2. IF Mutuality of OBLIGATION followed at face value, voidable/unenforceable wouldnt make
sense, BUT really mutuality of consideration:
It is well settled that a voidable or unenforceable promise is consideration for a counter-promise and thus there is mutuality
of consideration even though one or both of the parties promises is voidable or unenforceable

47
Could breach such a promise but if its void b/c no consideration cant!
a. Austin case voidable on the ground of duress are other examples of no mutuality of
obligation but valid contracts from consideration standpoint
b. Unenforceable one party has a defense of Statute of Frauds whereas other doesnt
c. Voidable and Unenforceable Promises
i. WHY? Policy of protecting one party by making a contract voidable or
unenforceable would be subverted. That policy allows a party who has the
right of avoidance to instead ratify it.
iv. Unilateral Contracts no mutuality obvious
1. Only the promisor is BOUND
2. Offeree is NOT bound even if he/she starts to perform
3. If A owed B $100 and A promised to pay B the $100, if B walked the Brooklyn Bridge. If B in
response, walked, B could sue on the original claim or on the unilateral contract but there
could be only one recovery
a. It would not make any difference if the promisor was only promising to perform a
legal obligation; the doctrine of mutuality was never applied to uni-Ks
v. Illusory Promises
1. A bi-K is VOID if there is no Mutuality of consideration
2. If a promise made by one party is illusory or indefinite, there is no mutuality
a. Illusory: cloaked in promissory terms but which on closer examination reveals that
the promisor is NOT committed to any act or forbearance due to rights of termination
3. Modern tendency: leans against the necessity for mutuality of consideration
4. Rs. 2 (87)/options: an offer is binding as an option contract if it is in writing and signed by the
offeror recites a consideration for the making of the offer and proposes an exchange NO
5. CONSIDERATION.
a. The party who has made the illusory promise has stated the purported consideration
and the other partys promise should be construed as an offer and should be enforced
when there is willingness to perform
6. Example: Seller offers Buyer that an annual contract for the sale of widgets at a stated price,
with the quantity to be whatever quantities you choose to order, up to a maximum of 10,000.
a. Notice that buyer isnt obligated to purchase anything under these terms. Therefore,
sellers promise isnt supported by consideration, and buyer cant sue seller for
refusing to fill the orders buyer places.
vi. Alternative Promises (4.14)
1. Where the promisor has the choice of alternatives
a. Rule: each alternative must be detrimental otherwise the promisor has not provided
consideration
i. Rs. 2: Alternative promises are detrimental provided there is or appears to
the parties to be a substantial possibility that events may eliminate the
alternative that is NOT detrimental before the promisor makes a choice
2. Where the promisee has the choice of alternatives
a. If the choice of the alternatives is in the promisee, the alternative promises supply
consideration for a counter-promise if any of the alternative performances is
detrimental.
3. So if the other party can pick the alternative THAN there is detriment
vii. Circumventing Illusory Promises
1. Consideration supplied by Implied Promises/Constructive Promises
a. Implied or constructive promise (constructive think conditions!!)
i. Constructive: arises by construction of law only when justice requires it
ii. Implied in fact: when conduct of parties reasonably indicates that a promise
has been made [good faith and/or reasonableness]
1. See Lucy (where implied that P would use reasonable efforts to
bring about profits) because it had a financial self-interest in
carrying out the exclusive agency
2. UCC approach to exclusivity contracts:
a. UCC: 2-306(2): A lawful agreement by either the seller or the buyer for exclusive
dealing in the kind of goods concerned imposes unless otherwise agreed an obligation
by the seller to use best efforts to promote their sale.

48
i. Think about the relationship and if there is some sort of licensing agreement
or if there is a quantity term determined by the output or requirement on the
contracting parties
viii. Termination Option
1. Summary:
a. Old view: each alternative must be detrimental
b. Modern view: just give notice is sufficient
i. Rationale: the parties intended to contract NOT to have a nullity so shouldnt
be clouded with technicality
c. UCC 2-309:
i. 2-309(2): a contract that provides for successive performances but is
indefinite in duration is valid for a reasonable time but unless otherwise
agreed may be terminated at any time by either party.
ii. 2-309(3): Termination of a contract by one party except on the happening of
an agreed event requires that reasonable notification be received by the other
party and an agreement dispensing with notification is invalid if its operation
would be unconscionable.
1. An agreement silent to duration is valid but terminates at any time
reasonable notice still required
2. terminated at any time reasonable notice still required
3. terminated at any time without notice issue is of unconscionability
court must still take into account consideration problem
4. if the term is specified, there is maybe still an unconscionability
issue JUDGED at the time of termination (not at contracting like
normal)
2. HYPO 1: Bilateral agreement where A works for B for either one year or B has right to
terminate by giving 30 days notice:
a. Traditional: NOT illusory there is a promise to pay for either 1 year or 30 days
b. UCC: if its operation would be unconscionable than it wouldnt work, but otherwise
OK
3. HYPO 2: Same facts but B reserves the right to terminate at any time without notice:
a. Traditional view: Illusory
b. UCC: VALID for a reasonable time and to terminate requires reasonable notice
4. HYPO 3: Giving notice at any time:
a. Older cases: alternative promise of giving notice is not detrimental therefore Bs
promise is illusory
b. Corbin and later: requirement for notice even though it may be given at any time
constitutes detriment
c. UCC: reasonable notice would be required (always seem to check for
unconscionability)
5. HYPO 4: Bilateral agreement where A works for B for either one year or B has right to
terminate at any time (and no mention of notice):
a. Some courts: interpret K to require notice then not illusory
b. Others: interpret to mean NO notice illusory
c. UCC: reasonable notice is necessary
ix. Conditional Promises
1. Only would be illusory if the condition was in the control of the promisor
2. Aleatory Promises
a. Condition outside the control of the party who makes the promise, the promise is not
illusory and does not fail for lack of consideration and can serve as consideration for a
return promise
b. Conditional on a fortuitous event
3. Illusory problem can be avoided by imputing and implied promise to use reasonable efforts to
bring about a condition in persons control
a. Comes up with mortgage example
i. Sale of real estate contingent on obtaining a mortgage could argue its
illusory but really there is an implied promise to use reasonable efforts to
bring about the condition NOT illusory b/c there is certainly detriment

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think cannon = objective inability v. subjective unwillingness Mezzanotte v.
Freeland

x. Forging a good unilateral out of a bad bilateral


1. What if in the example (where A promised to forbear suit for Bs promise to pay obligated
debt) A did forbear and B never paid.
a. Although it was void to start, if there was performance a good uni can be forged out
of the void bi
b. If that doesnt work, try promissory estoppel
c. Doesnt work if there was never intent to be boundhas to
just be for lack of consideration!!!
2. 2 requirements
a. All of the requisites of the law of offer and acceptance must be fulfilled including the
requirement that the promise requested must have been given (otherwise there would
be NO bilateral contract rather than a void bilateral one)
b. The act performed by the party seeking to enforce the contract must be detrimental (if
this were not so, there would be no consideration to support the unilateral contract
being forged)
c. (Promise has to be enforceable)
3. Problem with FORGING
a. Courts dont seem to really distinguish between forging a good uni out of bad bi vs.
just determining there is a valid unilateral
4. RELEVANT in the case of ANY void bilateral contract
a. Failure for indefiniteness
i. Example: in an at-will employment relationship, where the employee has
worked, the employee has earned the contractual right to be paid and to be
free of Civil Rights violations. Sale of goods
1. If the parties fail to agree on the quality of goods but the seller
sends a particular quality and the buyer accepts, there is a contract
based on a teory of acquiescence (cure under purported to
agreement on material term think failure to specify fabric in tailor
case), or under FORGING.
b. Could also forge a series of unilateral contracts out of a bad bilateral
i. BUT in forging you would only get paid for the ONE suit if there was a
contract looking to a series of performances, you would just get paid for
each work done wouldnt CURE the entire CONTRACT or rather
forge a GIANT unilateral out of the void bilateral.
ii. Example: D agreed to appoint P as exclusive agent w/in a certain territory
and P was to be paid a commission on sales. No time was stated for the
duration of the contract so court held terminable at-will. Court also held that
it was void for indefiniteness so again here not curing whole contract just
allowing recovery for pieces
5. WHEN FORGING Doesnt occur even with the two elements satisfied
a. Indefiniteness: if only the promise which was originally definite is performed, even
though the 2 requirements are met, the indefinite promise is still indefinite and
therefore there is only the possibility of quantum meruit recovery
i. if there is an employment agreement where the employee agrees to work
for one year in return for the fair share of the profits this contract is
fatally indefinite however if the employee works, b/c there is no way to
ascertain a fair share of the profits its not really a forged unilateral
contract but rather he is entitled for quantum meruit the reasonable
value of his work
1. TO BE distinguished from if the indefiniteness is at will and
there is performance, contractual right to recovery
b. Where plaintiff promised to forbear for as long as the plaintiff felt like it, but forbore
for 2 years, assuming that the 2 elements are met, there is still a question of whether
any period of performance is sufficient b/c no duration was stated in the agreement

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i. Could state forbearance for a reasonable time, but this flies in the face of
plaintiffs own words
c. Suppose the party who seeks to use the doctrine has made the requisite promise,
starts to perform and the other party attempts to revoke. Under modern
approach PROMISE is irrevocable.
i. Think of an example like the employee agreement that offered bonus at
every month for a year but was terminable at any time this would be
illusory but the employee would be entitled to the months worked and if the
employee tried to quit after 5 months if invoke Rs. 45 the employer would
have a contract.
d. 29. P and D who were brothers owned adjacent parcels of land. There was a dock on
Ds parcel. They entered into an agreement which permitted P to use the dock for 10
years in exchange for Ps promise to pay one half of the maintenance expenses for a
year. By the terms of the agreement, P was permitted to terminate the agreement at
will. After 5 years, D refused to allow P to continue to use the dock. P brings an action
against D for breach of contract and D sets up a defense of mutuality of obligation.
During the five years prior to the commencement of the suit P had paid one half of the
maintenance expense of the dock. Make argument for P. Initial analysis: a void
bilateral b/c Ps promise is illusory (if there is some other consideration that would
have been OK) Can you forge a good contract? P has only performed for 5 years -- --
P has not fully performed BUT the court says in this case D cannot escape from this
obligation court says getting that dock for 5 years was enough consideration
COURT is really applying (without saying) rule of the restatement section 45:
fictitious offer to a unilateral contract D makes the offer to P and P has begun
performance and court says D cannot REVOKE
e. Reoccuring situation with an at will employment and after the hiring employees
asked to sign a noncompete agreement
i. Some courts: no consideration to support the noncompete agreement if
they stay on for a period of time, doesnt constitute consideration b/c as it is
NOT the bargained for exchange; the employer could have fired the
employee instantly (so staying on the job is acceptance to say a offer to
bonus or manual from the original contract but this is a new covenant and
would require new consideration)
ii. Other courts: found covenant supported by consideration if the employee is
retained for a reasonable time after the covenant is entered into. FORGING.
Personnel manual even if employment is at will could be seen as offer to a uni-K.and
accepted by staying on the job.
6. 2nd restatement
a. A promises to forbear suit against B in exchange for B's promise to pay a liquidated
and undisputed debt to A. A's promise is not binding because B's promise is not
consideration under 73, but A's promise is nevertheless consideration for B's.
Moreover, B's promise would be enforceable without consideration under 82.
i. On either basis, B's promise is conditional on A's forbearance and can be
enforced only if the condition is met. same result as if forging just different
theory!! so this is really the 2d restatement THEORY ON mutuality in
general (that if a promise not supported by consideration is
PERFORMED, is valid if the performance detrimental!!!! (under
mutuality even though As promise was detrimental, A could not enforce
Bs promise) so even though there was PED, Rs. 2 says
if performed this is sufficient detriment.
m. Requirement and Output Contracts (4.13)
i. Remember to distinguish and offer to a series of contracts from a requirements contract if it just says I
will supply up to X of whatever, there is no agreed upon quantity; but if there was a clause saying
supply the requirements of another party that could be a requirements or if the company would give all
its supply that would work as a requirements or output without that limit, the offeree is free to not
orderso illusory but forging can take place [when you cure by forging its like the performance is
placing the order.but always revocable]

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1. A promise by X to bottle all milk produced by Y is merely an offer looking to a series of
contracts and therefore revocable at will, unless made irrevocable by payment of consideration
or by compliance with statutory formalities.
2. If there was a return promise to supply its output of milk is expressed or can be implied then a
bi-K exists
ii. If there is no exclusivity probably not a valid requirementand its really an offer to a series of
unilateral acceptances which is revocable!!!
iii. Requirement: agree to purchase whatever NEEDED
1. Seller promise to sell to the buyer whatever he needs
2. Quantity term comes from the buyers requirement
iv. Output:
1. Buyer promises to buy sellers output and seller promises to sell sellers output
2. Quantitys term is the sellers output
v. Theory
1. Older Common Law: really illusory b/c promising to buy or sell IF needed
2. Newer: but b/c limiting who the dealer buys/sells there is detriment
3. Still: some courts refused to enforce the agreement when the buyer was entering into a new
business or was a purchaser for resale for lack of any way of predicting the amount of goods
to be purchased rendered the agreement illusory or indefinite and thus VOID/one-sidedness a
problem
4. Modern (recognized by many authorities)/UCC 2-306(1): A term which measures the
quantity by the output of the seller or the requirements of the buyer means such actual output
or requirements as may occur in good faith, except that no quantity unreasonably
disproportionate to any stated estimate or in the absence of a stated estimate to any normal or
otherwise comparable prior to output or requirements may be tendered or demanded.
(IMPLICIT exclusivity)
a. Good faith should help eliminate when there are still questions of indefiniteness and
MUTUALITY
b. Provides protection against the one-sidedness
vi. What is the maximum? How much is a requirements buyer entitled to demand?
1. Common Law
a. One view: buyer was entitled only to normal requirements
b. Other view: actual requirements provided the buyer act in good faith
c. An estimate had no affect at common law except if made in bad faith in which event
it operated as a maximum to the sellers liability
2. UCC: buyer is entitled to good faith requirements (insisting on unneeded goods NOT good
faith)
a. Limitations
i. If there is stated estimate, the buyer is not entitled to any quantity
unreasonably disproportionate to the estimate (limits the risk of the seller in
requirement setting or buyer in output even though demand is in good faith)
ii. If there is NO estimate/ maximum/minimum they buyer may demand only
any normal or otherwise comparable prior requirements. amount
reasonably foreseeable at time of contracting
1. If there is an expansion of the business or sudden would be proper if
in good faith
2. If there is a fixed price look to good faith and determine if the
market value is substantially different
vii. Diminution or Termination of Requirements / Go out of business?
1. Common law
a. Some: buyer was free to go out of business with impunity and free to change the
method of doing business at will (buyers promise illusory)
b. Second view: buyer was held liable if it went out of business or changed its method of
doing business in bad faith whether the purchaser has used commercial judgment as
opposed to an attempt to defeat the particular obligation
c. Third view: if the buyer went out of business or changed the way of doing business
with the effect of lessening its requirements, it had to respond to damages
2. UCC

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a. Buyer may go out of business or change its method of doing business if it acts in
good faith
i. A shut down by a requirements for lack of orders may not be permissible
when a shut down merely to curtail losses would NOT
ii. BUT some case law suggests that an output seller may curtail losses if it acts
in good faith and the losses are more than trivial
viii. Requirement contract v. exclusive dealing
1. Might lead one to believe use of best effort is necessary as in exclusive dealing (2-306(2)
Lucy and see circumventing illusory promises above) but requirement/output there is an
advantage on ONE side whereas exclusive dealings is best effort on both sides

Wood v. Lucy, Lady Duff-Gordon: D promised to give (in an elaborate written instrument) P exclusive agency in return for of
the profits resulting from that agency. If P was not required to do anything that would bring about the profits, Ps promise was
illusory. Court pointed that the P had an organization adapted to and a financial self-interest in, carrying out the exclusive agency.
It inferred a promise on Ps part to use reasonable efforts to bring about profits. He doesnt promise in so many words that he will
use reasonable efforts. However such a promise is fairly implied. Finding a promise from inference

Ridge Runner Forestry v. Ann M. Veneman, Sec. of Agriculture: Both promises were held to be illusory Sec. of Agriculture
made no promise to engage people in working and RR said if the are willing and able this is really like the offer to a series of
contracts not binding contrasted to Ace-Federal which was a requirements contract but court clearly distinguished

Texas Gas: Gas company promise was illusory b/c they dont promise that gas will be available ..

Mezzanotte v. Freeland: Promise to obtain a mortgage best efforts to obtain a mortgage cures illusory problem buyer has to
exercise good faith even honesty would be enough as long as they cannot lie and claim dissatisfaction limiting from freedom
(issue was b/c the buyer could reject a mortgage so could only reject the mortgage for a satisfactory cause) discretion must
occur in good faith way and fair play

Miami Coca-Cola Bottling Co. v. Orange Crush: Bilateral contract in the form of a license that was perpetual but contained a
termination clause whereby Miami Coke could cancel at any time. Miami Coke performed some of its obligations when Orange
crush gave notice no longer bound. VOID however because of lack of mutuality. Additionally, the contract can not be upheld upon
the theory that the appellant had a continuing option b/c an option to be valid must be supported by consideration.

Canusa: output contract of old news print was seller in good faith?? NO. seller had no excuse to lower the requirement (THINK
good faith in modification) was the quantity a minimum or estimate? Court kept saying estimate even though was thought to be a
minimum BUT here seller wasnt in good faith anyway so it wasnt important. But if the seller reduction had been in good faith, if
estimate FINE, but if minimum that would take precedent as a boundary so THIS opinion wrong to use word estimate.

Central Adjustment Bureau v. Ingram: bargained to sign non-compete agreements after the hiring took place. Hiring is at will so
this covenant is treated as an offer to a unilateral contract that is accepted by staying on the job b/c (they are under no pre-existing
duty to stay on the job) so they offer is really well let you stay on the job if you sign this covenant think reverse where there
is an offer for benefits by staying on the job. Its almost like if the market is good they can offer benefits to lure in workers but if
bad and desperate for jobs, non-compete works

32. P was employed by the D in Wyoming at a time when the employers personnel manual made clear promses of job security.
Subsequently the employer informed each employee that the personnel manual was withdrawn and that form that moement on all
personnel were under hiring at will. As part of downsizing P was discharged. A. Does P have a claim based on the original manual?
(b) would the answer of analysis be different if the
manual had expressly stated that ti would be subject to change by the employer.
Hiring at will is a void bilateral contract NOT supported by consideration so this manual was one small unilateral that was forged
out of the bad bilateral.but didnt forge an entire contract out of the void bilateral

VII. Unconscionability
a. Equitable DEFENSE (cannot bring a cause of action for unconscionability) and judge decides b/c judge decides
cases of equity
b. Not limited to just equitable defense now

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c. Test
i. In light of the general commercial background and the commercial needs of the particular trade or case,
the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the
time of the making of the contract
1. Balancing act between the two
2. Substantive: content of the contract (oppression)
a. Forced arbitration
3. Procedural: execution of the contract (unfair surprise)
a. High pressure, hidden terms, unequal bargaining power
ii. UCC 2-302: (1) If the court as a matter of law finds the contract or any clause of the contract to have
been unconscionable at the time it was made the court may refuse to enforce the contract, or it may
enforce the remainder of the contract without the unconscionable clause, or it may so limit the
application of any unconscionable clause as to avoid any unconscionable result.
iii. (2) When it is claimed or appears to the court that the contract or any clause thereof may be
unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its
commercial setting, purpose and effect to aid the court in making the determination.
1. Superior bargaining power is not in itself a ground for striking down a resultant contract as
unconscionable lack of meaning full choice should be present i.e. if a store charges above
market not necessarily unconscionable
2. In conjunction with good faith
3. Courts have typically found unconcionability:
a. Gross overall one-sidedness or gross one-sidedness of a term disclaiming warranty,
limiting damages, or granting procedural advantages
b. Often one-sidedness is buried in small print and couched in language unintelligible to
even a person of moderate education
iv. 2-309 v. 2-302
1. 2-309 is judged at the termination of the contract so you decide when the agreement is
terminated
2. 2-302 is judged as of the time of the making of the contract
Brower v. Gateway: contract where acceptance followed Pro-CD/Hill where arbitration was agreed upon b/c acceptance came
from the purchaser and had 30 days to accept. Substantive aspects: forced arbitration was costly Procedural: terms were not hidden
so very little procedural but substantive factors enough to show unconscionability.

VIII. Promissory Estoppel was there reliance on a promise?


a. Key distinction between promise supported by consideration and one supported by promissory estoppel is
i. Promise supported by consideration: detriment is bargained for
ii. Promise supported by promissory estoppel: detriment not bargained for
b. First restatement: Restatement section 90: A promise which the promisor should reasonably expect to induce
action or forbearance [of a definite and substantial character] on the part of the promisee and which does induce
such action or forbearance is binding if injustice can be avoided only by the enforcement of the promise
i. Necessary
1. Promise (statement of intention AND estimate NOT sufficient); maybe implied promise works
but courts reluctant
2. Promise must be one which the promisor should reasonably anticipate will lead the promise to
act or forbear
3. Promisee must be reasonable in relying on the promise
a. Reliance must be of a definite and substantial (quantitative) character
4. Conduct in reliance must be foreseeable
a. Williston: promise itself must indicate the way in which the promisee can rely
i. Corbin: test is what reasonable person in position of promisor could have
foreseen
5. Promise enforced if injustice can be avoided only by enforcement of promise
c. Second restatement:
i. Excised words of a definite and substantial character
ii. Added new sentence permitting flexibility of remedy; could be reliance damages not just
expectation
iii. It provided for the contingency of reliance by a 3rd party on a promise

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iv. Provided that a charitable subscription or a marriage settlement is binding without proof that the
promise induced action or forbearance
d. FOUR requirements
i. Must have a promise which can be implied
ii. The promise should be one that the promisor reasonably expects will lead the promisee to act or forbear.
iii. The promisee must be reasonable in relying on the promise and the reliance must be injurious.
iv. The promise will be enforced only if injustice can be avoided by the enforcement of the promise.
1. Can be flexible and only award reliance damages.
e. ROOT
i. Promises in the family
1. Traditionally look to consideration
2. Did someone give something up in reliance of gift?
ii. Promise to give land as gift
1. Cant be a gift b/c of delivery aspect (what about symbolic delivery?!)
a. Some courts have still honored gift aspect
b. Or Good consideration in equity
2. NOW: PE
iii. Gratuitous Agencies and Bailments
1. Misfeasance v. Nonfeasance
a. Misfeasance: liability
b. Nonfeasance: no liability
2. Current no distinction
3. NOW: PE
iv. Charitable Subscriptions and Marriage settlements
1. A few: there is consideration i.e. money for name on a building
2. Others: found consideration in the purported exchange of promises among the subscribers
(matching)
a. Or offer to unilateral contract to uni-K by performance of what the money is intended
for
3. Restatement 1: needed a lot of injurious reliance i.e. did something differently b/c of the
money
4. NOW: they are supported by promissory estoppel
v. Marriage settlements:
1. Old: tenuous findings of consideration like in De Cicco
2. NOW: promissory estoppel
vi. Other
1. Obligor promised not to plead the SOL
2. Gratuitous licenses for real property
f. Modern Tendency
i. Consideration substitute
1. Gratuitous Promises pay employment pension, give advice, pay off debt, etc.
ii. Reliance on offer
1. Example: general contractor relies on a bid from a subcontractor (normally uni-K reliance b/c
bi there is an opportunity to accept etc)
a. Traditional: offer may be withdrawn prior to acceptance even though in submitting its
own bid the general contractor has relied
b. Modern: promissory estoppel protects the general contractor
i. unless the bid was unreasonable, or just an estimate has to be an actual
offer
ii. general contractor cant delay acceptance i.e. NO bid chiseling or bid
shopping
iii. The general contractor is NOT bound however whereas the subcontractor is
2. Typically: this is for a unilateral contract i.e. preparation where there is not an express promise
to accept (b/c if there is part performance, than it is irrevocable anyway) i.e. there was no
consideration to support mere preparation Rs. 45 would protect
a. However even though the offer operates as irrevocable, doesnt bind the P
cant try to bid chisel as that would be a counter offer which under normal
irrevocable offer scenarios that wouldnt defeat the offer, but here it would!!

55
3. Also not usual for promissory estoppel to be used for bilateral situations: But the general
contractor case is an exception [ordinarily offeree isnt justified in relying on an offer i.e.
must accept before relying on it whereas in uni-K b/c performance is acceptable might
have started to prepare already b/c Rs. 45 doesnt protect]
4. Drennan
a. NOTE: the general contractor is NOT bound b/c there has been no reliance by the
subcontractor i.e. no promises were made.
iii. Indefinite Agreement
1. VOID bilateral agreement when terms are vague and forging wasnt considered b/c Ps actions
may amount to preparation rather than beginning of performance BUT applied promissory
estoppel
2. Grouse v. Group Health Plan here was awarded reliance damages; not expectation and not
value if he worked there [couldnt forge here b/c no performance yet just preparation]
damages for K would have been zero b/c at will]
iv. Promise made during preliminary negotiations
1. (Just reliance damages) for losses sustained as a result of unsuccessful negotiations like Red
Owl where steps were BIG taken on reliance of getting supermarket chain but those steps
caused credit to diminish and this changed the minds of the defendant --- PE
a. Where there is a duty to negotiate in good faith, there could be action for promissory
estoppel [despite intent to be bound]
2. (example) Even with terms expressly referring to the possibility of the failure of negotiations
if defendant drastically changes needs constitute promissory estoppel
v. Agreements disclaiming Legal Consequences
1. Pension plans, benefits, etc
a. Some courts have held inapplicable the clause disclaiming legal consequences so as to
preclude modification b/c of injurious reliance
b. Promissory estoppel to personnel manuals that disclaim legal consequences which are
void
2. VOID bilateral contracts in general i.e. no legal consequences
a. Modification without consideration
i. To the extent that justice requires enforcement in view of a material change
of position in reliance on the promise Rs. 89
ii. Even though modification is NOT binding when made it may become
binding by reliance but the terms of the original contract may be reinstated
as to the future by reasonable notification unless this would be unfair b/c of
change of position (b/c modification requires some consideration on and b/c
reduced rent wouldnt have consideration b/c of PED)
b. Promises of surety / guarantee
i. Surety is one who owes debt (but looked at here as a third party) no
consideration for suretys promise b/c consideration already between creditor
and initial principle.
ii. IF creditor relies on the promise as by refraining from bringing action
against the principal at any time when the amt due could have been
recovered, the promise may be enforceable so even though NO
consideration was supplied by the suretys promise, there is reliance
c. Statute of Frauds too.
g. REMEDIES
i. 1st restatement: expectation
ii. 2nd restatement:
1. Consideration substitute: expectation
2. Salvage indefinite contract: reliance

Feinberg v. Pfeiffer: promise is made by board of directors that she would have pension for $200 for life. This could have worked
under NYGOL law. Court applied restatement 1. She retired in reliance on that promise and now it would be unjust not to enforce
(change of position is giving up well paid job).

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Shoemaker v. Commonwealth Bank: very straight application where people relied on the banks words of securing insurance.

Salsbury v. Northwestern Bell: Charitable subscription. No consideration (if there was a chair in name different). Without use or
forbearance charitable subscription supported without consideration.

Drennan v. Star Paving: this was a bilateral offer to a contract that was never accepted but relied upon. Usually this wouldnt
work. There was nothing stating irrevocability like under restatement 87 or NYGOL. Could have taken the approach that there was
a condition precedent to performance i.e. we will provide service on condition you obtain the K. But here there was a promise
and it was made on the expectation it would be used.

This wouldnt work if the bid was VERY low or if it stated could be revoked at any time. If P tried to then renegotiate, he would
lose the benefit of promissory estoppelthis is different than the typical option K where counter offer wouldnt cancel the
optionbut here it would ruin.

Could also have tried condition precedent to formation: where the awarding of the K is the condition precedent to formationso
this way once there is an award, the K is formed

Grouse: pharmacy. Normal reaction hired at will. But here they applied the restatement 2nd and found that there was reliance on the
offer b/c he quit job and rejected another offer.

IX. Parol Evidence if there is a writing.


Major exception is estoppel to NOT bar proof of evidence getting admitted to show a waiver
so PER becomes irrelevant
Collateral K with separate consideration are always let in under all theories even if a
merger clause

Doesnt necessarily need to be signed almost everything will be an integration


a. To the extent that the parties execute a writing that is and is intended to be a final expression of their agreement,
no parol evidence may be admitted to supplement, explain, or contradict it. However, to the extent that the
writing is not a final a complete expression of agreement, consistent but not contradictory parol evidence may be
admitted to supplement or explain those parts of it that have not been finally expressed. [Examples and
Explanations]
i. Parol: includes anything not included into the written memorial of agreement but claimed by one of the
parties to have been agreed to either in writing or orally at some time before its execution
b. Policy
i. Give the writing a preferred status so as to render it immune to perjured testimony and the risk of
uncertain testimony of slippery memory
ii. Designed to require writing
c. Judge or Jury?
i. Parol evidence usually stated in terms of intent which is typically issue of fact
1. Did the parties intend an integration and did they intend for it to be total?
a. Questions of fact ordinarily a jury question but has become a question of law (this
strengthens the appellate court which doesnt handle questions of fact)
d. Substantive law or evidentiary
i. Whether can be raised for the first time on appeal
1. Ordinarily failure to object to any alleged error regarding the admission of evidence operates
as a waiver of the right to object; the issue cannot be raised for the first time on appeal
2. B/c it is a rule of substance thus may be raised on appeal
e. Parol evidence rule comes into play only where the last expression is in writing and is a binding contract
i. [needs to be written, accepted by both parties, dealing with oral communication before or at the time of
execution of the writing, deals with admissibility then handed to fact finder EE]
ii. What about prior, Contemporaneous agreement (at the time of the writing), and subsequent
1. Williston/Restatement 1/MAJORITY: contemporaneous oral terms should be treated in the
same manner as prior agreements
a. but that a contemporaneous writing should be deemed to be a part of the integration
and therefore be admissible into evidence
2. Corbin: Parol evidence rule does NOT apply to either kind of contemporaneous agreements

57
a. b/c the terms are either prior or subsequent and that therefore the word
contemporaneous merely clouds the issue
b. Senseless b/c there are often multiple forms with one K (3.4d)
iii. A writing intended by the parties to be a final embodiment of their agreement should be protected from
certain kinds of evidence
1. Total integration: a writing that is final and complete
a. Cannot be contradicted by parol evidence
b. Cannot even be supplement by consistent (non-contradictory) additional terms
2. Partial integration: a writing that is final but does not completely express the parties contract
a. Cannot not be contradicted by parol evidence
b. May be supplemented by consistent additional terms
3. Ask:
a. Whether the writing is an integration
b. Whether it is a total or only a partial integration
f. Is the writing integration? (3.3)
i. Key issue = Finality
ii. Did the parties intend for the writing to be a final embodiment of their agreement?
1. If so there is at least a partial integration and the writing may not be contradicted.
2. If the final writing is not a final embodiment of the K or some of its terms, the parol evidence
rule does not apply
3. Confirmation could be an integration if the other party doesnt respond to it but an
incomplete confirmation can only be a partial integration
4. Any relevant evidence is admissible to show that the writing was NOT intended to be
final or NOT to be an integration (although a question of law it is really a question of
fact)
iii. CRUCIAL question: the intent of the parties for it to be final
1. The more complete it is, the more likely it was final
iv. Example: A and B made an oral agreement and signed a writing that incorporated its terms. However
they were not fully satisfied with the writing and they agreed to have it redrafted. Does the writing
constitute an integration? NO not an integration therefore the parol evidence rule cannot exclude any
evidence of the terms of the agreement -- this evidence is introduced without any parol evidence rule
barrier so it all goes to fact finder

g. Is the writing a total integration? (3.4)


i. Final (integrated) completeness = Partial integration
ii. Final (integrated) + completeness = Total integration
iii. An incomplete final statement of part of the agreement is only a partial integration but if the writing is
both final and complete it is a total integration
iv. Ordinarily a question of law
v. TESTS
1. The four corners rule [DO NOT write this in exam]
a. If the instrument appears on its face to be determined by the trial judge the instrument
is conclusively presumed to be a total integration
b. Criticism: hard to tell on its face if it is complete
2. The collateral contract concept [this is still relevant]
a. The existence of a total integration did not prevent collateral agreements those that
are independent of the writing from being introduced so long as the main agreement
was not contradicted
b. Separate Consideration? So if a contemporaneous agreement was made that had
consideration to support it the agreement would be admissible
i. Criticism: difficult to determine which is the collateral agreement but such a
distinction is relevant only when the two agreements are contradictory
c. What if NO sep. consideration?
i. One view: Many cases where parol evidence was admitted to prove the
existence of a separate oral agreement as to any matter on which the
document is silent and which is NOT consistent with its terms even though
the instrument appeared to state a complete agreement

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1. assumption no writing could be considered more than a partial
integration
ii. Narrower view: Has to be a distinctly different agreement

3. Williston rule (adopted by 1st restatement)/Majority

First if there is a merger clause, its a total integration UNLESS etc., then if its obviously incomplete then add anything consistent
etcbut if it looks complete then presumption is its a total integration look to natural to exclude test (if they have a total
integration and it would have been unnatural to exclude the term, still a total integration) NOT interested in intent really just
whats in the writing
a. With Merger clause (a provision declaring that the writing contains the entire
agreement of the parties): this declaration conclusively establishes a TOTAL
integration UNLESS:
i. the document is obviously incomplete
ii. the merger clause was included as a result of fraud or mistake
iii. any other reason sufficient to set aside a contract, but even a merger clause
does not prevent enforcement of a separate agreement supported by a
separate consideration
b. No merger clause: the determination is made by looking to the writing.
i. Consistent additional terms may be introduced if the writing is obviously
incomplete on its face or if the writing is apparently complete but as in the
case of deeds bonds bills and notes, expresses the undertaking of only one
party
c. Determining total/partial without merger clause:
i. Total: Where the writing appears to be a complete instrument expressing the
rights and obligations of both parties, it is deemed a total integration
(PRESUMPTION)
ii. Partial: Even if the writing appears to be complete, if the alleged additional
terms were such that parties in the position of those to the written agreement
would naturally enter into a separate agreement with regard to the additional
terms partial (basically if its obviously incomplete, cannot be more than
partial)
iii. Reasonable person: embodied here
1. Presumed or fictitious intent
2. When a term not found in the writing is offered into evidence by one
of the parties and it would have NOT been natural for the parties to
have excluded the term from the writing, there is a total integration
with respect to that term and the term may not be admitted into
evidence even if it does not contradict the writing
a. If it would have been natural to exclude a term, then it
would be admitted.
i. I.e. Trade usage, course of performance, course of
dealings
3. Determine based on what the reasonable person in a similar
situation would have done
4. Corbins Approach (2nd restatement leaning that way)
a. Rejects Willistons reasonable person approach
b. Key Issue: Actually agreed or intended that the writing as a total and complete
statement of their agreement (total integration)
c. All relevant evidence should be considered on this issue of intent
d. Criticism: Undercuts the traditional parol evidence rule so all that is left is that the
judge (rather than the jury) ordinarily determines whether there has been an
integration
5. UCC (HYBRID)

Hybrid test so its a partial integration unless the INTENT was to make a total integration ala corbin OR if certain that parties
similarly situated would have included the offered term in the writing and they didnt then its a total integration

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a. UCC 2-202: terms with respect to which the confirmatory memoranda of the parties
agree or which are otherwise set forth in a writing intended by the parties as a final
expression of their agreement with respect to such terms as are included therein may
not be contradicted by evidence of any prior agreement or of a contemporaneous oral
agreement but may be explained or supplemented:
i. (a) by course of dealing or usage of trade (section 1-205) or by course of
performance (section 2-208); and
1. Even a total integration is treated as if it were a partial integration
in relation to this triad of evidence and the only question to be
decided is whether the evidence contradicts the writing
a. Seems to go against Williston but under Williston would
be natural for parties similarly situated not to include a
course of dealing or the like in the writing so under
Williston, the integration would be partial and the question
would be whether the term offered is contradictory
b. Confirmatory memoranda: at CL, a single confirmation
often acts as a total integration if the other party makes no
response to it prior to performance
c. Confirmation as total integration?
i. One view: b/c UCC uses the words confirmatory
memo such result isnt possible
ii. Farnsworth/Murray: say it can be total integration
iii. UCC: Total integration only if the parties actually
intended the writing to be an exclusive and total
integration of their agreement or if the term
offered in evidence would certainly have been
included in the writing if it had been agreed upon
ii. (b) by evidence of consistent additional terms unless the court finds the
writing to have been intended also as a complete and exclusive statement of
the term of the agreement
1. Clause B deals with parol evidence rule.
2. States the traditional rule that a total integration cannot be
contradicted or supplemented but doesnt determine the existence of
a total integration according to any of the rules previously discussed
a. Creates the presumption that the writing is presumed to be
only a partial integration
i. Presumption can be overcome if the parties
actually intend the writing to be a total integration
OR if it is certain that parties similarly situated
would have included the offered term in the
writing (from notes: makes much harder to
yield a total integration)
b. Court to make determination should be willing to receive
all relevant extrinsic evidence
c. Embraces Corbins rule that the actual intention of the
parties should be sought
d. Will be fewer total integrations than under Williston RULE
(not to mention 4 corners and collateral K)
e. BUT Follow Willistons rule w/ respect to
contemporaneous agreements and that the integration
question is one of law
6. Restatement 2nd
a. It has failed to make its position clear and has only added to the confusion
b. Major premise is that Corbins rule of ascertaining actual intent should be used in
determining whether there is a total or partial integration
c. Goes on to say that even if this test leads to a determination of a total integration,
consistent additional terms are still admissible if
i. The alleged agreement is made for a separate consideration OR

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ii. The offered agreement is not within the scope of the integrated writing
iii. If the offered terms might naturally be omitted from the writing
d. Impossible to have more than a partial integration
e. Contemporaneous agreements: does not take a clear position
vi. Intentions of the Parties (3.4)
1. Four corners and the collateral K focus on the writing NOT the intentions
2. A agrees t sell and B agrees to purchase Blackacre for $100,000. The K is in writing and in all
respects appears complete on its face. Prior to the signing in order to induce Bs assent, A
orally promises B in the presence of witnesses to remove an unsightly shack on As land across
the road from Blackacre if B will sign the K. May the oral promise be admitted? Total
integration?
a. B didnt SUBJECTIVELY intend a total integration.
i. Under objective test, Bs reasonable understanding of As intention, the
parties have not manifested an intent to have a total integration (by not
signing?)
b. Williston: evidence must be excluded b/c if the intention to have a total integration
were to be determined by the ordinary process of determining intention, the parol
evidence rule would be emasculated: the very existence of the collateral agreement
would conclusively indicate that the parties intended only a partial integration so
whether the alleged prior or contemporaneous agreement was made is the question
i. Do not seek out the actual intentions
c. Corbin: ascertain the ACTUAL manifested intention of the parties (UCC and 2nd
restatement in accord)
vii. Is the Offered Term Consistent or Contradictory? (3.5)
1. Regarding partial integrations
2. What about when there is a list of responsibilities and then the other party offers proof of an
ADDITIONAL term
a. Some cases: offered term is inconsistent b/c it contradicts an inference that all the
sellers obligations were listed in the K (Mitchell v. Lath)
3. When the additional term contradicts not an explicit term but an implied in fact term i.e. if a
writing is silent as to the time of performance (implied in law that reasonable time)
a. Some cases: say that evidence of a particular time would be excluded b/c it
contradicts an implied term
i. No clear distinction between implied in fact terms and implied in law
b. Williston and Corbin: favor the rule that an implied in law
term may be contradicted
c. UCC: to be inconsistent, a term must contradict an express term of the integration
d. Overall: Where the contradicted term is implied in law, courts, are less likely to
exclude the proffered term than the case of implied in fact term
4. What about an express term that is contradicted?
a. Is a demand note (a promissory note stating it was to be paid only on demand)
contradicted by evidence that it was to be paid only out of the proceeds of the sale?
i. Cases are Conflicted
5. UCC case defined inconsistency as the absence of a reasonable harmony in terms of the
language and respective obligations of the parties.
A contradiction could not only take place by offering into evidence a term, but could also
take place by offering evidence of meaning of the language of the agreement that
contradicts the apparent meaning of the language Williston basically precludes this but
Corbin wouldnt by allowing in all subjective intent. See 3.16.
viii. Merger clauses (3.6)
1. States final, complete and exclusive statement of all the terms agreed on
a. Williston: says MC will ordinarily resolve the issue of total integration unless
i. Instrument is obviously incomplete
ii. Where the merger clause was included in the instrument as result of fraud or
mistake or anything to set aside the K
1. Merger clause would be voidable not the entire K
b. Some authority: a merger clause is only one of the factors to be considered in
determining whether there is a total integration

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i. Shouldnt have affect unless MC agreed on
c. UCC: should not rule out evidence of trade usage and course of dealing unless
specific reference is made to this type of evidence
ix. Rule inapplicable until it is decided that there is a K (3.7)
1. Parol evidence admissible to show that a writing that appears to be a K was never formed
(even with a merger clause) i.e. duress could void [so rest of parol evidence rule deals with
THE terms of the K whereas this topic voids entire K]
2. Writing not intended to be operative
a. Sham or non-final agreement
b. This is at odds (despite it being in accordance with parol) with idea that parol
evidence designed to prevent perjury
i. Analytical displaces the policy basis here
3. Contract Subject to Express Condition
a. Where a condition precedent must occur before the K is effective, generally agreed
that failure of the condition to occur may be shown despite a writing or other record
that otherwise would have been total integration
b. This has to do with absence of FINALITY (key ingredient to integration) and there is
nothing to be added to or contradicted until the condition occurs
i. Some courts: adopted the rule, but do not apply this rule where the alleged
condition precedent to the formation of the K contradicts a specific term of
the writing (if there are written ones, oral ones refused due to contradictory)
1. NY see Hicks
c. When condition is ACTUALLY a condition precedent to performance (NOT
formation)
i. Usually good faith imputed so it would be a condition to the performance
when ambiguous
4. Fraud
a. Avoid agreement even in the face of MC and even if the evidence specifically
contradicts the writing or a merger clause
i. Promissory fraud: never intended the promise
ii. Fraud in the execution: deception about the nature of the instrument
1. One view: failure to read precludes the evidence
2. modern view: opposite view b/c fraud is a greater evil then the
failure to read
iii. Fraud in the inducement: false statements of fact that induce a party into
contracting
5. Mistake
a. If there is mistake, an agreement induced by it is ordinarily voidable and the parol
evidence rule wouldnt prevent the admission of such evidence
i. Some courts: if the contract includes a specific disclaimer of the very
representation later alleged to be foundation for rescission the parol evidence
rule will exclude the allegation of fraud
6. Illegality and Unconscionability
a. Illegality may make a K void or voidable
b. Can show that a liquidated damages clause is a penalty
c. Parol evidence is admissible to prove the illegality even though the evidence
contradicts the integration
7. Consideration
a. Parol evidence rule doesnt preclude a showing of absence of consideration
b. Suppose a written promise recites that it is in consideration of 1000
i. Majority: recital of consideration may be contradicted upon the theory that
the rule does not bar the contradiction of fact
ii. Minority: the parties are estopped from contradicting the writing or that the
recital gives rise to an implied promise to pay OPTION and guarantee
cases
c. When there is an attempt to show that the only promise made by one party in what
appears to be a binding total integration was not in fact made
i. Few cases: writing may not be contradicted

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ii. Majority: May be contradicted b/c of the rule that the parol evidence rule
does not apply until it is decided that there is a contract
d. No consideration on either side
i. Rule: may in fact be shown that the consideration exists even if the
consideration takes the form of a promise
8. The Rule of Non-formation of K under the UCC
a. UCC 1-103 provides that where the UCC is silent, the common law should be applied
x. Application of the Rule to the 3rd person (3.8)
1. Non parties bound by the parol evidence rule? Yes as to third party beneficiaries and assignees,
b/c the policy of the rule should be the same whether a party or a 3rd party claiming under the
K is seeking to defeat the integration
2. Not good to invoke against strangers

Mitchell v. Lath: they own the farm and across the road there is an ice house and the ice house spoils the view etcso Mitchell is
looking and wouldnt consider buying if the ice house is going to stay so they orally promise to get rid of the ice house in the
spring and the ice house is not on the same land but across the street nobody doesnt believe that the promise was made there
is no argument here that its a false claim but is the evidence admissible??? Held: parol excludes the evidence she has bought
the farm and she cannot enforce the promise to remove the ice house even though its obvious they agreedtotal integration found
under Williston.

Lee v. Seagram: P promised to sell distributorship if D promised to relocate them in an acceptable area (ORALLY). Not
contained in the written agreement. D asserts the parol evidence rule and claims total integration. Held: court says its partial
integration court says the trial court invited the parties to introduce evidence of the intent. Would not be expected that the
relocation agreement would have been part of the sales K. Also, the long personal relationship between and would allow for
reliance on parol agreement. Very corbin decision.

George v. Davoli, Geneva, NY 1977: Expresses UCC parol evidence rule and that there is a presumption that an integration is only
partial. May be supplemented unless the court finds a total integration.

Val-Ford Realty Corp. v. J.Z.s Toy World, Inc. D admits signing lease but asserts it was SHAM where the only purpose was to
fool the construction lender. Oral evidence is being introduced to show that this writing that looks like a K was in fact not a K
Show the writing is NOT a contract . Held: Parol evidence does not bar this kind of evidence

X. Interpretation
4 types of evidence: objective intent, subjective intent, parties said, triad of evidence
a. Ascertainment of meaning
i. Whose meaning is to be given to a communication?
ii. What evidence may be taken into account in applying the standard of interpretation selected
1. Parol evidence rule involved here
2. Admissibility relating to meaning (rather than agreements made prior to or contemporaneous
with the writing or other record)
3. Parol evidence rule determines the provisions of the K. Once the content of the K has been
established, the process of interpretation is a logically distinct step and the admissibility of
parol evidence as an aid to the interpretation is unrelated to the parol evidence RULE.
a. Logic is unassailable
i. Very same words offered as an additional term that are rejected b/c the
court deems the writing to be a total integration can be offered as an aid
to interpretation of an ambiguous written term
1. Able courts look at both proffers of evidence as governed by parol
evidence rule
4. Relevant evidence could be
a. Prior and contemporaneous statement
b. Surrounding circumstances (market conditions)
c. Evidence of subjective intent
d. USAGE
e. Course of dealings
f. Course of performance

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b. Plain Meaning Rule and Ambiguity (3.10)
i. If a writing or the term in question appears to be plain and unambiguous on its face, its meaning must
be determined from the four corners of the instrument without resort to extrinsic evidence of any kind
1. Some PM jurisdictions allow extrinsic evidence of surrounding circumstances
2. Criticism: meaning of words varies with the verbal context and surrounding circumstances
and purposes in view of the linguistic education and experience of their users and their hearers
or readers (not excluding judges)
a. Most courts: still apply despite the criticism
ii. If ambiguous all evidence admissible
iii. Whether extrinsic evidence is admissible to show that term of the written agreement is ambiguous
1. Rigid: bar evidence to demonstrate that what appears to be a plain meaning is actually
ambiguous
a. Mitigated by: allowing a proffer of evidence counsel is permitted to inform the
court what the nature of the alleged ambiguity is and what evidence is available to
show the court the actual intended meaning (this removes the blinders)
2. Earlier: courts would admit extrinsic evidence to clarify latent ambiguity but not a patent
ambiguity
3. Modern: abandoned the latent/patent distinction and hold all relevant extrinsic evidence is
admissible to clarify both types of ambiguities
c. Willistons Rule (3.11)
i. NO PM RULE but wouldnt admit all types of extrinsic evidence and lays down different rules for
integrations and for writings that are not integrations
ii. Interpreting Integrations
1. Integrated writings: meaning that reasonable person acquainted with all operative usages (see
below), and knowing all of the circumstances prior to and contemporaneous with the making
of the integration would attach to the integration or to any disputed term of the integration
a. Would exclude what the parties said to each other about meaning [exclude
subjective intent/include trade usage, etc.]
b. K acquires life of its own separate and apart from the meaning the parties attach to
agreement
iii. Interpreting non-integrations
1. Not integration and NOT ambiguous
a. Williston: meaning that the party making the manifestation should reasonably expect
the other party to give it standard of reasonable expectation governed by objective
standard of K
i. If A says something to B, the meaning should be what a person in Bs
position would reasonably believe A to say [distinguish from Williston in
parol evidence this is dealing with offer/acceptance intent whereas
Williston is reasonable view of the integration]
ii. See 3.16 this is stricter so as to not undermine the PER
iii. All extrinsic evidence is admissible except evidence of subjective intention
2. Not integration, Ambiguous
a. Even evidence of subjective intention is admissible
i. If the parties place the same meaning on the term, there is obviously a
contract based on that meaning
ii. If the evidence shows that the parties had conflicting understandings as to
the meaning of a material term, there is a K based on the meaning of the
party who is justifiably unaware of the ambiguity
iii. If the understanding conflicts as to a material term and each party is guilty or
blameless on the issue of knowledge or reason to know of the ambiguity,
there is NO K
iv. See Raffles v. Wichelhaus (where I think there was no
integration b/c they were at a distance)
d. Corbins Approach Restatement Second UCC Reasonable expectations (3.12)
i. FOR all situations
1. All relevant extrinsic evidence is admissible on the issue of meaning, including evidence of
subjective intention and what the parties said to each other with respect to meaning
2. Raffles

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a. Williston and Corbin agree that if the parties meant the same ship, there is a K based
on that meaning and if both parties were blameless or equally at fault, there would be
no K
b. Corbin, however, UNLIKE willison is willing to allow the court to weigh relative
fault
i. If one person is more guilty than the other for the difference in their
meanings, the court should apply the meaning of the party who is less at
fault
3. Uses a standard based on the balance between the standard of reasonable expectations and the
standard of reasonable understanding
4. A K exists in accord with the meaning the promisee could rely upon provided the promisor had
reason to foresee that the promisee had reason to attach this meaning
5. Corbin tempers this approach by saying that trial judge must initially decide whether the
asserted meaning is one to which the language taken in context is reasonably susceptible
in the light of all of the evidence
a. If it is NOT, then that asserted meaning may not be attached to language and the
jury will not be permitted to hear the proffered evidence of asserted meaning
e. Aids to Interpretation; Rues of Preference (3.13)
i. Canons
1. If 2 terms in writing conflict, the first term controls
2. Plain meaning prevents introduction of evidence whereas the modern tendency is to allow the
evidence
3. Principle purpose of the parties is of particular importance in determining meaning
a. If there are recitals at the beginning of a K
i. If the recital is clear, recitals govern the construction
ii. If the recitals are ambiguous, the operative part is clear operative part must
prevail
iii. If both the recitals and the operative part are clear, but they are inconsistent
with each other, the operative part is to be preferred
4. A writing should be interpreted as a whole, not in part
a. Harmonized
b. If no other intention is established, language is interpreted in accordance with its
generally prevailing meaning
c. Course of performance course of dealings trade usage
5. Maxims
a. Ejusdem generis: canon that states that where a contractual clause enumerates specific
things, general words following the enumeration are interpreted to be restricted to
things of the same kind as those specifically listed.
b. Noscitur a sociis: signifies that a word takes on coloration from the verbal context
c. Expressio unius est exclusion alteriius: expression of one thing is exclusion of another
6. Once all admissible evidence is placed on the record, the court may still be in the dark as to the
intended meaning of the parties
a. Lawful reasonable interpretation preferred over unlawful unreasonable
7. Restatement 2d says (between rules in aid of interpretation and standard of preference):
a. IF a term is added to a standard form, it is to be preferred over any conflicting term in
the form
b. A specific term is to be preferred over any conflicting general term
c. Express terms have greater weight than course of performance, which in turn has
greater weight than course of dealing, which has greater weight than trade usage
d. [SEE LATER] if it is doubtful whether given language creates a condition or a
promise, it should be interpreted as a promise
8. True standards of preference involve the role of the judge as a dispenser of equity
a. Preference toward promise not condition precedent (see conditions)
b. Deed is construed against the grantor
9. General rules
a. If more than one reasonable meaning exists, and there is a public interest involved,
and it means picking one of two meanings, go with public interest
b. Good faith, conscionability

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10. Impact of Stare Decisis
a. permanent employment meaning found in starre decisis
b. Statutes help define
f. Deciding Omitted terms (3.14)
i. Arises in area of constructive conditions and under impracticability and
frustration
ii. Dispute arises where parties have not agreed upon or even discussed a term covering the situation
1. Interpretation rules provide no solution
iii. Parol might be admitted to determine if the parties had expressed any intention on the matter extrinsic
to the writing then term is OMMITTED (see indefinitness silence!)
iv. What to fill in???
1. View one: Comports with community standards of fairness and policy rather than analyze a
hypothetical model
2. View two: What the parties would have included in their K had they anticipated an occurrence
which they in fact overlooked
3. Courts applied: good faith, bad faith, reasonable efforts and reasonable notice
g. Question of Fact or Law? (3.15)
i. Treated as question of law for the courts
1. B/c of unwillingness to let unsophisticated jurors
2. Where extrinsic evidence is introduced
a. the question of meaning is left to the jury except where after taking the extrinsic
evidence into account, the meaning is so clear that reasonable jurors could reach only
one conclusion
3. Where extrinsic evidence is NOT introduced
a. Question is one of law
h. Parol Evidence Rule and Interpretation (3.16)
If in a fact pattern you cant tell if its a parol issue or interpretation argue that the person
not wanting the term in is going to say its additional term to PER would stop it whereas the
party who wants the term in will say its an interpretation issue.
i. Common ground: an integrated writing or other record may not be varied or contradicted
ii. Contradiction: may take place not only by offering into evidence a term that contradicts the writing or
other record, but also by offering evidence as to meaning of the language of the agreement that
contradicts the apparent meaning of the language
1. PM rule: no contradiction is permitted if the court determines that the meaning is plain;
extrinsic evidence of all types excluded
2. Williston: does not permit an integration to be contradicted by evidence of subjective intent or
what the parties said to one another wants to keep it stricter to preserve PER
3. Corbin: all relevant extrinsic evidence is admissible on the issue of meaning with the only
limitation being the asserted meaning must be one to which the language of the writing or
other record read in context is reasonably susceptible thinks meaning needs to be ascertained
before PER can be consulted b/c how will you know if there is a contradiction
a. Believes there is a difference between evidence of meaning and additional terms
4. UCC: limited to course of dealing, course of performance and usage
i. Course of Dealing, Course of Performance and Usage (3.17)
i. PER and Interpretation Relevance
ii. UCC: draws distinction
1. Course of dealings: sequence of previous conduct between the parties to a particular
transaction which is fairly to be regarded as establishing a common basis of understanding for
interpreting their expressions and other conduct
a. Testimony of parties
2. Course of performance: involves conduct after the agreement has been made, as where the
contract for sale involves repeated occasions for performance by either party with knowledge
of the nature of the performance and opportunity for objection to it by the other, any course of
performance accepted or acquiesced in without objection shall be relevant to determine the
meaning of the agreement.
a. Testimony of parties

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3. Usage of trade: any practice or method of dealing having such regularity of observance in a
place, vocation or trade as to justify an expectation that it will be observed with respect to the
transaction in question. (limited to a particular area or to a particular activity or both)
a. Expert testimony
b. Are they bound if trade usage found?
i. General notion: party who is or should be aware is bound
ii. Can negate trade usage by agreement
iii. Once a trade usage that binds the parties is proved, the trade usage may be
used on the issue of meaning and also to add a term to the agreement
4. Comment 2 to 2-202: such writings are to be read on the assumption that the course of prior
dealings between the parties and the usage of trade were taken for granted when the document
was phrased.
a. Provides they are not always admissible
5. UCC 1-205(4): indicates that the evidence is not always controlling when it says the express
terms of an agreement and an applicable course of dealing or trade usage shall be construed
wherever reasonable as consistent with each other; but when such construction is unreasonable
express terms control both course of dealing and trade usage and course of dealing
controls usage of the trade
a. Course of performance is different in some respects from course of dealing since a
course of performance is subsequent to the writing or other record, the aspect of the
parol evidence rule that deals with additional terms does not apply to it. Thus, if a
course of performance is used to add a term to the writing or other records, the issue
is modification or waiver (SEE 2-208 cmt 3)
6. UCC 2-208: any course of performance accepted or acquiesced in without objection shall be
relevant to determine the meaning of the agreement and a comment states that a course of
performance is always relevant to determine the meaning of the agreement
a. 2-208(2): the express terms of the agreement and any such course of performance as
well as any course of dealing and usage of the trade, shall be construed whenever
reasonable as consistent with each other; but when such construction is unreasonable
express terms shall control course of performance and course of performance
shall control both course of dealing and usage of the trade. SAME as 1-205(4)
7. Summary: EXPRESS TERMS CONTROL course of performance course of
dealing trade usage
iii. Common law: often inartistically meshed the course of dealing and course of performance together
under the classification of custom and usage under heading of practical construction
1. Under CL: a trade usage (and course of dealing) may be added as
an additional term to a writing or other record if the term is not
inconsistent with the agreement
2. Some CL cases continue to exclude evidence of usage, course of dealing and course of
performance unless the writing K is ambiguous or contains a gap
3. Course of performance is different b/c it is subsequent to the writings so parol evidence that
deals with additional terms doesnt apply SO ITS issue of modification or waiver

Raffles v. Wichelhaus, 1864 court of exchequer


Seller agreed to sell cotton to the buyer, shipment to be made from Bombay on the Peerless. It so happened that there were 2 ships
Peerless sailing from Bombay; one was to sail in Oct. and the other in Dec. Buyer meant the ship that saileld in Oct. but the seller
meant the ship that sailed in Dec. Under Willistons approach, the question is whether one party knew or should have known of the
ambiguity and the other did not. For ex. if the seller knew or should have known of the ambiguity and the buyer didnt, there
would be a K based upon the buyers meaning (ship Peerless that sailed in Oct). If neither party knew or had reason to know or if
both parties knew or had reason to know, there would be no K. If both parties meant the same ship Peerles, there would b a K.
Because there are 2 ships, there is no PM. Buyer is off the hook. NO K, no breach (buyer had rejected the cotton)
Corbin and Williston: agree that if the parties meant the same ship, there is a K based on the meaning, and that if both parties were
blameless or equally at fault, no K. Corbin, though, is willing to allow the court to weigh relative fault. If on of the parties is
MORE guilty than the other for the difference in their meanings, the court should apply the meaning of the party who is less at
fault.

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Pacific Gas and Electric Co.: Terms of indemnification clause are in dispute as to whether the insurance applies only to third
parties or to the actual parties themselves (where party was injured). wants to submit offered admission by s agents. Issue-
May a court consider parol evidence to show the meaning of terms of a K? Holding- Yes, if the language of the K is reasonable
susceptible to proponents interpretation.
(1) Judge must examine evidence to decide whether the language of the K is reasonably susceptible
(2) In this case it was and the evidence should not have been barred at trial. this is more Corbin
PM RULE: this could have been resolved under PM if ambiguous on its face

Trident: K had a no prepayment clause but also had terms that allowed prepayment w/ penalty in the case of default. states
that they believed this to mean they could buy out the prepayment. Trainers decision in Pacific Gas opening the gates to extrinsic
evidence no matter what the writing says nevertheless we have to admit extrinsic evidence b/c the language has no meaning
cannot tell what words mean without having all available his hands are tied b/c the law of CA allows everything in.Maybe
Kazinski is overstating the law of CA.
Held: court must examine for ambiguity. The preference is to avoid internal conflicts which in this case are a no prepayment
clause and a default clause. CA law is based on Corbin so this allows introduction of subjective intent. Testimony of parties is
given favor and sanctions for frivolity of lawsuit awarded at trial court should be reversed.

Finally the language has to be reasonably susceptible to the meaning contended even though we agree that there is not
right to prepay hard to believe that the language is susceptible to meaning.

Nanakuli purchased requirements from with price to be posted at time of delivery. Trade usage was to charge the price when
bid was made. did so in prior dealings with . P buyer claims seller breached that they failed to price protect price protection
was required which is a trade usage and course of performance (requiring holding price on tonnage already committed) argument
for price protection they said it was part trade usage and course of performance
Such evidence can either add terms or add meaning
Held: examination show obvious trade usage to price protect. could not show one occasion of a supplier failing to price fix.
Jury found that prior performance yielded evidence of modification, not waiver. UCC allows for this as well.

Problems
11. The parties entered into an agreement for the sale and purchase of coal in which the quantity term was expressed in metric
tons rather than dry metric tons One of the parties sought to introduce evidence that there was a course of dealing which showed
that there was a common basis between the parties for interpreting metric tons to be the equivalent of dry metric tons. Is the
evidence admissible?
YES admissible the UCC wouldnt clearly admit it the only view that wouldnt admit this is the plain meaning RULE no
extrinsic evidence if they find a plain meaning

12. M-V corp., a manufacturer, sues B, an authorized dealer, for the price of electronic equipment supplied and delivered. B
couterclaims based on Ss refusal to accept conforming goods returned for credit. The agreement stated that B had no right to
return conforming goods and obtain a credit. B now asserts that the parties continually ignored the agreement and that over a
period of time 210 units were returned for credit. May this evidence be introduced as a relevant course of performance? May it be
introduced as the basis of a modification?
the parties know best what they meant and their action is the best indication of what that meaning was you might be able to
argue that when they said no conforming goods can be returned for credit their performance shows they mean language to mean
opposite.but the court says its not admissible as a course of performance b/c cannot be construed with express terms terms
override course of performance this is course of performance to interpret the language
When it comes to course of performance ethat is not the end of the road b/c course of performance can also be used to show
modification by conduct and that is spelled out in 2-208 OR a waiver but waiver can be retracted
Prevent with a NOM clause

14. P subscribed to DIRECTV. The subscription agreement contained this clause: DIRECTV will send you a written notice
describing the change and its effective date. If a change is NOT acceptable to you, you may cancel your service. If you do not
cancel your service, your continued receipt of any service is considered to be your acceptance of that change. Soon thereafter, in
an envelope containing the monthly bill, DIRECTV included a new agreement that differed from the old by a clause that stated that
any claim arising out of, or relating to this agreement . . . shall be resolved in according to binding arbitration. P did not cancel
the service and continued to receive DIRECTVs signal. P has brought a court case based on an alleged breach of the agreement.
DIRECTV argues that the case should be dismissed and that P is bound by the arbitration clause. Think of a successful argument
on behalf of P based on interpretation.

68
Here both P and D agree to this they reserve the right to change these terms and conditions send a written notice describing
change and effective date insert the new agreement nobody ever actually looks and it has an arbitration clause interpretation
argument not to have accepted this arbitration term say theyll send a notice describing the change and effective date and they
actually just send the new agreement court says doesnt comply with promise to send notice describing the change nobody is
going to sit down and try to figure out arbitration exists doesnt notify anybody NOT effective and homeowner is NOT stuck
with arbitration

XI. Conditions
a. Definition: condition is an act or event other than lapse of time which unless excused must occur before a duty
to perform a contractual promise arises (C/P) or which discharges a duty of performance that has already arisen
(C/S)
b. All unilateral K all condition precedent to performance -- so there couldnt be an issue of substantial
performance
c. Classification (11.3)
i. Time when conditioning event is to happen in relation to the promisors duty to perform
1. Condition precedent
a. Act or event other than lapse of time, which must exist or occur before a duty to
perform a promise arises
i. C/P to formation: each party can retreat before condition occurs
1. Parol evidence rule
2. Check about NOTICE
ii. C/P to performance

Edmund Flynn Co. v. Schlosser, D. Columbia Ct. of Appeals, 1970: D attempts to revoke offer to buy a coop B promises to buy
and S promises to sell the coop subject to approval of the board of directors buyer says this its a c/p to formation of contract (if
buyer wants to pull out not facts of Flynn) deal hasnt taken affect until board approves; Sellers (P) argument is its a c/p to
performance. Held: this is a condition to performance to the K just condition to performance while it hasnt occurred yet,
nevertheless the parties are bound they dont have to perform if the buyer is denied approval, buyer walks away if the buyer
is approved the performance takes place it is a condition precedent to the performance NOT formation

Hicks v. Bush, ct. of appeals New York 1962, page 467: NOW c/p to formation issue v. c/p to performance but with PAROL rule.
sometimes have a writing that doesnt express the condition agree to form a holding company there is a written agreement ---
written agreement defendant didnt perform AND plaintiff sues BUSH says there was an oral agreement to an equity expansion
FUND this venture wouldnt go anywhere unless had capital this ORAL c/p was to the formation to the contract which is
expressed in the writing this is NOT so unusual Held: the evidence is admissible B/C this is NY they also ask whether the oral
condition precedent contradicts anything in the writing and the court says NO.

14. P and D agreed to merge their corporate interests into a new entity P deposited shares of stock in accordance with the written
agreement. P seeks restitution of these shares, claiming there was an express oral condition that the shares would be returned if
adequate financing for the new entity was not obtained and that adequate financing had not been received. Is evidence of this
alleged oral condition admissible?
This is similar to Hicks the plaintiff is trying to undo however oral condition the way this is phrased gets our plaintiff into
trouble plaintiffs oral testimony sounds like property c/subsequent(see problem 12) but in any case the oral testimony which
would divest (c/s) the property right therefore the court says the only way you could only prove consistent integration you
would have to introduce as another term of the K partial integration consistent additional term phrasing argument B/c c/s
wouldnt be able to admit the evidence and thus would have to try to prove a partial integration
b. B/P on the Plaintiff
c. Can be proved by parol
2. Condition concurrent
a. Where parties are to exchange performances at the same time
b. Payment and deliver could be concurrent conditions
c. Its a type of condition precedent
i. Unless tender is excused, a party MUST perform or
tender performance BEFORE the party has a claim
d. (EE) When a K provides for counter-performances in exchange for one another and
DOES NOT prescribe a sequence of performances, the general presumption is that if

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the performance are capable of being rendered simultaneously, they are due at the
same time
i. Both parties must show up ready, willing and able
e. If One performance requires more time then the presumption that one goes first (so
that one becomes a condition precedent??)
f. Concurrent conditions are created by the courts through constructive conditions
which tender of one performance is a condition precedent to the liability of the other.
SEE 11.12
3. Condition subsequent
a. Event the existence of which discharges a duty of performance that has arisen (when
the K was formed EE)
c/p is prerequisite to duty arising while subsequent terminates a duty that came into existence when the K was formed
b. B/P on the Defendant
c. Cant be proved by parol
d. Property condition subsequent so you give it back if
inconsistent w/ the property

12. In an sale of steamboat there is the following clause: and it is understood and agreed that this sale is upon this express
condition that said steamboat or vessel is not within 10 years from the first day of 1867 to be run upon any routes of travel of the
state of CA or the Columbia River or its tributaries. P seller brings an action for damages for breach of contract alleging that D
violated the aforesaid terms of the contract. What result?
Assume that D violated terms there is a breach of K claim but b/c there is NO Promise the duty arise by promise in the K
the question is DID the D promise not to take the vessel on these routes does the language look like a promise??? Says that it is
express condition the court doesnt have to stop there but there could have also been express condition with implied promise
even though language which sets up express condition, court could still imply a promise form that language to comply says
express condition no reason to imply a promise no cause of action for breach DEFINITELY NOT precedent this is
SUBSEQUENT (need a duty which would be discharged???? NO!!) all the perforamance are over with not a condition in the
K sense
The sale is subject to express condition this is a property condition condition subsequent in the property sense it undoes the
sale it undoes the sale the violation means the vessel belongs to original seller NOT a K cause of action but the remedy is
replevin to get the vessel back not every condition is a K condition

ii. Manner in which condition arises whether it is imposed by parties or whether created by law
1. Express Conditions
a. Created by agreement of the parties
b. Includes implied in fact
c. MUST BE STRICTLY COMPLIED WITH
2. Constructive conditions
a. Imposed by law
b. Substantial compliance is sufficient

Audette v. LUnion St. Joseph, Sup Ct Mass 1901: No sick member should receive any benefits before producing a sworn
certificate of a physician. A sworn doc certificate was needed. Held: b/c it is part of the agreement of the parties it must be
complied with rule is literal compliance not something created by the court

Inman v. Clyde Hall Drilling Co., Sup. Ct. Alaska 1962


COULD have 3 situations: Condition occurs so duty to perform; hasnt occurred yet but still could; Cant possibly occur
anymore (Inman)
Employment K -- D fired P and P feeling fired unjustly, brings a cause of action against the employer shame on the lawyer the
K had express c/p requiring that any claim had to be given in written notice within 30 daynow that the 30 days have gone by
and now can no longer occur -- means D will never be obligated to perform (see #3) Held: the law says that Ds obligation is
dischargedduty was created when K was formed.

d. Express conditions and promises compared (11.9)


i. Failure to perform a promise is a breach
ii. Failure to comply with a condition not a breach
1. One cannot be liable for failure to comply with condition

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iii. IN the bridge example, if B promises to walk across the bridge it is both a promise and a condition. So
A wouldnt have to pay and has an action for breach.
iv. Borderline cases lean toward promises
1. Presumption is particularly strong when a finding that there is a condition and not a promise
would lead to a forfeiture on the part of the party who has done the work
NY Bronze Powder Co. v. Benjamin Acquisition Corp., Ct. of Appeals of Maryland, 1998: Issue of whether a promise, condition
or both. NY bronz entered into K with Benj where Benj agreed to purchase from NYB the assets of business. Then there was
modification where 350,000 of the 4.5 mil purchase price was deferred and Benj executed a NOTE (I owe you) and promised to
get an audit to NYBronz. Audit wasnt completed and Benj didnt pay the note. The issue is whether the surrender of a note was a
c/p to the payment of the note. Held: Then they are liable for breach for not surrendering the note no big deal breach would be
immaterial there is almost no risk that someone will show up with original note so would be immaterial and not justify being
discharged from obligations. ONLY remedy is to sue for damages when breach is immaterial when in doubt, assume
promise
This was a breach of a constructive condition not an express condition so only substantial performance is necessary; how
could this provision in the note to have been redrafted surrender of the original note upon failure to surrender this note
benjamins obligation will terminate or be extinguished spell out the consequences of the non-occurrence of this event spell it
out there is NO doubt this is in fact and express condition.

9 The P and D entered into a K for the sale and purchase of 30 tons of casein. Th e K contained the clause: Advice of shipment to
be made by cable immediately goods are dispatched. The goods were shipped on time by P but no notice of shipment was given
to D. Tender of the shipment was refused by D. The clause in question had been included in the K upon the demand of the D. Does
the P have a cause of action against D for breach of K?
to be made that is BAD --- the court has a hard time figuring out what that means figure out was it advice of shipment
express condition or promise by the seller to give advice go through the same possibilities
plaintiff is the seller and the buyer refused the shipment buyers claim it was an express condition saying that I dont have to buy
b/c the c/p didnt occur the sellers claim is promise so sue me what are your damages? Would be immaterial and the buyer
would still have to buy the goods older rule if you apply restatement rule on ambiguous conditions this is PROMISE and so
the seller would win.

10. S entered into a K with B to build a yarn-spinning mill for B. The K provided the standards that had to be met before
performance would be deemed completed. The work was not accepted b/c the machinery supplied by S lacked the capacity to
produce the quantity and quality of yarn described in the contract The contract was ambiguous on the issue of whether S promised
to meet these standards. B asserts a claim for damages for breach of K. S contends that B is entitled only to withhold the unpaid
portion of the K price. Who is right?
had to be met because the K was ambiguous PROMISE by the seller but in this case this is what the buyer wants b/c
buyer was suing for breach so the buyer wins

e. Conditions compared to time references (11.10)


i. General contractor agrees to pay a subcontractor as money is received from the owner
1. One view: language of condition
2. Other: language of time and if it doesnt occur reasonable time
3. Modern: not an express condition but merely the time of payment
a. When personal services are rendered it will not lightly be assumed that payment is
contingent on the happening of an event outside the control of the party rendering
services
ii. Promise to pay When able
1. Majority: language of condition
2. Minority: promise for reasonable time
iii. General Rule
1. If, On condition that, subject to, provided CONDITION PRECEDENT LANGUAGE

Dyer v. Bishop International, page 461: Pay when paid clause. the owner does not pay the general contractor and b/c the owner
becomes insolvent subcontractor has complied with the constructive condition precedent which is to have to show substantial
performance. The general contractor then tries to enforce a second condition an express condition precedent for the duty to pay the
subcontractor. Issue: whether payment by owner to gen contractor is an express c/p to duty to pay the sub! NORMALLY, the
risk of insolvency is born by the other contracting party gen. contractor takes the insolvency K and the sub takes the risk gen.
contractor is insolvent

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Held: contention of gen. contractor FAILS b/c they met the substantial performance necessity.
THIS language is not a promise but just a statement of the amount of time JUST a general TIME designation which only applies
if the owner does pay the general contract

JJ Shane v. Aetna, page 466: this is just an example of coming out the other way. This was an express c/p so when the owner is
insolvent, out of luck. Sometimes this could be contrary to public opinion

f.
Language of condition may imply a promise (11.11)
i. Express language may in addition be implied language of promise and express language of promise
may give rise to an implied in fact or constructive condition
ii. Contingent upon B obtaining a described mortgage loan
1. Implies promise of best efforts (this is limited to events in control)
2. If there is no control on the event, its purely conditional but if there is some element of control
in affecting outcome, it includes a promise too (EE page 477) aleatory promises are NOT
illusory
3. If there is a condition precedent to performance is the K illusory?? It is if there is no
implied promise
a. (page 214) At times an illusory promise problem is avoided by treating the express
language of condition as carrying with it an implied promise
i. If there was no implied best efforts the K would be illusory
4. Failure of the implied promise would be a breach of K
So when there is implied promise treated as regular old promise but generally only implied
for conditions in the control of promisor
iii. ONLY if in control not if its aleatory.

8. P alleges that D agreed to sell him a lot and to construct a residence and to landscape the lot and that it was understood that the
lake on which the lot fronted would be cleaned out by a named 3rd party and that, when the lake had been lowered by said third
party, the D would install a sand beach. The P promised to pay 50,000 when the house was completed. P did pay. Later he sues
alleging that D failed to clean out the lake and cause it to be lowered to install the sand beach. Is cause of action stated?
Finding of promise and express condition defendant says promises to install the beach but b/c the third party cleaning out lake
which is express condition precedent this is the defendants claim looks good based on the language show mostly with
extrinsic evidence defendant was acting as a general contractor and therefore was responsible for the whole job and responsible
for getting to clean out the lake here, third party was express c/p BUT D had promised that third party would clean the lake
and the defendant breached that promise you had an overall responsibility for the whole jobthe price which P paid the D
covered the whole job just a mistake to pay upfront express condition and a promise

g. Promise may create implied or constructive condition (11.12)


i. Old Law: Used to be that if one failed to do, sue for breach
ii. Now: Express mutual promises gave rise to constructive concurrent conditions
1. Although K does not expressly condition either partys promise on performance by the other,
the law, to do justice, constructs a condition that performance or tender of performance by one
party is a condition precedent to the liability of the other
a. NOT implied b/c that suggests construed by the parties

h. Constructive conditions and Implied in Fact Conditions (11.13)


i. Courts prefer constructive conditions b/c need only substantial performance (over implied in fact)
ii. Courts limit implied in fact to situations involving cooperation where As promise is incapable of
performance unless B performs, Bs performance is an implied in fact condition to As duty to perform
1. A promised to paint Bs house and B promised to supply the paint A cant perform without
the paint
2. Paper mill payment contingent on making the mill
i. Constructive Promises Omitted Terms (11.14)
i. Courts construct promises as well as conditions this is discussed under illusory promises
ii. Omitted terms includes constructive promises
1. when parties fail to cover a term, the court in the interests of justice may supply a term

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a. A wrote a book and sold the right to use the book to B as the basis of a play before
the play was produced, talking pictures were invented and A sold the rights to use the
book as the basis of a movie. The court constructed a promise that A would not
granted talkie rights as this would destroy the value of the license that A had
granted to B
2. Omitted terms are often supplied by looking through the lens of the covenant of good faith and
fair dealings
a. Even though constructive promise is created by court once it is created by the court it
is a full fledged promise and cant be diminished by that fact
b. To be distinguished from implied promises

(so we have express (strictly performed), implied (strictly performed) and constructive
(substantially performance) CONDITIONS and express, implied, constructive promises
failure to perform any promise is a breach)

Stewart v. Newbury, Ct. Appeals NY 1917, page 475


Held: where a K is made to perform work and no agreement is made as to payment, the work must substantially be performed
before payment can be demanded.

j. Distinguishing Between Express and Constructive Conditions (11.15)


i. A is the owner in possession of a vessel in England; Bilateral K, A agrees to charter the vessel to B
who is in the U.S; A agrees to supply the vessel and B to pay for it when it arrive; The vessel is to sail
from England on or before Feb. 4.; Vessel sailed on the 5th
1. Quoted language
a. As an express condition to Bs obligation to pay
i. B would be free not to proceed with the K b/c condition not complied with
ii. No liability for breach of K for A
b. As a promise by A to cause the vessel to sail on or before the 4th
i. Whether the breach was material
1. Material
a. B would be free not to proceed but also could sue for total
breach
b. Whether one could use self help like refusing payment
i. Some CL/UCC: Withholding is authorized by the
UCC 2-717
ii. Other CL: Self-help is a material breach
2. Immaterial
a. B would be required to perform and could assert a claim
for a partial breach
c. Both as an express condition to Bs obligation to pay and as a promise by A to cause
the vessel to sail by the 4th (promissory condition)
2. What if A sued B for breach when B refused to take the vessel b/c it sailed one day late?
a. Should be viewed under constructive conditions
i. As performance was a constructive condition to Bs performance so had A
tendered substantial performance?
ii. Had not committed a material breach, so substantially performed
iii. So entitled to any payments that is due less damage for late sailing
(lateness I think is generally immaterial)
iv. If material breach was committed, justifies cancellation
k. Substantial performance in general
i. If P claims that P has performed, the issue is substantial performance
ii. If P claims justification in not performing b/c of a breach by D, the issue is whether D is guilty of
material breach

l. Order of Performance in a Bilateral K (11.17)


i. Bilateral Ks are presumed to involve promises exchanged for exchange of performance and thus
involve constructive conditions of exchange
1. When not expressed in conditions, constructive conditions come in

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a. Constructive conditions clarify
i. When performance occurs
ii. What effect a failure or delay in performing by one party has on the rights
and duties of the other party
iii. Effect of present or prospective inability or unwillingness to perform SEE
CH. 12
ii. Based on common sense or at least the average person is familiar with them by reason of business
experience
iii. RULES
1. Unless otherwise agreed, a party who is to perform work over an extended period of time must
substantially perform before becoming entitled to payment
a. Performance of work is constructive C/P to the duty to pay
b. Periodic payments ARE not implied
2. However, if periodic payments are agreed on
a. Series of alternative constructive C/P exist
b. Performance is a constructive condition precedent to the first periodic payment and
the first payment is a C/P to the next stage of the work etc
c. Questions are is there justification in suspending performance and/or canceling
K answer lies in whether there was an UNCURED material breach
3. Constructive conditions imposed when
a. the same time is fixed for the performance of each promise
b. a fixed time is stated for the performance of one of the promises and no time is
fixed for the other; or
c. No time is fixed for the performance of either promise Or
d. The same period of time is fixed within each promise shall be performed
e. Where each party is to perform an act which takes time, the performances are
concurrent at least in the sense that one need no proceed with the performance
unless the other performance is proceeding apace

Monroe Street Properties v. Carpenter, US. Court of Appeals, 9th Circuit, 1969, page 478: Western agreed to buy from Monroe
10 insured first mortgages. Westerns offer was expressly conditioned on verification. Monroe also agreed to have the stock
listedMonroe HAD no ability to perform its end of the bargain. Western ceased performance. Tender = readiness and
willingness to perform in case of the concurrent performance by the other party, with present ability to do so, and notice to the
other party of such readiness. Held. Monroe didnt tender performance so Western couldnt have been in breach.

m. Material Breach and Substantial Performance (11.18)


i. First Restatement
1. Material with no cure forthcoming: aggrieved party may cancel (sue for total breach)
a. Must show ready willing and ableness
b. Could also elect to continue and sue for partial breach
2. Immaterial: aggrieved party may not cancel the K but sue for partial breach
a. or suspend performance if a cure is forthcoming
ii. 2nd Restatement
1. Material Breach = breach that justifies suspension of performance with ability to cure
a. Recourse
i. SUSPENSION OF PERFORMANCE
1. Try to cure until becomes incurable (total breach)
a. Civilized norms: to allow for curing
b. Many CL cases: breaching party has no right to cure unless
the K expressly provides for such a right
b. Material?
i. To what extent if any the K has been performed at the time of the breach
1. The earlier the breach, the more likely it will be regarded as
material
ii. A willful breach is more likely to be regarded as material than a breach
caused by negligence or by fortuitous circumstances
iii. A quantitatively serious breach is more likely to be considered material
iv. Degree of hardship

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v. Delay in performance? Not necessary on date of performance unless time is
made of the essence; so reasonable delay doesnt constitute material breach
1. Minority: time of essence isnt really time of essence
2. Material Breach + no ability to cure = TOTAL BREACH = Justifying canceling K
a. Recourse
i. Aggrieved party may cancel the K and may sue for total breach
1. Must show other party was ready willing and able to perform
but for the breach
a. Cant continue performance once cancelled and damages
are assessed on the premise that the breaching party will
not perform
ii. Aggrieved party may also continue with K and sue for partial breach
[ELECTION]
1. No further performance under the K and damages are assessed on
the premise that the breaching party will not perform
3. Immaterial breach
a. Recourse
i. Aggrieved party may not cancel the K but may sue for partial breach
ii. Contract continues but aggrieved party may recover damages that were
caused by breach
iii. Substantial performance
1. Substantial Performance Doctrine: where a K is made for an agreed exchange of 2
performances, one which is to be rendered first, substantial performance rather than exact,
strict or literal performance by the first party of the terms of the K is adequate to entitle the
party to recover on it. [GENERALLY applicable to bilateral Ks for an agreed exchange of
performances]
a. Antithesis of material breach: if breach material, substantial performance has not been
rendered
b. Natural outgrowth of constructive conditions
c. Applicable to bi-K EXCEPT sale of goods
d. The part unperformed cannot destroy the value or purpose of the K
e. If more than one promise is made, not all need substantial performance, overall
is sufficient
2. WILLFUL breach substantial performance doesnt apply
a. One view: willful transgressor must accept the penalty of transgression
b. Recent years: willful breach doesnt prevent substantial performance; only one factor
to consider
3. Substantial performance Full performance
a. Still liable for damages to the part unperformed
b. Party who has substantially performed is limited to the K price less appropriate
allowance for the cost of completing omissions and correcting defects
i. Majority view: burden of proof on the cost of completion is on the party who
claims to have rendered substantial performance
4. When party proceeding with performance in accordance with terms but not yet guilty of
material breach (about to get into the material breach phase)
a. The other party may by proper notice set a reasonable time and specify time is of the
essence (not quite express condition but is treated as one)
b. If reasonable time is provided, failure to perform is material breach
c. If less than reasonable time is allowed
i. Notice ineffective and insistence on it is a repudiation

15. P buyer and S seller entered into a K for the purchase and sale of four planes. The first plane was to be delivered at Ss place of
business on June 1 and the others on July 10, subject to no delays by the manufacturer. No delay in fact occurred and S had the
planes ready on the dates fixed in the K. No further action was taken by either party until an action was begun by P against S on
Oct. 8. What result?
Buyer didnt show up. Thus no tender. Gapfiller is sellers place of business 2-308 of UCC had that not been provided expressly.
Seller should be suing the buyer buyer is suing b/c wasnt notified. The seller never communicated court says that the buyers
argument is unsuccessful that these are fixed dates in the K therefore the buyer should have shown up or made sure P ready but

75
the seller had no duty to advise -- buyer wasnt so off the wall this condition creates a certain uncertainty but there was no
need to inform buyer seller could prove ready to perform so that would work for concurrent condition based lawsuit

Jacob & Youngs v. Kent page 480: J&Y contractor suing owner Kent for a balance. There were installments so its just the balance
that remains. There was an issue about the piping specified and that used. There was definitely a breach, but was it substantial to
justify non-payment? The first main issue is whether this was an express condition or a promise. It was promise not express
condition. How important was this to Kent? It was by and large what Kent bargained for. There was really no difference between
the pipes. Defect NOT important. Really, he can still sue for breach though which happens. So now for J&Y if we conclude they
havent substantially performed, they wouldnt get the balance at all. If the condition were to be strictly complied with, would a
forfeiture b/c they have done the work and they wont get paid for it (unlike nonconforming goods where you can get the goods
back). Cardozo says we also have to consider if this is WILLFUL which it wasnt. Held: there was substantial performance.
Dissent: P should lose person was not innocent and a good faith contractor. Page 482: damages would be the difference between
the house promised and the house built i.e. nominal. The court didnt overlook the fact that there was a breach, but just didnt say
that it was enough to forgo the entire price.

17. P a professional singer agreed to sing for the D in the Royal Italian Opera in London from March 30 to July 13. The contract
provided: Mr. Bettini shall sing in concerts as well as in operas, but he shall not sing anywhere within a 50 mile radius of London
for the year. Mr. Bettini agreed to be in London without fail at least 6 days before the commencement of his engagement for the
purpose of rehearsals. P performed except that he arrived in London on March 28 b/c of temporary illness. When P arrived in
London, D refused his services. What are the rights of the parties?
Bettini could still render substantial performance and D wasnt justified in canceling the K. Here we explicitly discuss substantial
performance over immaterial or material b/c when a person is ill, he hasnt BREACHED. So even though not full performance.
Entitled to K price minus sick days? Yes, b/c performance is a c/p to payment. (normally liable for breach so this is better)

VRT, Inc. v. Dutton-Lainson, Sup. Ct Nebraska, 1995 page 485: purchased (for royalties) IP based on the s assurance that
patent application had been filed. s attorney never filed the patent and because of this the patent was lost. still tried to bring
royalties suit against . Issue- whether D has to still pay royalties despite the failure of the obtaining the patent. Held: No
substantial performance so not entitled to royalties.

Walker and Co. v. Harrison, Sup. Ct. of Michigan 1957 page 487: billboard agreement. Rents a giant sign custom made for his
business 18 ft. by 9 ft. for 36 months AND rent payable monthly with obligation for Walker to maintain the sign. Suit for possible
breach of promise to maintain itmade one payment in the beginning of sept.not paid sept and/or oct.Issue: was Harrison
justified in canceling the K? can Walker substantially perform this K?
So to what extent has Harrision gotten what bargained for installed, etc. Raise one question: said that harrision had not right to
cancel the K but maybe a right to suspend a rental payment . hat would raise the in-between questing of has not substantially
performed nevertheless if constructive c/p they might say that other party has a right to suspend performance. Held: the answer is
NO b/c it seems that so much work has already been done that harrision could not just withhold pretty much has substantially
performed Harrison ahs to be those rents as they become due.
Assuming Walker company never came back to clean the sign, could Harrison contact the Walker company that he is going to
deduct the cost of someone else cleaning? Yes b/c it would still be an immaterial breach.

K&G Const. v. Harris page 490: contracting with subdivision. General contractor is also the owner and the subcontractor promises
to do the work in a workmanlike manner and progress payments were agreed to. There was a negligent demolition of a wall just
prior to the first payment. But the owners failed to tell them to stop. Held: There was a material breach but the party can treat it as
a partial breach only and continue so they were justified in withholding payments and by halting performance, subcontractor
breached by stopping.

18. On Sept. 26 D made a K with P for the erection of 19 houses on property owned by D. This provided that all buildings should
be finished by April 1 of the following year and that the K price should be paid by the owner to the contractor in installments as
follows: 70 per cent of the above amount to be paid on estimated amount of work done as buildings progressed. In timely fashion,
p presented an estimate of work already done and requested payment of 70% according to the K. D failed to pay without any
justification. P suspended work immediately and three months later declared the K at an end. Was P justified in his K?
The 70% is an incentive. Essential to getting a job finished. Constructive condition precedent must occur before the first payment
is due. Here there was a nonoccurrence of a condition therefore the other party doesnt have to proceed with performance. When it
continues for a certain amount of time, its not only a non-occurrence its a failure of a condition so the other party is discharged
from the K entitled to suspend but the contractor is NOT entitled to immediately cancel the K b/c the payment might be made but

76
a little late. A reasonable time would have to pass. After a reasonable time passes, the condition can no longer occur. Reasonable
time has passed.
So here, the owner failed to pay without any justification, and the other party waited 3 months thus enough time had passed.

19. P a contractor agreed to do certain construction work for D for the sum of $800,000. It was stipulated that estimates of the
work completed should be furnished on the first of each month and that 85% of the sum found due should be paid of the 20th of
the month. In August P submitted a statement showing $50,000 to be due. D said that $40,000 was due and submitted a check. P
abandoned the contract six days later. D made an offer to pay at once any amount which could be shown to be due. P refused to
submit its calculation for inspection and verification; instead it brought this action. What resulted?
First reaction is nonperformance. Could be a good faith dispute even if the plaintiff was right, there was a failure to pay 20% not
the entire amount. 2 ways from problem 18, different amount and without justification. Is the plaintiff entitled to abandon the K
only 6 days later? Probably not so here there is a material breach on the part of the plaintiff going over w/ D his calculations as
soon as the plaintiff abandoned plaintiff is just sealing the coffin the P is going to lose material breacher cannot enforce the
contract.

20. P agreed to sell and D agreed to buy certain realty on or before May 1. On May 1, P was not ready and able to perform. P was
ready on May 2 and so informed D but D said that it was too late. What are the rights of the parties?
Time is set to reasonable therefore the buyer is the material breacher seller is ready on MAY 2 and seller can sue the buyer for
total ..To avoid this issue of having to wait (there ARE damages for the 1 day delay) no right to cancel the K to collapse and
there is no reasonable time between right to suspend and right to cacncel make time of the essence of the K u dont have to wait
for reasonable time to go by There are certain cases where you know time is of the essence without providing for it.contract to
have a custom made wedding dress on the morning of the wedding gthe dress has to be ready hour before time of the
essence is implied one should spell out the consequences and no element of surprise

21. The parties entered into a real estate K that set a closing date of Dec. 15th. On the following Jan 8, P sent a letter to V stating
that there had been a delay in obtaining mortgage financing and requested that closing be set on or about Feb. 1. V sent a letter to P
notifying P that the new closing date would be January 17th. V also advised P that the failure to close on the date would result in
default (uncured material breach). P did not object to the contents of the letter. On January 17 P appeared at the place set for
closing, stated that Vs unilateral scheduling of the closing date was ridiculous and demanded a new closing date of January 31. V
refused. When V did not appear on January 31, P commenced an action for specific performance What result?
P will lose b/c he is the material breacher and cannot enforce the K what is going on is you have a Dec 15th closing date and
one party here V sending new closing date saying time is of the essence Has to be reasonable time..so here the date set is more
than 30 days from the original date a month and 2 days later the court says that is a reasonable time --- then there is an
alternative holding that since P didnt object P didnt object to have to getting to the letter that shows assent to Vs date and the
time is of the essence so once you have assent you dont have to even meet the reasonable time rule. Its kind of a weird process
b/c it has to be a reasonable time after a reasonable time there is a right to cancel and sue for total breach somehow its quite
useful to do it there is a little peril you might be in breach by repudiating the K if u are careful its a useful process its a clear
thing all the court has to do is decide whether you gave reasonable notice just let time go by there might be some sort of
waiver going you will see its easy for the court to find waivers but you have given now

n. Successive lawsuits risks of splitting claims (11.19)


i. A agreed to buy 5 cottages at staggered intervals for B who agrees to pay $500,000 on completion of
the entire K
1. First cottage completed several months after the date provided for in the K
2. Assuming breach not material, B sues and recovers for a partial breach
3. A abandons the work material breach
4. Does Bs prior action for partial breach preclude a second action for total breach on theory of
splitting and indivisible cause of action?
a. Majority: still eligible for suit
b. Minority: there can be only one claim for the breach of one indivisible K
5. This problem comes up a lot: the person elects to treat material like partial breach,
divisible Ks, etc.
a. Even though there are successive breaches the P must sue for all of the breaches that
have occurred prior to the commencement of the action or lose the right to any cause
of action not included
i. Not applied to separate and distinct accounts unless running K
o. Sale of goods PERFECT TENDER RULE (11.20)

77
i. Buyer is free to reject the goods unless the tender conforms in every respect to the K not only in
quantity and quality, but also the details of shipment
1. This is in place of substantial performance
2. Criticism: unfair to make someone resell goods
3. GOOD FAITH STILL APPLICABLE cant reject b/c of falling market prices
4. Exception is impossibility
ii. 2-601: buyers right on improper delivery. Subject to the provisions of this Article on Breach in
installment contracts (2-612) and unless otherwise agreed under this sections on contractual limitations
of remedy (2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the
contract the buyer may (a) reject the whole; or (b) accept the whole, or (c) accept any commercial units
and reject the rest.
1. Exceptions
a. Often substantial performance is allowed
b. 2-503 tender of delivery requires that the seller put and hold conforming goods at
the buyers disposition and give the buyer any notification reasonably necessary to
enable him to take delivery.
iii. Cure: [influence of substantial performance]
1. Time to cure
a. Seller has unconditional right to cure
b. Repair of existing goods?
i. Some courts: right to cure should not be extended to defects that
substantially impair value
c. 2-508(1)
i. Whether any tender or delivery by the seller is rejected b/c non-conforming
and the time of performance has not yet expired, the seller may seasonably
notify the buyer of his intention to cure and may then within the K time
make a conforming delivery
2. Time has expired
a. Seller has a right to cure after the time for performance has passed provided 2
conditions are met
i. The seller had reasonable grounds to believe that the tender would be
accepted with or without money allowance AND
ii. The seller seasonably notifies the buyer of the intention to cure and cure the
non-conforming tender within a further reasonable time
b. 2-508(2): Where the buyer rejects a non-conforming tender which the seller has
reasonable grounds to believe would be acceptable with or without money allowance
the seller may if he seasonably notifies buyer have a further reasonable time to
substitute conforming tender.
iv. Rejection and acceptance of Goods
1. When non-conforming goods are tendered, buyer can accept or reject
2. Buyers power of rejection does not last forever LOSE the right to reject
a. Once the buyer accepts, the right to reject is lost OR
b. Buyer loses right to reject if the rejection is NOT made within a reasonable time after
their delivery or tender or if the buyer fails to seasonably notify the seller of their
rejection
3. Rejection
a. UCC 2-605
b. (1) The buyer's failure to state in connection with rejection a particular defect which is
ascertainable by reasonable inspection precludes him from relying on the unstated
defect to justify rejection or to establish breach
i. (a) where the seller could have cured it if stated seasonably; or
ii. (b) between merchants when the seller has after rejection made a request in
writing for a full and final written statement of all defects on which the buyer
proposes to rely.
c. (2) Payment against documents made without reservation of rights precludes recovery
of the payment for defects apparent on the face of the documents.
d. When the parties arent both merchants: when rejecting: must state all defects covered
by a reasonable inspection

78
i. If this isnt done, the buyer may NOT justify rejection on any unstated
nonconformity that the seller could have cured had the seller been given
seasonable notice.
e. Merchants: when seller requests in writing a full and final statement of all defects on
which buyer prepares to rely on as grounds for rejection, the buyer cannot rely on
unstated defects irrespective of their curability that reasonably could have been
discovered
i. If rejection is wrongful, the buyer is liable for the wrongful rejection
4. 3 ways to accept
a. 2-606 What constitutes acceptance of goods
i. Acceptance of goods occurs when the buyer
1. After a reasonable opportunity to inspect the goods signifies to the
seller that the goods are conforming or that he will take or retain
them in spite of their non-conformity OR
2. Fails to make an effective rejection (subsection 1 of section 2-602
but such acceptance does not occur until the buyer has had a
reasonable opportunity to inspect them; OR
a. THIS IS AN ELECTION (see rotten apple
case)
3. Does any act inconsistent with the sellers ownership; but if such
act is wrongful as against the seller it is an acceptance only if
ratified by him
a. Use after rejection or revocation is generally wrongful but
may be reasonable if the seller will not accept the buyers
decision
b. Ratified by him: indicates that seller treats it as an
acceptance
c. Can also treat as a conversion (see 2.19)
ii. Acceptance of a part of any commercial unit is acceptance of that entire unit
5. Once rejection, just hold and exercise reasonable care
a. Merchant ALSO had duty to sell perishable goods for the sellers account if the seller
has no agent at the location
b. Acceptance precludes rejection and requires buyer to pay at the K rate
i. Shifts burden to the buyer to prove damages
6. If the goods are non-conforming can still get damages but seller must get adequate notice
a. UCC 2-607.
b. (1) The buyer must pay at the contract rate for any goods accepted.
c. (2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if
made with knowledge of a non-conformity cannot be revoked because of it unless the
acceptance was on the reasonable assumption that the non-conformity would be
seasonably cured but acceptance does not of itself impair any other remedy provided
by this Article for non-conformity.
d. (3) Where a tender has been accepted
i. (a) the buyer must within a reasonable time after he discovers or should have
discovered any breach notify the seller of breach or be barred from any
remedy; and (see Parker)
ii. (b) if the claim is one for infringement or the like (subsection (3) of Section
2-312) and the buyer is sued as a result of such a breach he must so notify
the seller within a reasonable time after he receives notice of the litigation or
be barred from any remedy over for liability established by the litigation.
e. (4) The burden is on the buyer to establish any breach with respect to the goods
accepted.
7. Revocation of acceptance
a. UCC 2-608 Revocation of Acceptance in Whole or IN part
b. The buyer may revoke his acceptance of a lot or commercial until whose non-
conformity substantially impairs its value to him if he has accepted it
i. On the reasonable assumption that its nonconformity would be cured and it
has not been seasonably cured; or

79
ii. Without discovery of such non-conformity if his acceptance was reasonably
induced either by the difficulty of discovery before acceptance or by the
sellers assurance.
c. Revocation of acceptance must occur within a reasonable time after the buyer
discovers or should have discovered the ground for it and before any substantial
change in condition of the goods which is not caused by their own defects. It is not
effective until the buyer notifies the seller of it
d. A buyer who so revokes has the same rights and duties with regard to the goods
involved as if he had rejected them
e. Requirements to revoke
i. Its nonconformity substantially impairs its value to the buyer question
of fact / or that the seller didnt substantially perform or materially
breached!!
REALLY based on materiality of breach rather than perfect tender!
ii. Buyer must show either that the acceptance was on the reasonable
assumption that its non-conformity would be cured and it has not been
seasonably cured or
iii. Even if the buyer did not discover such non-conformity at the time of
acceptance if his acceptance was reasonably induced either by the difficulty
of discovery before acceptance or the sellers assurance
iv. Revocation must occur within reasonable time of uncovering it
v. Revocation not effective until there is notification
f. Effect
i. Buyer has same rights as in a rejection
ii. Most courts hold that the seller has NO right to cure but the sellers efforts to
cure may extend the reasonable time for the buyer to revoke
8. Installment Ks
Where a non-conformity with respect to one or more installments substantially impairs the value of the whole K, the buyer
is justified in rejecting the delivery in question and canceling the whole K. However, if the nonconformity of an installment
substantially impairs the value ONLY of the installment, the buyer must accept the installment if it can be cured and the
seller gives adequate assurance of its cure. If the seller cannot or does not assure its cure, the buyer may reject the
installment
a. Perfect tender doesnt apply to an installment K
i. UCC 2-612: Installment K; BREACH
1. An installment K is one which requires or authorizes the delivery of
goods in separate lots to be separately accepted, even thought he K
contains a clause each delivery is a separate K or its equivalent
2. The buyer may reject any installment which is non-conforming if
the non-conformity substantially impairs the value of that
installment and cannot be cured or if the non-conformity is a effect
in the required documents; but if the non-conformity does not fall
within subsection 3 and the seller gives adequate assurance of its
cure the buyer must accept the installment
3. Whenever non-conformity or default with respect to one or more
installments substantially impairs the value of the whole K there is a
breach of the whole. BU the aggrieved party reinstates the K if he
accepts a non-conforming installment without seasonably notifying
of cancellation or if he brings an action with respect only to past
installments or demands performance as to future installments
ii. SINGLE LOT IS THE GAP FILLER FOR A K (UCC 2-307: Delivery in
single lot or several: Unless otherwise agreed all goods called for by a K for
sale must be tendered in a single delivery and payment is due only on such
tender but where the circumstances give either party the right to make or
demand delivery in lots the price if it can be apportioned may be demanded
for each lot) even if there is a clause there is still a strong interpretation
preference with ONE K with a series of performances than a series of
separate contracts has to be real intent

80
9. UCC 2-718: permits a defaulting buyer to obtain restitution of payments minus one of 2
figures $500 or 20% but the revision drops the formula (REVISION)
a. The buyers claim for restitution is subject to an offset in the amt of the sellers actual
damages and the value of the benefits received by the buyer.
10. Perfect tender rule and the buyer
a. Installment K
i. If buyer doesnt make conforming payment the perfect tender rule does not
apply and the issue is of material breach
b. Non-installment
i. Late payment is material breach according to UCC 2-703
ii. Buyer may also breach by failing to accept goods pursuant to the terms of
the K even though payment is not yet due
1. Buyer must furnish facilities reasonably suited to the receipt of the
goods
iii. Payment ordinarily need not be made in cash and that a check will suffice 2-
512

Bartus v. Riccardi, City Court, City of Utica, 1967


P sues the D for the balance due to him D ordered hearing aid A-660 b/c this had been recommended by the hearing clinic and
the P delivered the A-665 buyer claims that he wasnt aware different model but was told you will get used to it and goes home
and tries to get used to it uses for 15 hours over a few days he had horrible headaches caused by the hearing aid and turns it
back in and says take it back P responded decided to supply the new one refuses anything from the P. When the D gave back
rejected the hearing aid (failed in any respect to conform to the K you avoid liability for the price right to cure on the part of
the seller) 2-508.
Held. 2-508 permits a seller to cure before expiration date of the K by notifying buyer and making delivery w/in the K period.
Time for tender may extend beyond K if seller had a reasonable belief that nonconforming tender was accepted and had not
altered his position.

24. B contracted to buy from S a system of equipment designed to process and refine fructose. The system was to produce as an
end product, 55% fructose, which is used as a sweetener in many foods. S warranted that the system could produce a certain min.
quantity of 55% fructose per day. 9 months later the system was put into operation. Although the system did produce 55% fructose
it was never able to meet the production guarantee. For the following 10 months S unsuccessfully attempted to bring the system
into compliance with its production guarantee, after which it left B with a list of suggestions for further remedial efforts. 6 months
later, after Bs further unsuccessful attempts to remedy the system, B notified S that it was revoking its acceptance and demanded a
refund of the purchase price.
A. Was B justified in revoking its acceptance? Was the notice of revocation timely? Did B have to offer to return the equipment?
Does B have to offer to return revocation is notice that they arent good that is what does happen thats not technically a
requirement
B. B continued to use the equipment during the pendency of the trial. What is the effect of Bs post-revocation use of the system?
Conversion inconsistent there are lots of problems dealing with this in this case the court felt that continued use was
reasonable --- that didnt constitute another excuse and it was such as a mitigation of damages BUT in other cases the buyer
bought a car the car has all kinds of troubles the buyer says I am revoking acceptance -- the seller is saying not giving money
back what do say to the buyer have to keep car in your garage and NOT use it there are cases like that where continued use
was reasonable not touch the car and have to get another one accepting by use and consistent with ownership this could be
reasonable
2-608 of revision: rules for continued use if a buyer uses goods after rightful rejection the following rules apply when its
unreasonable this happens, when B NOT reasonable

Emanuel Law Outlines v. Multi-state legal studies, S.D.N.Y. 1995, page 501: ELO a publisher of study aids had a 3 year
installment K with Multi-State. They were late. ELO guy got sick so was late and there was a claim that the deadline was relaxed.
There was no evidence of such a claim. Multi-state didnt give adequate notice of the material breach to warrant cancellation. Even
if the court were to agree that there was an uncured breach of K, Multistate right to be relieved requires a demonstration of
substantial impairment of the whole K. Its installment K. 2-613 requires compliance with installment K rules.

A.B. Parker v. Bell Ford, Inc. Sup Ct. Ala 1983

81
bought a new pickup truck from and upon having bad tire wear, wrote to who paid for a new alignment. When this did not
work, took the car to the garage and found that it had a defective wheel housing. brought suit without notifying of the defect.
Issue- Under the UCC, is notice of a defect a c/p to recovery from the seller?
Held: Yes, the seller has a right to cure which is not relinquished until notice of the defect. This notice required by 2-607 is a c/p
to recovery and prevents from asserting a valid claim.

p.
Failure of Consideration (11.21)
i. Failure to perform not consideration
q. Quasi-contractual and statutory relief (11.22)
If the party that didnt substantially perform the entire K he can either get restitution but
there are three views, can recover if the K is divisible on the portion completed (even if only
one part substantially performed can recover on that) OR if the promise was independent
can recover if there is a material breach on the other side
i. P who has breached but has substantially performed is ordinarily entitled to recover based on the term
of the K
ii. But defaulting P who has not substantially performed may be entitled to restitution in quasi-K action
1. Strict view/Majority?: party in the wrong should not benefit from their wrong which is not
what was bargained for
2. 1st restatement: takes intermediate view that unless willful should recover
3. 2nd restatement: we should allow the material breacher to recover to prevent Ds unjust
enrichment
4. UCC 2-718: permits a defaulting buyer to obtain restitution of payments minus one of 2
figures $500 or 20% but the revision drops the formula (REVISION)
a. The buyers claim for restitution is subject to an offset in the amt of the sellers actual
damages and the value of the benefits received by the buyer.
iii. Some jurisdictions permit quasi-contractual relief under a building or other service K, even where the
performance is less than substantial, minus damages for breach
iv. Sick person not breacher

27. P a consultant engineer took a part-time job with the D in its research and development department. In return for Ps promise to
work a minimum of 15 hours a week for a year, P was promised 20,000 payable at the end of the year After Six months, P quit to
take jobs elsewhere on more favorable terms. P seeks to recover the reasonable value of services. What result? P who quit now
tries to recover the reasonable value seeks restitution there is no substantial performance here the P cannot recover 20,000
if substantial performance entitled TO THE PRICE..tries to get restitution .reasonable value of the services..GETS it. P
should get restitution otherwise the D was unjustly enriched. Question is P who has NOT substantially performed should get
restitution? Most traditional view is Martin against Schonberger that says NO would demoralize whole country.
UCC/2d restatement says you should get restitution.

Corbins theory Lancelotti: restitution should be permitted to defaulting plaintiff b/c NOT allowing restitution penalizes the
party who performed MORE if the P had quit in one month, only losing one month but P works more but is penalized more
would lose 6 months that is odd results.corbin is behind 2nd restatement and restitution permitted with deduction for Ps
damage

26. Buyer agreed to purchase a specified quantity of veg. oil for 1,000,000 making a down payment of 217,000. Buyer defaulted.
In this action Buyer seeks to recover its down payment. Seller counter-claims, alleging it has been damaged b/c of the drop in
value in oil. What if anything may buyer recover?
Could recover in restitution. Benefit that P conferred on the D.UCC says Buyer is entitled to restitution but there is a special
rule here which permits the seller like in a case like problem 26, even if seller cannot prove damages to hold back the
downpayment this can be thought of statutory liquidated damages under the UCC, even the seller couldnt prove damages in
problem 26, the seller is permitted to holdback 20% of the price or $500 whichever is smaller.here, you have to figure out what
the deduction of the seller could retain.have to figure out which is smaller..seller could hold back keep something back.if
the seller is able to prove damages, the seller could deduct moreif the sellers damages exceed the deposit, then the seller would
get an affirmative recovery on the counterclaim

r. Recovery by Party in Default: Divisibility (11.23)


i. Better than restitution b/c there arent three views (from notes) so P can get contractual recovery if the
doctrine applies (from notes)

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ii. A K is divisible if the performances of each party are divided into two or more parts and the
performance of each part by one party is the agreed exchange for a corresponding part by the other
party. If a divisible portion is substantially performed, recovery may be had for that portion despite a
material breach of the overall K.
iii. Divisible: if performance by each party is divided into 2 or more parts and performance of each is
divided into 2 or more parts the number of parts due from each party being the agreed exchange for a
corresponding part by the other party
iv. Depends on interpretation
v. Test: whether had the parties thought about it as fair and reasonable people, they would be willing to
exchange the performance in question irrespective of what transpired subsequently or whether the
divisions made were merely for the purpose of requiring periodic payments as the work progresses
s. Divisibility: Other Uses of the concept (11.24)
i. Used to determined whether a K is tainted with illegality can be severed into a legal and enforceable
portion and illegal and unenforceable
ii. Determine allocation of risk

30. Lerner entered into a industrial preparedness K with the US for the production of microwave magic tees. The K had four
steps for each of which a sep. price was apportioned. Steps 1 and 11 required going through pilot production. Step 3 required the
purchase of additional equipment. Substantial performance of these steps was completed by October 1, 1953 when Lerner became
insolvent and transferred his assets to an assignee for the benefit of creditors in lieu of bankruptcy. Step IV required volume
production, but only an order from the govt in the event of national emergency. Te assignee sues the govt for the balance due for
Steps I-III. What result? Bear in mind that the assignment disables Lerner from further performance and operates as a material
breach.
Lerner is responsible for microwave magic tees and you have 4 stepsone and two going through transferring was a material
breach.that means that Lerner cannot do step 4 that required volumethe assignee.sues for the balance due for steps 1
thruogh 3 claiming divisibility entitled to K pricethe result is that the K is entire and NOT divisible there is no value unless
step 4 can take place when lerner is now disabled from being ready.should not have to pay for steps 1-3

31. D the owner of a motel contracted for 7 signs to be painted and installed by the P along the roadside. The signs were designed
to lead motorists to the motel Each sign had an apportioned price Signs numbered 1,2,3,6, and 7 were duly installed. Sign 4 was
never installed and sign 5 was installed at a location other than that provided in the K. D refused to pay anything. The trial judge
sitting with a jury found the K to be severable. Appeals. Assume 7000 for 7 issue is of intent for divisibility and therefore a
question of fact trial judge sitting w/out jury he found severable/divisible if the K is severablethere was NO substantial
performance not even an issue.sign maker is the material breacher and recovering the price for each sign substantially
performed. D refused to pay anything.is it divisible???unless its crystal clear.fact finder --- ok finding.appeal NOT divisible
.. in order to reverse that have to find.have to find that NO reasonable person could find that. REMIDNIG us to look at intent
and factmaybe it would be different that its entirethen you could ask.being that its divisible.how many thousands of
dollars could sign maker recover 5 signs.other two not substantially performed our P would still try to get restitution.then
you could talk about whether this was a benefit it might have been a benefit the Ps defaulting may not be able to recover
anything in restitution

28. V owned a parcel of property improved with a building that consisted of residential space as wel as a retail store operate by V.
P desired to acquire the property primarily so that P;s brother could operate the store. V and P subscribed in writing: received of P
5000 deposit on property 1900 Penn Ave, purchase price 140,000 settlement to be made on or before June 25 Store fixtures
7000. Store inventory to be paid at market price (definite enough). In case title is not clear, deposit to be returned. Prior to June
25, V materially breached the K by selling the inventory to B who paid value and had no notice of the above quote agreement. V
seeking specific performance of the first paragraph of the agreement. P seeks restitution of the down payment. What result?
The purpose for acquiring was for Ps brother to operate the store now sold inventory to V is material breacher V seeks
specific the theory is that K is divisible V is entitled to get performed the deposit was not strictly for the property itself was
part of the deposit on all of the obligations and also the importance of running the store this is not divisible by real property
so V loses.

32. P controlled and was the editor of a small but successful specializing publishing corporation. On the same date, he entered into
2 written agreements with the D a major publisher. Under the first, all the assets of his corporation were sold to the D. Under the
2nd he was to be employed by D for a five year period. The P was wrongfully discharged under the second K and has been
awarded damages. In the same proceeding he also seeks to cancel the first K. What result? theory of P this is all one k sale of

83
assets and the employment K are mutually dependent which is same thing and therefore when the D materially breached the
employment part, the P was entitled to cancel the entire K then the question was what was the remedy when the D materially
breaches justifiably what are the remedies restitution BUT here its a tough one b/c it involves paying back the money and
getting business backthis would involve specific restitutions (not just reasonable value, etc)getting the assets back in exchange
for giving the price back but all this is avoided b/c this is not all ONE but really 2 separate Ks.when we talk about divisibility
we are not saying there are many contracts but one where the P materially breached but for allowing recovery we are treating like
many Ks.but if you do have dont confuse 1 K which is divisible with situation where you have separate Ks.and the D
materially breached 1, that doesnt give the P any remedies for the sale of assets.again though as with divisibility but a quesiotn
of intent.seperate K? or different installments, etc.have 2 sep. documents they were on the same date.could mean that they
could be onetwo separate documents.actual case the Ks were dated close to each other but on other dates.so they were sep.
Ks.

t. Independent promises (11.25)


i. Unconditional if it is unqualified (where no further promise is contingent on it EE) or if nothing but
the lapse of time is necessary to make the promise presently enforceable
1. Must be performed even if other party hasnt performed
ii. Example: A promises to build a house for B and B promises to pay X dollars on As performance. A s
promise is independent so if A is guilty of a material breach, B may cancel and sue for total breach,
although B has not performed. Is this an exception to the normal material breach rule where a cure is
dealt with???? **** B MUST prove ready willing and ableness
1. So hereB gets money without performing substantially or anything.exception to
the rule that you must substantially perform to get paid
2. If B repudiates A would not be obliged to perform (SEE BELOW)
iii. With passage of time
1. Promises go from independent to conditional
iv. Except in a situation where by the terms of the K one party must perform before the other, there is a
strong presumption that a promise in a K is not intended to be independent unless a contrary intention is
clearly manifested
1. In insurance example, the promise is still unconditional for policy reasons
u. Dependency of separate Ks (11.6)
i. Where the parties have entered into 2 written Ks at substantially the same time, the question arises
whether they are part of the same exchange
1. If they are not
a. A breach of one will have no effect on the other
2. If they are part of the same exchange
a. The question will be the overall materiality of the breach
3. Ordinarily failure to perform one will have no affect on others
XII. Excuse of Condition [waiver, election, forfeiture, treated as promise, contrary to public policy, unconscionable,
impossibility]
a. Condition excused
i. Sometimes a party has to perform even though the condition did not occur b/c the condition is excused
b. Prevention, Hindrance, or Failure to Cooperate (11.28)
i. If the promise is conditioned on the weather there is little the other party can do EE
1. but a condition where there is some control can be wrongfully prevented
ii. Excused condition: even though the condition did not take place, the P may recover on the K provided it
is proved that P would have been ready willing and able to perform but for the prevention
iii. Causation
1. First restatement: whether the condition would have occurred except for such prevention or
hindrance
2. Second restatement: Condition will be excused if the wrongful conduct substantially
contributed to the non occurrence of the condition and puts the burden of proof on this issue
on the D.
iv. Wrongful prevention, wrongful hindrance, wrongful failure to cooperate
1. Courts instinct for the commercial setting, the ethical position of the parties, the probable
understanding that they would have reached had they considered the matter and many other
factors enter into determination

84
Cantrell-Waind and Associates, Inc. v. Guillaume Motorsports, Inc., 1998 Ct Appeals AK page
518: condition was the closing of title express condition precedent so broker commission was promised upon closing of title
by August 1, 1996. The owner tried deliberately to avoid the closing so that is wrongful prevention so the broker can now collect
the commission Held: so promise is unconditional b/c condition was excused

35. P broker and D owner entered into an agreement whereby P would receive a brokerage commission for his services if he
procured a purchaser of defendants realty at given terms. The commission would be paid on closing of the title. P did
procure a purchaser who entered into a K for the purchase of the realty. The purchasers title search revealed certain curable clouds
on title, which, upon demand, defendant refused to cure. Purchaser in an earlier action recovered his down payment. P in this
action seeks to recover his brokerage commission. What result?
Its an offerthere is huge tendency to see it as a K this is just the offer P did procure a purchaser that is the requested
performance now there is a unilateral K at this point now the K between offer to the performance now that the buyer has
been obtained clear that the broker performed and so you now have a unilateral K (bilateral between owner and buyer)
looking at the broker owner the on closing of title is where it says on closing of title that is the express condition precedent
on duty to pay the condition PROMISE TO PAY IF TITLE CLOSES then the purchasers title search which upon demand, D
didnt title search reveals clouds on title refusal to cure cloud on title could be a lien if done work on real property there
would be a mechanics lien he might have a fence on someone elses land curable clouds and deal within a reasonable time so
then purchaser walks away entitled to cancel the K then entitled to down payment back but the purchaser had to recover
PURCHASER not happy and the broker is unhappy b/c title didnt close so the broker hasnt been paid commission so its the
same theory closing of title condition brokers argument the owner prevented WRONGFULLY the closing of title prevented
the condition from occurring by failing to cure curable clouds broker should enforce title to pay

Suppose our buyer unjustifiably walked away from the deal? So title doesnt close the broker sues the owner for the commission
does the broker have a case even though the buyer walked away? NEAT argument but not successful: when the buyer
unjustifiably cancels K, the owner has a right to sue the buyer for specific performance of the K so title would close would
order the buyer to pay for the property had the owner pursued the buyer for specific performance title would close and broker
paid the issue of the case is the owners failure to pursue the buyer in specific performance that would be wrongful against
the broker (wrongful prevention and hindrance leads to excuse of commission) the court says NO, the duty to cooperate doesnt
extend so far. owner doesnt have to sue for specific performance just retained the down payment so could for breach (the
broker would still be out)

What about a mutual rescission? great for the parties not great for the broker and sues for the commission what you did,
deprived of commission this would be wrongful prevention against the broker the condition of closing of title is excused and
the broker would win. In the end the sellers breach excuse of condition

c. Good Faith and Fair Dealings (11.38)


i. 2nd restatement and UCC brought about
ii. Discussed in connection to: termination of agreement, illusory promises, surrender of invalid claim, and
output and requirement K, satisfaction cases, duress, promissory estoppel
iii. COMES up a lot with Implied in fact and constructive promises to act in good faith (Can be expressly
stated as well)
1. violation of either promise is a breach
2. In every K there is implied good faith and violation is a breach but parties can contract the
good faith away
3. Parol evidence is admissible to determine the expectations of the parties
4. sometimes treated as torts
a. Punitive damages and tough SOL
iv. Meaning of good faith
1. UCC 1-203: Every K or duty within this Act imposes an obligation of good faith in its
performance or enforcement.
2. UCC 1-201: Good faith: honesty in fact in the conduct or transaction concerned.
a. Subjective
i. Criticized: feeling that test should have objective component (EMPTY
HEAD AND PURE HEART)
3. UCC 2-103: Good faith for merchants: honesty in fact and the observance of reasonable
commercial standards of fair dealings in the trade.
a. Includes the subjective test supplied by 1-201 but adds objective element

85
4. 2nd restatement: every K imposes upon each party a duty of good faith and fair dealing in its
performance and its enforcement.
a. Does not involve formation promissory estoppel, duress cover this
b. Recognized bad faith
i. Evasion of the spirit of the bargain
ii. Lack of diligence and slacking off
iii. Willful rendering of imperfect performance
iv. Abuse of power to specify terms and interference with or failure to cooperate
in the other partys performance
c. Requires that any right or condition created by any K term or by the applicable law be
exercised with honesty and decency
i. Falling market prices is NOT reason to reject goods in perfect tender rule
33. L owned a building and T desired to rent space for his restaurant. They entered into a lease that described the leasehold as the
entire 4th floor of the building. The lease was contingent upon T obtaining financing, title insurance and a liquor license. T was
able to obtain financing and title insurance but could not obtain a liquor license b/c to obtain the license T was required to develop
a floor plan. T developed such a plan and gave it to L who instead on a different version of the floor plan. Ls version showed T
sharing space on the fourth floor with another business. This plan did not satisfy the rules of the state liquor authority. T canceled
and sued L. What result?
Lease was contingent upon obtaining financingviolates the leaseis this excuse of condition analysis??? Breach of duty of good
faith T is not saying condition should be excused he is not saying he wants the lease anyway the tenant doesnt want the
premises suing for breach of good faith and fair dealingwhat result is the tenant wins

36. P contracted with the state to erect a building according to state specifications and to lease it to the state. Time was made of the
essence in the K. P completed the building two months late. The state cancelled the K and leased space elsewhere. P sues, alleging
and providing that the delay was caused by failure of the state to indicate locations for electrical fixtures, outlets and other details
as required by the K. What result?
Cancellation would be justifiedtime is of the essence the exact date counts however, here you have new factsalleging and
proving the delay was caused as required by K the state prevented the timely completion so that excused the condition

Swartz v. War Memorial Commission of Rochester, Appellate division 4th dept.


One person is given exclusive right swartz sets up a food and refreshment concession and selling food and refreshments at the
war mem commission which is a sports arena what are the terms of compensation who would paying under the K the
concessionaire would be paying for this right to sell the person paying is this party and question is how much paying it is a
percentage of the gross receipts resulting NOT a fixed quantity implied promise to use reasonable efforts a la wood
DOES require affirmative effort to cooperate with the other partythe duty to do something not just to refrain from
preventingnot just to refrain from wrongfully hindering obligation implied to generate profits wood v. lucy really the same
case; Looking at wood last time to avoid the problem of illusory promise bc of consideration problems but NOW we are looking
at obligationsduty to cooperate

Stop and Shop Inc. v. Ganem, Sup. Ct. mass 1964, page 522
Exclusive right in stop and shop to use the premise the landlord on the other side gives right to use the premises in terms of
compensation for the lease now you have a fixed component and a percentage rental 22,000 plus a percentage.if you only
have the percentage doing exactly like wood against lucy there would a promise to use reasonable efforts and this issue of
whether there is implied promise to use reasonable efforts that comes b/c stop and shop closes the store. Held: but b/c you arent
getting paid as a percentage there shouldnt be an implied good faith clause to keep open.
Implied promise of stop and shop if reasonable person would so conclude that doesnt tell you much there would be implied
promise and duty to use good faith.probably most courts would not imply a promise when more than nominal fixed they could
have done it expressly in the lease to hold to stop and shop and so he is stuck with the minimum rental

d. Abuse of Rights (11.39)


The main difference with good faith the fact the K expressly allows the action, but its done
abusively.
i. Narrower and broader than good faith
ii. Narrower: some cases of bad faith have nothing to do with abusing a right
1. If a K modification is procured by coercion and deception, bad faith justifies denial (not abuse
of right)

86
iii. Broader: Abuse of right explains the voidability of some Ks and some tort and criminal liability where
the covenant of good faith and fair dealing is not involved
1. Assume property owner is legally privileged to erect a fence, but does so solely to spitefully
deprive a neighbor of light and air
iv. Sometimes a K will allow for something but its still an abuse of right
v. Types
1. Malicious MOTIVE
a. Discharging employee for malicious motives is wrong even though the employee
was at at-will
2. Exercise of a Right is Unreasonable and Without any legitimate interest
a. Courts: Sometimes arbitrary refusal of say lease assignments is OK
b. Others: hold that arbitrary isnt justified (Kendall v. Pestana from property
class)
3. The Right is Exercised for an Illegitimate Purpose
a. Withholding compensation some courts treat as violation of good faith but really its
an abusive discharge
Market Street page 526: Pension trust buys JCPENNY property and leases it back very common form of obtaining
financing when JC CPenny sells property they get $$ and they pay it back through the rental payments sold the property and
now leasing back (assigned lease to Mkt Street)Mkt Street than tried to obtain funding for expansion and no reference to the
agreement was made. if want to improve the property paragraph 34 pension trust agrees reasonable consideration to financing
and then they have to negotiate in good faith but if this doesnt result in an agreement to finance then the negotiations fail then the
lessee entitled to buy back and get someone else to get financing. They did this deliberately so the party would reject and then they
could claim breach of K. Held: posner does not say its the relationship of contract is NOT a fidicuary relationship (not acting as
yourself) can exploit superior knowledge dont have to help perform bottom of 529 should have incentive to obtain
knowledge should be able to recoup superior knowledge BUT you cant take deliberate advantage concerning his rights under
the K --- NO deliberate advantage ON REMAND was there taking deliberate advantage or reason to believe they would have
found on their own.

37. P is the author of several highly successful books on electricity published by D under an agreement whereby D had an
exclusive right to publish the book in return for a 15% royalty for the P. D undertook to use best efforts to promote Ps work.
After P had refused to lower his royalty rate, D hired M to write competing books for a 3% royalty. When the books written by m
were published D ceased its advertising for Ps books and encouraged its sale personnel to devote their efforts to the new series of
books. P sues for damages and to enjoin D from marketing the competing books. What result?
Publisher promises to pay certain commission this expressly provides for best efforts might have been implied anyway.just
trying to tell you in the K becomes interpretation question of what best efforts thought of as good faith obligation DOES not
mean can only publish one book -- publishing competing books wouldnt be a violation here starts looking going beyond that
lower royalty rate defendant hired other author hired for lower royalty encourages sales personnel this is more
opportunistic and trying to squelch here violation of best efforts

e. Waiver, Estoppel and Election (11.29)


i. After the parties contract, the party who has conditional performance indicates he/she will perform in
spite of the fulfillment of the K
ii. Estoppel
1. (party who is the beneficiary of the condition may be estopped from claiming its non-
fulfillment if by her words or conduct she induces the other party to act to his detriment by
causing him justifiably to believe that the condition has been satisfied or that compliance with
it will not be required)
2. Equitable estoppel
a. Misrepresents or conceals a fact: must be knowledge of misrepresentation
b. On which the other party justifiably relies
c. Injuriously
3. Some promises are enough to bring about estoppel
a. Promise is enforced even though there is no consideration for it
b. Promissory estoppel used in formation of K not in
performance of K
4. Affirmative defense: must be established by clear and convincing evidence and that its
existence is ordinarily a question of fact

87
a. So when a party basically says they will perform despite the lack of condition being
satisfied and the other party relies on this information and then the party later says he
doesnt have to perform b/c of failed condition he can be estopped.
iii. Waiver and Election
1. Express of Implied: a voluntary and intentional relinquishment of a known right (BAD
definition)
a. Implies waiving party intends to give up a right often intentional
b. K rights are not waivable, conditions are
2. Party waiving must know or have reason to know the facts giving rise to the failure of
condition
a. Knowledge of the law is immaterial
b. Question of fact
f. Waiver Categories
i. Waiver at the formation of the K (11.30)
1. Dealing with events prior to and contemporaneous w/ K
2. Insurance example (but also noninsurance)
a. Example w/ insurance where if insurance policy provides that the policy is void
if the same property is covered by other insurance and an authorized agent
waives this condition contemporaneously
i. Parol evidence may be needed
1. Some courts: Appear to be total integration and oral promise
contradicts
2. Other: Equitable estoppel might allow and parol evidence rule
shouldnt bar
3. Other: policy reasons
ii. Consideration not the issue b/c supported by the same consideration as
supports the other promises
ii. Waiver After formation of the K (but before the condition fails) (11.31)
1. Rules
a. Waiver of a material part of the agreed exchange is ineffective
i. Afixing time, manner of performance, giving notice or the supplying of
proofs may be waived
Only immaterial part of the K may be waived [time is of the essence is waivable although considered material elevating to
status of express condition so failure to comply would be a material breach, it is waivable

Can waive just a normal time (she called this a constructive conditions but its weird
terminology)
b. Even if an immaterial part of the agreed exchange is waived, the waiver may be
withdrawn or modified if the withdrawal or modification does not operate unfairly
i. No change of position would help
ii. Retraction of waiver: ability to retract the waiver is lost if the other
party took action in reliance on the waiver
c. Condition must be solely for the benefit of the party waiving it
i. Parol evidence rule comes up here
1. Some courts: attempt to determine from parol evidence why the
condition was agreed upon
2. Plain-meaning courts: disagrees with this approach
d. Doesnt discharge aggrieved partys right to damages
2. Waiver v. Modification
a. Modification requires mutual assent, and consideration, or a statutory equivalent of
consideration or injurious reliance
i. Binding: parties are not free to terminate the modification except by mutual
agreement
b. Waiver: need not be supported by consideration or equivalent
i. VERY limited exception to consideration
ii. Party waiving may withdraw it if the withdrawal does not operate unfairly
iii. Waiver AFTER failure of Condition: Election (11.32)

88
Can only elect a material part b/c there is a way to recover damages but if you waive a material condition there is no
recovery and its really not supported by consideration and it wouldnt have been a breach

amounts to election when there is a right to cancel which is the case of a material breach and failure of express condition
1. Election: Excuse of condition after the condition has failed, but the other party chooses to
excuse the failure
a. Example: A has failed to render substantial performance in a timely fashion but has
NOT abandoned the project (material breach but hasnt abandoned)
i. B can elect to terminate the K and sue for total breach OR
ii. Continue with the K and hold A liable for damages for a partial breach
1. Still have to perform in a reasonable time
b. May be made by express promise or by conduct
c. Once a party elects to continue after a failure of condition, the election cannot be
retracted
i. Majority: may not be withdrawn even if the other party has not relied on it
ii. Minority: can withdraw if fair to do so
2. May the non-breaching party elect to perform by making a binding promise to pay despite
the failure of the K?
a. IF the failure of condition does NOT involve a breach of duty, the election is
NOT effective if the condition is a material part of the agreed exchange [like
impossibility situation!!]
b. BUT if the failed condition is also an incurable material breach of promise can
elect and sue for total damages in the case of the building on the land or just be
limited to partial breach damages
i. Owner moves into a materially breached house owner is not conceded
substantial performance (thus limiting to partial damages)
ii. Still can sue for a material breach b/c the defective performance is attached
to property
iii. Situation is different if the owner manifests an intent to pay the contract
price despite the known defects
1. Then the owner is limited to partial damages
2. NOT electing by way of gift to eliminate a part of the agreed
exchange
a. Contractor has action for price procedurally owner for
damages
iv. If there was a material defect of which the owner was justifiably not aware,
the owner may withhold payment despite an earlier election to pay
3. Election of progress payments wont preclude satisfaction of condition
a. At times may allow contractor to change positions
4. Effect of repeated waivers
a. If a party repeatedly waives a condition the other party can reasonably expect the
future waivers will be made unless the first party reinstates the condition by
reasonable notice
b. Whether repeated waivers are effective as to future performances depends on whether
the other party justifiably believes that subsequent performances will be accepted in
spite of similar defects
c. Repeated waiver may constitute a course of performance and thus operate as a
modification (3.17) but usually NO consideration but UCC doesnt require so might
be OK under UCC
5. No waiver clause:
a. Some cases have given effect to such clauses
b. Others: do not where elements of estoppel are present
g. Effect of Election on Damages (11.33)
i. Immaterial breach does not justify the cancellation of the K but justifies action for partial breach (but
also get the K price)
ii. Material breach
1. May elect to continue and sue for partial breach
2. If time is of the essence and there is failure: -- failure of express condition and material breach

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a. If there is an election: still able to sue for damages (for partial breach)
iii. UCC (seems to just be for later)
1. 2-607(3)(a): The buyer must within a reasonable time after he discovers or should have
discovered any breach notify the seller of breach or be barred from any remedy.
a. Notice is required even if the seller is aware of the breach
i. Must make aware of potential litigation
2. 1-107: permits a renunciation of damages without any consideration provided that the
renunciation is signed and delivered by the aggrieved party.
h. Giving Incomplete Reasons for Non-Performance (11.34)
i. Ordinarily a party is NOT required to give reasons for rejecting or objecting to the other partys
performance
1. Will be estopped from stating unstated reasons at some point
i. Excuse of Conditions Involving Forfeiture (11.35)
i. Rule that express condition must be strictly performed can lead to a forfeiture (loss of property or denial
of compensation for something done i.e. loss of reliance interest) and to unjust enrichment
ii. Courts will excuse a condition to prevent forfeiture
1. 1st restatement: a condition may be excused without other reason if its requirement
a. will involve extreme forfeiture or penalty
b. Its existence or occurrence forms no essential part of the exchange for the promisors
performance
2. 2nd restatement: same rule except that it asks whether there would be a disproportionate
forfeiture
a. Relates to unconscionability
iii. OPTION cases (common forfeitures) THINK ABOUT fact pattern
1. keeping an option open with payments.but time was of the essence and one payment was
late (so failure of condition) relief granted on forfeiture
2. Options themselves cant be extended that would extend the option more than agreed upon
3. Where option is contained within a lease or other K, the courts have been more liberal b/c the
lessees rental payments during the term of the lease have been in part payments for the option
and very often the lessee in reliance on the right to renew or to purchase has made substantial
improvements that would revert to the landlord
j. Other bases for excusing conditions (11.36)
i. Conditions may be excused by treating express language of condition as language of promise
1. Then it would become an immaterial breach (see 11.9)
ii. Condition excused if it:
1. Contrary to public policy
2. Unconscionable
3. NO duty to read the particular provision
4. Impossibility (see below)
40. Seller contracted to sell a parcel of realty to buyer. At the request of the buyer the K provided that this
K is contingent upon the purchaser obtaining a rezoning for a mobile home court. This K is to be void if the rezoning is not
obtained within 120 days. After 60 days, buyer notified seller that he would buy the property irrespective of a zoning change. The
zoning change was not obtained. The seller refused to convey. In an action by the buyer against the seller, what result?
Condition: zoning change express condition precedentthey buyer notified seller buy irrespective of zoning is WAIVER
Here it has 120 days to occur the buyer makes the waiver after 60 days he says he will buy even without zoning so this is
promise to perform despite the nonoccurrence of condition he could argue the sellers duty is also conditioned on this even t
was this strictly for the benefit to buyer or was to the benefit of both parties a condition can be waiver only by the party for
whose benefit the condition exists if this condition benefits the buyer only, he could waive itif benefits both parties he cant
buy it.so now the question how we are going to tell? The language of the K contingent on obtaining financing seems like
benefit for both parties based on the plain language doesnt benefit the buyer the buyer alone cant waive so seller in the
right however, mostly there is bound to be extrinsic evidence that the zoning is for the buyer and the buyer is the one needing it
so if the court is willing to consider the evidence, then buyer could show for the buyers benefit alone and could waive it so
seller couldnt refuse to convey
(ZONING is immaterial and the buyer never tries to go back its the seller that wants to go back then the issue zoning change
material or immaterial).
Only the party for whose benefit condition exists can waive it if for both, would have to be a modification no waiver

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42. D insured P under a liability policy. P was involved in an accident and failed to give the notice required by the policy. P late
notice was received by the D which proceeded for 2 months to try to settle the claim. It then called upon the P for further
information and for the papers which had been served in the case. Shortly before the trial of the action, the D returned the papers
and said that it would not defend the action. What result? CONDUCT shows waiver despite the fact that timely notice was NOT
given here waiver by conduct shortly before trial, D returned papers you do have the waiver b/c after the failure of
condition cannot be retracted condition was immaterial after the failure cannot be retracted.how else can you have
waiver???? In a way proceeding with own performance what about allowing other party to proceed with performance we saw
this in K&G construction owner who was also general K had a right to cancel the K b/c the subcontractor ran over the house
with a bulldozer gen K had right to cancel the K but instead they didnt they allowed the subcontractor to continue working
that is election amounted to an election to failure to stop other party for working permitting other party to continue

38. On December 15, S promised to sell B a machine for 1000 with delivery to be made on or before March 1. ON jan 1, B told S
he would be willing to take delivery on April 1.
(a) S delivered the machine on April 1. B rejected it on grounds of lateness. S sues for breach of K. What result?
B cannot reject b/c the time has been waived condition would fail on March 1 so waiving before so waiver is possibly
retractable can he retract the waiver on April 1??? That would be unreasonable b/c Bs waiver caused the failure of condition
S relied on what B S changed position one cannot retract the waiver at this stage subject to the oher partys reliance
therefore 2-209 subsections 4 and 5 reasonable notification has to be given while its still possible here you have no
reasonable notification B not entitled to reject
WHAT if B accepted the machine but sued for the delay there is a waiver of a condition a PURE waiver is just saying that the
condition is excused not saying you are giving up your right to damages ordinarily the waiver means once the buyer accepts
the machine but have a cause of action for breach BUT suing for breach --- there is a requirement a trap for the unwary

(b) On January 3, B changed his mind and insisted on delivery by March 1. Upon Ss failure for deliver on March 1, B cancels the
K. S sues B. What result?
2 days after the waiver B then changed mind B cancels the K now again S is suing for breach question is B in the right???
is this reasonable notification?? B entitled to cancel K under the UCC perfect tender rule NOT perfect tender -- cure concept
doesnt come into play under waivers..
39. On sept. 1, X promised to construct a house for Y on Ys land to be completed by June 30. The parties agreed that time was of
the essence. Nonetheless, on Dec 1, Y told X that he would not insist on the June 30 deadline. X delayed an order for materials
needed in the construction of the house. On feb 1, Y recanted telling X he would insist on the June 30 deadline. If X completes the
house sometime in August, should he succeed in an action to collect the K price from Y?
attempt to retract the waiver this is different than 38(b) there was reliance seems as though NOT retractable here once time
of essence is waived X has reasonable time that is the question of interpretation

Shipsview Corp. v. Beeche Systems Corp., (NDNY 1997), page 534


contracted for to make a paint containment system but then had trouble paying. halted production but then paid and
requested for system w/out providing reasonable time. then repudiated when system was not delivered and sued for expectancy.
resold system for K price and seeks lost profits due to s breach.
Issue- May a party make time of the essence if it fails to give to other party reasonable time to perform?
Held- No, date may be set unilaterally only if through clear notice and if it allows a reasonable time to act. continued to
negotiate with after s default and therefore time is of the essence was waived. Also, evidence suggests that was not ready to
receive delivery and made time of the essence merely to avoid the K.

41. Plaintiff contracted with D for the purchase of unimproved realty, payable in monthly installments. For the first three years,
plaintiff was punctual in making payment. In the next four years payments were made tardily and at sporadic intervals. The D
made no protest. Toward the end of the 4th year, the D rejected a tardy payment and declared the K at an end pursuant to
provisions in th K making time of each payment of the essence (with a 31 day grace period). The K also provided: no waiver of a
breach or any term or condition shall be a waiver of any other or subsequent breach of the same or any other term or condition. P
sue to enforce the K. What result?
Here the time of each payment is of the essence this is the K for unimproved realty the P was punctual sporadic the
defendant made no protest all these repeated elections even though right to cancel even though there was a tardy payment
now the question is is this person suddenly able to cancel the K now based on late payment all along D has been lax and has
not cancelled do the prior waivers amount to a promise to waive in the future that can certainly be the case in this K we
have additional clause provided no waiver over breach shall be a waiver over any other term or condition this is called a no
waiver clause this is trying to be advanced notice that the next time youll have to perform strictly in this case it didnt work
lulled into false sense of security and the no waiver clause this court said will be unconscionable to give effect another way to

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handle it no waiver clause waived through the prior course of conduct in the end you cant be too sure the question how
could the D protected himself maybe each time he accepted late time, should have said something give this notice and again
crying wolf you could say course of performance it is inconsistent with the terms and wouldnt operate as an interpretation to
eliminate the time of the essence condition course of performance is strictly interpretation if you cannot use it

Sharp v. Holthusen page 543: tender of balance was late. Law can relieve against a forfeiture may be relieved
therefrom. Whenever by the terms of an obligation a party thereto incurs a forfeiture or a loss in the nature of a forfeiture by
reason of his failure to comply with its provisions, he may be relieved therefrom upon making full compensation to the other party
except in the case of a grossly negligent, willful or fraudulent breach of duty.

45 C a carrier agreed to carry goods for A. The agreement provided that C would not be liable for damage to As cargo unless
written notice of claim for loss is given within 15 days after delivery of goods. C was aware that As cargo was damaged during
the voyage Within 10 days of delivery, A gave written notice of damage and oral notice of claim, and C inspected the goods. A did
not give written notice of claim until 26 days after delivery of the goods. Is A barred from recovery against C?
would not limit to excuse of condition the condition that was established FAILED gave it only after 26 days.once the
condition has failed.look at whether it was excused so it wouldnt have to occur C had inspected the goods being aware of the
damage WAIVER that would be true if the 15 days had elapsed.C by going to inspect is indicating they are not going to insist
they are electing to PROCEED not so clear that this would be a waiverbut moving away from the waiver theory.

46. A contract to make repairs on Bs house for which B agrees to pay 10,000 on the express condition that repairs are completed
by Oct 1. The repairs are completed on Oct. 2. Is A entitled to recover the price provided by the agreement?
Just one day lapse its not just a promise to repair but a promise to pay on express condition there is EXPRESS condition NOT
literally complied with therefore if you take at face value, A could not recover but there must be an excused condition there is
NOTHING WAIVED so must look to forfeiture extreme is wont be paid for 10,000 of work DONE not something that goes
back to the repair immaterial type of condition TIME is immaterial

Same facts but K to make a wedding gown promise to pay for the gown and deliver on the morning of wedding.delivered 1
day LATE should the seamstress be PAID???? Here now its material

Had it said time is of the essence, that would have resulted in same thing

Burger King Corp. v Family Dining, Inc. EDPA, 1977, page 547
FD entitled to 90 year franchise in two counties in PA assuming they open one restaurant per year for the first 10 years and then
maintaining 10 for next 80 years only 7 or 8 years later (start realizing they can open a lot more restaurants) FD has obligation
but gets acquired by Pillsbury personal relationship falls apart b/c of the org. change in BK FD side is sometimes early but
sometimes late in following the development plan after a few years they ENTER INTO MODIFICATION but its really a
waiver that could not be retracted w/out reasonable NOTICE
And now LOOK TO FORFEITURE excusing the delay on grounds of forfeiture 9th and 10th restaurant canceling the K
would result in a loss of exclusivity for next 80 years it is just lateness family dining and getting approvals progress in the
beginning now suddenly concern over overdevelopment just a question of delay immaterial condition extreme forfeiture
ANOTHER creative use of condition subsequent the lower court viewed the development rate as a condition/subsequent not a
promise which operates to divest FD of exclusivity. Where words in a K raise no duty in and of themselves but rather modify or
limit the promisees right to enforce the promise such words are considered to be a condition. So excusing the literal performance
of this condition subsequent.

R&R of Connecticut v Stielgler, App. Ct. Conn. 1985, page 555


Renewal option of s lease is not exercised due to neglect and (LL) sells to another. sues to enjoin sale.
Issue- May a tenants late notice to renew be excused on equitable principals when failure to give notice is due to neglect? Held: if
it is not willful or grossly negligent, the court will look to the following factors in decided whether or not to excuse the notice
requirement and prevent forfeiture. (1) mere neglect? (2) delay has been slight (3) loss to LL is small (look at time between
notice due and notice given for loss) (4) not granting relief would result in significant hardship to the tenant

47. Tenant purchased a restaurant from a prior tenant and with the landlords consent assumed the existing lease that had six years
to run with an option to renew for 24 additional years by giving notice at least six months prior to expiration of the lease. The
restaurant was highly successful and the tenant investing heavily in physical improvements. About 2 months prior to the expiration

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of the lease, Tenant received a note from landlord inquiring about Tenants plan to vacate. T consulted his attorney who drafted and
sent a notice of exercise of the option to the landlord.
Notice of exercise was a good 4 months late at least 6 months 4 months late another late exercise of an OPTION of the case
what about do we have a forfeiture here here there was a forfeiture improvements WOULD be LOST there were customers
that is a big thing that represents an asset of goodwill just b/c you have customers at one, doesnt mean you have customers
retail establishment customers at THAT location are very important you are losing that those 2 things would be forfeited
that would be extreme or disproportionate you have immaterial DELAY sometime like in R&R use the standard of SLIGHT
delay that - that doesnt add much to the analysis no problem with 4 month delay wouldnt worry too much about the length
of the delay alone you have delay and forfeiture -- -- the next thing you want to look at fault of the party who is delaying did
they do it intentionally??? Was it inadvertence what we dont want is to permit a longer time to exercise but to permit the option
needs longer time to speculate on the market if the cause of the delay is mere inadvertence we know this is NOT intentional
manipulation or speculation even if you could say that amounts to negligence not gross or intentional conduct here not
enough facts to be sure in R&R the lawyer had died usually measuring delay in relation to exercising the option if you think
you are having the place does relate more to the forfeiture aspect

48. P deposited with an escrow agent pursuant to an agreement with the owner of a department store building. The 30,000 was to
be applied to 555,000 purchase price, the balance to be paid on or before oct 31. P made no commitment to purchase. The
agreement provided that if the balance were not paid by Oct. 31, it would be forfeited (deposit) to the seller and neither party
would have any further rights against the other. P failed to tender the balance by Oct 31 and defendant declared the money
forfeited. Soon thereafter, P tendered the balance and now sues for specific performance or damages. What result? Would analysis
be different if P had made commitment to purchase?
Now the plaintiff trying to get for late performance should not excuse this was an option first you see agreement think its
bilateral now you see no commitment to purchase P buyer has option to buy becomes like fact pattern above in option say
30,000 option is until oct 31 price is in fact 525 as long as there was not commitment to purchase its an OPTION RESULT
is it is too late and P would lose would analysis be different if there was a commitment to purchase YES definitely now not
talking about option talking about bilateral K and the 30 really was a deposit rather than price of option so becomes LIKE
problem 46 could relieve against the delay excuse the delay forfeiture arguing is the 30 deposit but also a property interest
(committed to buy the real property and obtains a property interest in the property) could get equitable conversion in the
property buyers does have a property interest when they commit to buy lose the property interest and the 30000 is that
extreme forfeiture

C&J Fertilizer Inc. v Allied Mutual Insurance, Sup. Ct. Iowa page 559
Burglary policy and there was a burglary and allied refused to pay origin of no physical marks purpose physical marks left
on exterior b/c then you know there was a breakin not to cover inside job but break in the fertilizer plant suffered burglary
called up to get their $$ and the insurance company says NO b/c this particular burglary had left no physical marks was it an
inside job??? NO. just skillful burglar. Broke in without leaving the physical marks the insurance company is relying on the
language of the policy relying on the writing the K as expressed in the writing says burglary means felonious entry the
insurance company says they are not liable policy doesnt cover this event b/c no events relies on the language of the writing
duty to read concept concept that contract obligation is derived from the writing itself (parol evidence) insurance company
loses for three reasons (dont even include forfeiture)
1. Reasonable Expectations: obligations arent derived from the writing at all based on reasonable expectations of promisee
promisor is insurance company reasonable expectations not derived from written policy generally recognized insurance will
not read mass produced insurance form this is another example like gateway computer buy policy significant time before you
see the terms make sure its a burglary policy thats it and then you put it away bought policy long before you have access
less access than the gateway terms dont derive from the policy writing they derive from the conversation w/ the agent they
say not covering inside job so the reasonable expectations is that this policy covers outside job burglary that weird definition
found in actual policy is NOT part of reasonable expectations oral conversations create the reasonable expectations contrary to
parol evidence rule and contrary to duty to read this doctrine has not been widely applied tends to applied to insurance policy
(WOULD BE END OF PAROL evidence rule if applied)
2. Implied warranty: of fitness: this is analogy to sale of goods of implied warranty just as shoes and they should have the kind of
protections should apply to buyers of policies if you ask the seller before you go to shop they say these shoes wil be great for
trekking in Nepal breach relied on supplying the appropriate policy for this purpose that they disclose breach of implied
warranty of fitness implied warranty of habitability common law development
3. Unconscionability: both on fairness and substance even if you took more of glance of policy hidden in the definition of
burglary rather than stated in conclusion

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Forfeiture: could apply here the condition being excused is immaterial in substance was satisfied (the point was to avoid
inside job) just becomes technical point the one point of difference between unconscionability and forfeiture (at time K is
made for unconscionability whereas forfeiture at time condition fails)

k.
Satisfaction case (11.37)
i. Key Issue in most cases
1. Personal satisfaction
2. Reasonable satisfaction
ii. Satisfaction of a Party to the K
1. EXPRESS conditions
2. Artist painting and getting paid upon personal satisfaction
a. One view: Where there is doubt, objective satisfaction is preferred
b. 2nd restatement: In accord, but makes it clear that personal satisfaction is required if
the agreement leaves no doubt that it is only honest satisfaction that is meant. Or if
it is the type of case in which it is impracticable to apply a reasonable person test
3. 2 categories [for when the parties have not unequivocablly indicated the legal effect of the
satisfaction clause]
a. Taste, fancy or personal judgment i.e. portrait (absolute not subject to review)
i. Good faith
1. Evidence of unreasonableness of the Ds express dissatisfaction is
admissible, but no conclusive
2. Personal satisfaction is NOT
b. Involving utility, fitness or value which can be measured against a more or less
objective standard (reasonable satisfactory subject to review)
i. REASONABLE PERSON TEST
4. These categories dont always pan out expressly
a. When a case expressly calls for personal satisfaction, courts frequently refuse to give
it such
i. Barn example
1. Criticism: ignores the intent of parties
2. However: could result in unjust enrichment or forfeiture
So if forfeiture a risk courts may construe a reasonable person test fitness etc.
iii. Satisfaction of a Third Party
1. Named architect, engineer etc
2. Strict compliance is necessary b/c express c/p
3. If act in bad faith, condition excused (gross mistake treated as bad faith)
a. Majority view: the mere fact that refusal is unreasonable is insufficient grounds for
excusing the condition
i. Condition calling for personal satisfaction would be excused only if the
architect acted in bad faith or the like
b. Minority view: put a reasonableness test on the third party (Nolan v. Whitney);
the third party may not UNREASONABLY withhold similar to forfeiture
i. NY would apply minority when there is a potential forfeiture

Western Hills Oregon LTD v. PFAU, Sup. Ct. Oregon 1973, page 575
Real property two party satisfaction case. Court decides its a personal satisfaction case. So the main criteria is honesty. This is
NOT illusory. B of P is on the plaintiff to show they werent satisfied.

49. P and D entered into an agreement which permitted P to render valet and laundry services at the Ds hotel for period of 3 years.
P was to pay 325 per month for the concession. The agreement also provided it is distinctly understood and agreed that the
services to be rendered by the second party (plaintiff) shall meet with the approval of the first party (defendant) who shall be the
sole judge of sufficiency and property of the services. Before the tree-year period was over, D discharged P. P sues for breach and
D counterclaims for breach of K. Analyze possible results.
so since in category 1 (then the hotel is personally satisfied) NOT liable for breach so hotel says dissatisfied -- the valet service
sues them for repudiation (wrongful cancellation) the trial court gave instruction that the hotel had a right to terminate if

94
reasonable standard so trial court applied objective but the appeal said personal, SO it was remanded if they were honestly
dissatisfied right to terminate

Van Iderstine v. Barnet Leather Co, Ct Appeals NY 1926, page 579


Veal skins are very soft and lovely buyer is promising to buy the veal skins if somebody else is satisfied JULE Star what
standard do we apply?!?!?!? The majority where we presume personal satisfaction??? Or should we apply the minority view
should we say that Nolan applies therefore the approval of the third party cannot be unreasonably withheld -- it was personal
satisfaction --- so why doesnt Nolan v. Whitney apply???? The seller could resell the goods avoid a forfeiture performed
services now and not paid for architect not reasonably withheld here the K is of a different nature not acting as the buyers
agent must pass upon the goods refusal to approve does not enable the buyer to obtain without payment merely permits to
refuse to accept the goods NO FORFEITURE here..buyer does not get to keep the goods can resell and thus no forfeiture
NY would follow majority unless there is a potential forfeiture; In terms of perfect tender RULE: not just to be according
to what arebut approved by Jules Star

51. In construction K, P promised to do the work in a workmanlike manner and to the satisfaction of the architect to be testified
by his certificate. P obtained such a certificate. D offered proof that the work had not been performed in a workmanlike manner
and P objected. Is this evidence admissible?
So the owner can say the work was NOT done properly there are 2 conditions the express condition precedent but there is also
a constructive condition precedent that the work be done in a workmanlike matter comes from promise first requires literal
compliance but the second condition only requires substantial performance the owner is saying no substaintial performance --
is this evidence admissible???? The P objected not talking about side agreements negotiations we are trying to show that the
work was NOT done right????? really just a question SO did they hire architect as arbitrator is that decision that it is binding
whether there is entitled to payment architects decision would be binding unless there is fraud etc.now you dont see here any
language that architects decision binding so do you infer binding wan to see more of an agreement is he the arbiter on this
fact so here it would be admissible and thus not entitled to payment

Childres: conditions in the law of contracts (REREAD THIS) excuse of condition on grounds of forfeiture alone says why do
we bother with basic rules of conditions b/c there is always some way around them even if there are many ways around them
you still have to convince the court that someone has to apply excuse of condition dont totally swallow up even if as a
practical matter still have to know law of conditions and excuse of conditions dont think they dont matter

XIII. Anticipatory Breach and Prospective Non-Performance


a. Basics
i. Prospective Failure of a Condition Includes
1. Prospective Inability to perform
a. Gives other party option to cancel the K
i. If inability goes away: defense would be that the prospective inability acted
as a failure of constructive condition justifying cancellation
2. Prospective Unwillingness to perform
a. Cancellation for just prospective unwillingness is harsh
b. Grave unwillingness: acts a
c. Unequivocal Statement of unwillingness to perform = Repudiation =
Anticipatory Breach
i. To establish a case must prove the K, breach by
repudiation, and a ready, willing and ableness to
performance
ii. Repudiation occurs before performance is due

53. P agreed to build a house for D. P began work on April 29 and continued until Sept. 11 when P told D that he could not
continue unless D advanced him money to meet his payroll.. In response, D ordered P off the job. Was D justified in ordering P off
the job? Assuming D was justified would D also have a counterclaim?
No that would not be implied remember talking about market street case there was no obligation to bail the other person out
obligation not to prevent this kind of language would not be a repudiation under the traditional view but would be under the
2nd restatement

95
b.
Prospective Inability and Unwillingness (12.2)
i. First Restatement/Other Traditional Approaches
Determine the seriousness, and determine whether impossible or not so can either change
positions
1. Situation arises when there is a prospective inability or unwillingness to perform arising
2. What the other party may do depends on how serious the prospective inability or unwillingness
is Depends on whether there is reasonable probability that a party will not or cannot
substantially perform a constructive condition and fully perform an express or implied
condition
a. Suspending performance: if substantial performance is still possible or reasonable
possibility express condition will be satisfied
i. If there is still possibility of substantial performance OR satisfying
condition, suspension is only option
b. Canceling the K: will not or cannot substantially perform or fully perform the express
or implied K
3. Prospective inability or unwillingness to perform may be manifested by words or conduct
a. Destruction of subject matter
b. Death or illness of a person whose performance is essential under the K
c. Encumbrance or lack of the title in a K vendor at the time of the making of the K or
sale of property to another subsequent to the making of the K
d. Existing or supervening illegality of a promised performance
e. Insolvency of a party
f. Defective performances rendered under other Ks between the parties or even under a
K with third parties
4. Example
a. S agreed to sell and B agreed to buy a specific used car
i. Destroyed by fire: impossibility defense b/c Ss ability to perform is a
constructive condition precedent to Bs duty to perform
ii. S has the defense of impossibility and B has the defense of prospective
inability to perform
iii. Not a repudiation here.
b. Suppose S unconditionally sells the car to X and B buys a substitute car
i. B was justified to change position by buying a different car and therefore
was NOT obligated to buy
ii. B had cause of action for total breach too b/c of the repudiation
iii. Repudiation here.
c. Suppose B just told s that the K was cancelled and S reacquired the car
i. Some say: B was justified in canceling the K
d. Suppose S tells B that under no circumstances will the car be delivered
i. B changes positions by buying the sub.
ii. B not bound and would be discharged
5. Read Property no title
a. Rule: vendee may invoke doctrine of prospective inability (change positions etc)
unless the vendor has the right to acquire title or has justifiable expectations of
becoming owner in time to perform under the terms of the K or unless the vendee had
knowledge of the lack of title when the K was signed
6. Real Property TITLE (but encumbered with defects)
a. First restatement: same rule as title
b. Majority: when time is NOT of the essence and the vendor has the power to remedy
the defect within a reasonable time after the property should have been conveyed the
vendee does NOT have the right to change position and cancel the K
7. Insolvency
a. Usually involuntary and amounts to prospective inability to perform
i. UCC 1-201:
1. Ceasing to pay debts in the ordinary course of business
2. Inability to pay debts as they mature
3. Insolvency within the meaning of the Federal Bankruptcy Act:
where a partys debts are greater than the partys assets

96
b. What does other party do with the insolvent party?
i. UCC 2-702: where the seller discovers the buyer to be insolvent he may
refuse delivery except for cash including payment for all goods theretofore
delivered under the K
ii. Second Restatement: allows the insolvent to give security rather than pay
cash and thus become entitle to the other partys performance
iii. Majority: failure of the insolvent party to make necessary tender within a
reasonable time discharges the duty of the solvent party altogether
ii. UCC and 2nd Restatement Innovations
1. UCC 2-609: where a party to a contract manifests a serious prospective inability or
unwillingness to perform, the other party may make a demand for adequate assurance of due
performance
a. 2-609: Right to Adequate Assurance of Performance
i. A K for sale imposes an obligation on each party that the others expectation
of receiving due performance will not be impaired. When reasonable
grounds for insecurity arise with respect to the performance of either party
the other may in writing demand adequate assurance of due performance and
until he receives such assurance may if commercially reasonable suspend
any performance for which he has not already received the agreed return
ii. Between merchants the reasonableness of grounds for insecurity and the
adequacy of any assurance offered shall be determined according to
commercial standards
iii. Acceptance of any improper delivery or payment does not prejudice the
aggrieved partys right to demand adequate assurance of due performance as
is adequate under the circumstances of the particular case is a repudiation of
the K
iv. After receipt of a justified demand, failure to provide within a
reasonable time not exceeding thirty days such assurance of due
performance as is adequate under the circumstances of the particular
case is a repudiation of the K
b. 3 remedies
i. aggrieved party is permitted to suspend performance
ii. entitled to receive adequate assurance
iii. Failure to supply adequate assurance within 30 days may create an
anticipatory repudiation and thus give rise to all of the remedies available for
such a repudiation Creates a constructive repudiation
iv. Can resort to changing positions dont have to
demand assurances!!
1. UCC authorizes assurance demand but doesnt
require it
v. Wrongful refusal to grant assurance would involve
cancellation of the K (not in Restatement 2nd)
c. NOTE
d. Reasonable grounds for insecurity exist when the willingness or ability of a party to
perform materially declines between time of contracting
e. The insecurity must not be based on matters not known to the party demanding
assurances at the time of contracting and as to which the risk was NOT assumed.
f. UCC doesnt require a rejection of first restatement so if get a sale of goods
DO BOTH!!!
2. Restatement 2nd: does not require that the demand for assurance be in writing like the UCC and
speaks only of reasonable time (not 30 days)
a. Insecure party must demand assurances unless there is a repudiation (otherwise
can/has to change positions)
b. If assurances are NOT furnished within a reasonable time,
the demanding party may treat the failure to provide them
as a repudiation

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c. The right to demand assurances replaces other permissible
reactions to prospective inability or unwillingness except
the permissible responses to a repudiation or insolvency
d. Thus except in the case of a repudiation or insolvency the
insecure party can cancel or change positions ONLY at its
peril.
e. If the other party tenders or demands timely performance,
the insecure party will be in breach if it is no longer able or
willing to perform
c. Anticipatory Repudiation History and Analysis (12.3)
i. Anticipatory repudiation arises: when a party repudiates the K
1. Hard to find breach b/c nothing yet breached
ii. Hochster v. De La Tour: where D cancelled K before law date and P brought suit before service
due
1. Court reasoned erroneously that: unless P was free to sue immediately he would have to wait
for an actual breach which couldnt occur yet before suing or changing positions
a. He was therefore caught in dilemma: to remain idle and hope in the future for a
favorable court judgment or to obtain other employment thereby forfeiting his rights
against D since he would not be able to show he was ready willing and able
b. OVERLOOKED the doctrine of prospective unwillingness to perform where he was
free to change position by obtaining other employment and show (not that he was
ready, willing and able at that time) that he would have been ready willing and able
but fore the repudiation

Hochster v. De La Tour, In the Queens Bench 1853, page 592


P and D entered into a K by the terms of which P was to work for a fixed period commencing on June 1. On May 11, D repudiated
by unequivocally stating he would not perform. P brought action and there was NO current breach. Court reasoned wrongly that
unless P was able to sue immediately he would have to wait for an actual breach which couldnt occur until June 1 and thought
he would either have to wait for a favorable judgment or obtain other employment and forfeit the suit b/c he wouldnt be ready
willing and able.court thought he would need to show he WAS ready willing and able instead of would have been ready willing
able but for
Reason for the decision wanted to allow hochster to take another job and still be able to sue they are saying its a breach in
itself b/c breach in itself it forces hochters to take other job which would mitigate damages the reasoning was faulty b/c he
could have changed position and sued under the doctrine of prospective unwillingness

iii. Repudiation at the same time is a normal breach


1. may be partial or total but ordinarily total
d. What constitutes a repudiation? (12.4)
i. NOT every prospective unwillingness to perform amounts to a repudiation
ii. A positive statement
1. Rule: statement must be so unequivocal that the intent NOT to be bound by the terms of the K
must be beyond question
a. I doubt I will perform Repudiation
b. Unless a specific condition is met Repudiation
2. 2nd restatement/modern rule: statement must be sufficiently positive to be reasonably
interpreted that a party will NOT or cannot substantially perform.
3. UCC adds: repudiation can result from action which reasonably indicates a rejection of the
continuing obligation 2-610
4. Revised 2-610: repudiation includes language that a reasonable party would interpret to mean
that the other party will not or cannot make a performance still due under the K or voluntary,
affirmative conduct that would appear to a reasonable party to make a future performance by
the other party impossible.

Drake v. Wickwire, Sup. Ct Alaska, 1990 page 600


K for the sale and purchase of real property which the closing is set for 10 days after clear title which is april 12th 10 days after
clear title and time was made of the essence (otherwise it wouldnt be).april 3 clear title time was of the essence as of april 12
or 13 and the repudiation was on the buyers side the seller the closing to take place on april 11th for their own tangential reasons

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and apparently was trying to get the buyer to close on the 11th.then the buyer says.they are resisting the pressure to close
based on this statement advises the seller that they can sell the property to someone else which the seller does and this advice
was malpractice as a matter of law Held: this statement WAS NOT a repudiation it was ambiguous what does it mean resisting
the pressure to close on april 11th the K didnt require a closing on april 11th but even if the proper interpretation that the
buyers are resisting pressure to close on april 13th resisting the pressure to close --- NOT b/c its a positive statement
MIGHT indicate that they are likely to close but they are not saying they will not close so the advice that they can change position
by selling to someone else was bad

iii. Transferring Specific Property


1. Selling car to someone else; but if you transfer a 2005 Toyota Camrey
54. On Jan 11 D contract with P to purchase 4 lots of land from P. Closing was to take place in 7 months. D was to commence on
or before Feb. 10, the erection of the house on each of the lots and the houses were to be completed in 7 months. P promised to
advance 4000 on each house to D and D promised to return the 4000 and to pay an additional 11000 for each lot when the houses
were completed. On the same day, the contract was entered into, P conveyed the premises to a third party and D refused to
commence erection of the buildings. Before the closing date, the third party reconvened the property to P who then brought this
action for breach of K. What result?
Creative K by the time he owns the lots he will have houses in addition the seller of the lots is helping to finance the houses
at the end of the 7th month the developer agrees to return the 4000 loan and pay an additional 11,000 for each lot start building
-- but the same day, the seller who was the P sold these lots to a third party THIS is a repudiation property is essential to
performance its the second category cant just build on someone elses property

iv. Other voluntary acts


1. First Restatement: a voluntary affirmative act by a party which renders substantial
performance of his contractual duties impossible OR apparently impossible amounts to
repudiation
a. A goes on voyage around the world affirmative act

55. D agreed to convey to P certain property. In turn, P agreed to convey to D certain lots. At the time of the agreement, P did not
have title to the lots in question but his wife had a K with the owner that would have permitted P to perform on time. When D
learned that P did not have title, he called off the deal. What result? The sale of property that one does not own occurs every single
day SHORTING stocks NOT a repudiation if entering into a K with no title is not a repudiation but how about clouds on
title NO. This is Cohen

Cohen v. Kranz, Ct. Appeals NY 602


Closing date had been on Nov 15th and was adjourned to dec. 15th. On nov. 30th AND the buyer demand return of down payment
claiming clouds on title; the question is was that justified it would be justified if there was a repudiation Held: entering into a K
to sell with clouds on title is NOT a repudiation just as no title isnt a repudiation so the seller has not repudiated and the
question did the buyer have a right to cancel????? BUYER then repudiated here the seller does not have to show to convey
good title they only have to show that they would have been ready willing and able to perform had it not been for the buyers
repudiation those clouds are curable get a certificate of occupancy the building was not illegal the seller doesnt have to do
it.the sellers condition is excused
Incurable woudnt requires specific demand to cure buyer could have won if they could show the clouds are incurable

e. Repudiation and Good Faith (12.5)


i. Authority: Good faith refusal to perform is NOT a repudiation
ii. Prevailing: the test should be objective and that the good faith of the repudiator is immaterial
iii. But: an offer to perform under a misinterpretation of the K will generally not constitute as unequivocal
repudiation
f. Bankruptcy as the equivalent of Repudiation (12.6)
i. Insolvency may create prospective inability, does not amount to repudiation
1. NOT voluntary
ii. Bankruptcy though is voluntary so when petition is filed if trustee doesnt adopt K, its a repudiation
1. If no adjudication is resulted it will have the legal effect of withdrawal of a repudiation
g. Retractions: Anticipatory and Present Repudiations Distinguished

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i. Retraction: ordinarily written or verbal but where the repudiation consists of an act (or failure to act)
inconsistent with the K The retraction may consist in the repudiators regaining the ability to perform
BUT must come to the attention of the other party
ii. UCC in general accord with CL that an anticipatory repudiation may be retracted until the other party
has commenced an action, or has otherwise changed positions
1. 2-611. Retraction of Anticipatory Repudiation.
a. (1) Until the repudiating party's next performance is due he can retract his repudiation
unless the aggrieved party has since the repudiation cancelled or materially changed
his position or otherwise indicated that he considers the repudiation final.
i. (UCC limits this b/c once the repudiating partys next performance is due the
repudiation is no longer anticipatory. There is NOW a present breach
accompanied by a repudiation. There is a present material breach but this
carries an important distinction mitigation!)
b. (2) Retraction may be by any method which clearly indicates to the aggrieved party
that the repudiating party intends to perform, but must include any assurance
justifiably demanded under the provisions of this Article (Section 2-609).
c. (3) Retraction reinstates the repudiating party's rights under the contract with due
excuse and allowance to the aggrieved party for any delay occasioned by the
repudiation.
iii. Breach
1. CL/Rs. 1: IF, an anticipatory breach is withdrawn in time there is NO breach
2. UCC: changes this in 2-611 (3)
h. Responses to an Anticipatory Repudiation (12.8)
i. 3 responses
1. Injured party may bring an immediate action for total breach (Hochster) [has option of
damages, restitution and specific performance]
a. Show ready willing and ableness (even if suit is later)
i. If the suing party dies cant show ready and willingness (see
impracticability)
b. When action brought for damages or restitution, Ps duties under the K are discharged
c. Need not sue immediately but then There is risk of RETRACTION
2. Urge or insist retraction
a. Applying election theory
3. Elect to ignore the repudiation and proceed with performance or does the repudiation prevent
the exercise of the normal power of election that the injured party has when there is a material
breach
a. Earlier cases: yes possible
b. Modern: duty to mitigate damages overrides
i. Commercially reasonable time await performance by the repudiating party
this seems b/c with just a material breach, the other
party wants to continue performing but under
repudiation there is a refusal

54. On Jan 11 D contract with P to purchase 4 lots of land from P. Closing was to take place in 7 months. D was to commence on
or before Feb. 10, the erection of the house on each of the lots and the houses were to be completed in 7 months. P promised to
advance 4000 on each house to D and D promised to return the 4000 and to pay an additional 11000 for each lot when the houses
were completed. On the same day, the contract was entered into, P conveyed the premises to a third party and D refused to
commence erection of the buildings. Before the closing date, the third party reconvened the property to P who then brought this
action for breach of K. What result?
P conveyed the premises to a thirdparty that is repudiation SO D refused to commence erections so regaining ability to
perform so the question is whether Ds response prevents the retraction what is Ds response -- that is JUST suspension of
performance that is NOT a response which will cut off ability to retract but the fact that it says REFuSED adds a little
something as a cancellation so may be characterized as such at least the modern view cuts off retraction on these facts lets
assume this is 2 weeks before the closing date developer changed position what might start out as suspension evolves into the
change in position; issue of mitigation of damages since repudiation is a breach avoidable consequences is that the aggrieved
party cannot recover for damages that could have been avoided

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52. C entered into a K with O to build a residence for O. Shortly after C began work, O failed to pay a progress payment when due
and refused to make any further payments to C. Does C have the usual election available after a material breach by the other party?
To proceed under the K this is the usual election -- C can immediately suspend performance so can he just elect to proceed
under the K there is a breach here the thought is when C elects to proceed (could have suspended and cancelled) that would
mitigate damages -- THE K continues than the damages have only been attributable to the late payments this has the effect
of mitigating damages

Where O repudiates refused to make any further payments to C this is by the way anticipatory or present here this a present
repudiation (anticipatory where there has been no breach by nonperformance) here you have both breach by nonperformance
and the repudiation present repudiation the point is that after the other party does not have the choice to ignore the
repudiation and proceed under the K that runs afoul of the mitigation of damages concern

IF C decides to perform C doesnt collected any more money than if they had stopped working right away so if the K price was
100,000 and the cost of full performance is 90,0000 he is expecting a profit so at the time owner failed to pay and repudiated
at the time of repudiation C had just started working.so say that C put in 5000 worth of labor and supplies

He will get expectation recovery recovery is 15,000 the recovery is the K price Os performance is 100,000 and minus the
avoided by not finishing the work the cost avoided is 85,00 b/c cost.so the expectation recovery is 15,000 they get the full
profit for covering what they already done so far if the contracter continues to work

So instead of only putting in 40,000 of labor and supplies so gt 50,000 but will the contractor get it????? Contractor cannot
recover damages that could be avoided due to mitigation the damages are thus limited to the 15,000 NO election to continue
the point is they will not be able to recover for those enhanced damages

Difference in present and anticipatory repudiationsanticipatory you can sue for total breach (would have to mitigate)
present repudiation is a breach plus a repudiation but have to mitigate in uni example, cant sue for total breach when
there has been full performance
i. An exception: Unilateral Obligation (12.9)
i. No action will lie for the present or anticipatory repudiation of a unilateral obligation to pay money at a
future time or in future installments [NO action for TOTAL breach but action for partial breach as
money comes due] I think here you are entitled to restitution thoughand its not just about $$
could be any performance but the key is when one party has already performed.
1. Uni at inception and become uni b/c of full performance on one side of bi-k
2. Original thought was that a bondholder would pay regardless
3. Factors needed
a. P has completely performed and (always needed)
b. P is entitled to a fixed payment of money at one time or in installments (2nd
restatement has expanded to promises not involving payment obligation)
i. 2d restatement expands this rule beyond $$ but limits expansion for
anticipatory not present repudiations there you could just sue for breach
ii. Acceleration clauses: missing one payment will make all payments immediately due and that
repudiation of the obligation to pay will make all payments immediately payable

59. D agreed to pay P a total of 37,500 for certain interests in corporate stock and realty. The agreement required the payment of
5000 on Jan 1, 1956, which D paid. D pursuant to the agreement then gave a series of promissory notes for the balance payable in
installments of 5000. At the same time, P transferred his interests in the stock and realty to the defendant. Defendant failed to pay
the next installment when it was due and notified P that the balance would not be paid. For how much may P recover judgment?
P fully performed D failed to pay and that payment will not happen D is repudiating BUT its a PRESENT repudiation b/c
there is also breach by nonperformance failure to pay installment and repudiation makes it a present repudiation
REMEDIES RULE: where you have a present repudiation or any material breach of the K and the other party cancels
(material breach you could go on) normally there is a cause of action for total breach BUT HERE IS AN THE UNI
EXCEPTION if P has fully performed and the only obligation is to pay $$ THERE is no right to sue for total breach only sue
for partial breach of collecting money coming due that would be same as if there was no repudiation P could have used an
acceleration clause stating that if the debtor is in default as to any payment all of those future payments those become immediately
due and payable that is why walker had to pay

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60. D purchased and accepted delivery of certain machinery. The K of sale required it to pay 10,000 within 30 days and the
balance in five annual installments and to execute instruments giving the seller a security interest in the machinery. Before the 30
days elapsed and before fulfilling any of its obligations, D resold the machinery. P immediately brought suit. What result?
Machinery required purchaser to pay 10,000 within 30 days collateral for the loan if the buyer doesnt pay he could reposes
----- buyer has obligations to pay $$ and to give security interest and b/c the 30 days elapsed and before any obligations are
actually due -- the very next day the defendant resold the machinery
Here b/c the repudiation took place before the 30 days, there has been no breach by nonperformance thus its an anticipatory
repudiation. B/c anticipatory, there is no breachonly partial

j.
Another exception: independent Promises (12.10)
i. Above discussion should not be confused with a situation where one party repudiates and the other
party has breach an independent promise
ii. A and B enter into employment K for 5 years
1. A agrees not to engage in the same business for a designated period after the termination of
employment INDEPENDENT
2. B repudiates but A is still liable
a. Unjust???
i. Classical law: valid K exists and should be enforced
ii. Yes: UNJUST
1. Abuse of rights would explain why such a covenant will NOT be
enforced by either law or equity where the employee is discharged
for the convenience of the employer
XIV. Impracticability (Defense)
Impossibility is a way out of liability for failure of a promise (no breach liability like in a
normal breach or repudiation) and can only be used to excuse a condition if its an
immaterial part of the K)
a. OLD: NO-FAULT LIABILITY. promises must be kept despite impossibility and breaching party would be liable
in damages (no specific performance)
i. Theory: breaching party should obtain protective provision
ii. Exceptions
1. Promise of personal services made impossible by death or unavoidable illness
2. Supervening change in the law making performance impossible
b. Modern: Expanded the exceptions [exception in and of itself] (starting with Taylor v. Caldwell) articulated
through implied or constructive conditions
i. Continued existence of the contemplated state of facts is a c/p to the promisors duty under the K
ii. Impracticability now over impossibility
iii. Requirements to use as a defense
1. Contingency must be unexpected
2. Risk must not be assumed by agreement or custom (was it foreseeable)
a. Generally assumed risks include: market shifts,
interruptions or sources and supplies, and financial
capability
b. Assuming the basic assumption has failed b/c of one of these events and that
performance has been made impracticable, is non-performance excused?
i. It is NOT, if the party claiming the excuse
1. Is contributorily at fault for the occurrence OR
2. if there is a contractual term allocating the risk to this party
c. If the contract does not allocate the risk, the court will generally allocate it to the
party claming the excuse if
i. The event was reasonably foreseeable
ii. If normal business understanding allocated the risk to this party OR
iii. Such an allocation seems fair
3. Occurrence rendered performance commercially impracticable
iv. 3 almost automatic
1. death (not a delegable duty)
2. supervening illegality
3. destruction of subject matter

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4. apprehension of death
5. failure of mode of transportation generally not b/c there could be NO substitute
c. UCC/2d restatement (13.2)
i. 2-615: Except so far as seller may have assumed a greater obligation
1. (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with
paragraphs (b) and (c) is not a breach of his duty under a K for sale if performance as agreed
has become impracticable by the occurrence of a contingency the non-occurrence of which
was a basic assumption on which the K was made
a. Was there an event that changed a basic assumption shared by both parties on which
the K was made? If the nonoccurrence of this event was not a basic assumption of
both parties, then the seller does not have the defense of impracticability
b. Did that event in fact make performance impossible or at least impracticable? A
performance is rendered impracticable if it can be accomplished only with extreme
and unreasonable difficulty
c. Even if questions 1 and 2 are answered affirmatively, one must still inquire whether
the party who seeks to utilize the defense of impracticability assumed this risk by the
terms of the K. If the risk was assumed, there will be no defense of impracticability.
d. If the K does not allocate the risk to whom should the risk be allocated? Legal and
economic analysis require the answer to 2 questions before the risk is allocated
i. Who was in a better position to prevent the risk from occurring? If one party
could have prevented the supervening event, the risk should be allocated to
that party. Often, however, when cataclysmic events occur, neither party
should have prevented the event, in which case the next question must be
tackled.
ii. Who is better able to bear the risk? This is not a test of which of the parties
has greater wealth. Rather who is better able to spread the risk as by
insurance, by hedging on the future market, or by passing on the economic
impact of the event to the ultimate consumer.
2. 2nd restatement:
a. Adds that promisor may not benefit from the doctrine of impracticability if the
promisor is guilty of contributory fault
d. Categories where basic assumptions have been found to have been violated
i. Destruction or Unavailability of the Subject Matter or Tangible Means of Performance (13.3)
1. Taylor v. Caldwell, KB, 1863, page 610
a. Where a fire destroyed the music call, the court held the D was excused from
performance; thus no breach of K and excused under prospective failure of
performance
i. Continued existence of the music hall was a basic assumption on which the
K was made and D had no assumed the risk of destruction
1. If D had promised to be liable even though the music hall burnt
down a different outcome
b. Risk should have been applied to the D who was in a better position to prevent the
fire
c. Ps werent seeking expectation relief just reliance (SOME
COURTS ALLOW)
2. If there is a reasonable replacement i.e. crop cases you should use may come down to parol
3. Potato example
a. Pesticide destroys crops have the defense (assuming no contributory fault)
i. But if A promised to deliver 2000 tons of potatoes without specifying where
come from
1. If As farm
a. Majority: allow the defense of impracticability b/c the
parties by implication agreed that the potatoes were to
come from this farm
b. Minority: absolute language at a face value
2. If from certain area
a. Less likely to use that defense
4. Building examples

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a. Construction example: contractor has to treat as unforeseen difficulties as opposed
to impracticability so cant use the excuse
b. Repair: can use the impossibility doctrine
i. Unless the contractor in fact assumed this risk, the duty to repair or alter a
building that has been destroyed after contracting is excused under the
doctrine of impracticability and rights must be adjusted
1. Quasi contractual relief allowed
c. Defective plans
i. Earlier cases: builder by accepting the owners plans promises to produce the
result called for by the plans and accepts the risks attendant on using the
owners specifications
ii. Modern cases: owner warrants that the plans are adequate to produce desired
results (only applies when professionals hired by owners)
1. Builder cant rely on if they believed defective
2. If the builder expressly warrants that the owners plans are
adequate, the builder has assumed the risk and may not claim the
excuse that they are inadequate
d. Owner furnishes desired end result but no plans (no indication of how to
complete)
i. Contractor should Shoulder the risk of completion
e. A construction contractor has been excused from performance when the structure
being erected was destroyed without the contractors fault where the owner was
cooperating in the project by supplying some labor
i. Different result when merely supplying materials

3. P contracted to repair a wooden bridge over the Connecticut River and had completed a good portion of the repairs when a fire
totally destroyed the bridge as well as a large amount of lumber P had stored near the bridge for use in repairing the bridge. P sues.
For what may P recover?
If repairer substantially performed get $$ -- but here no substantial performance and cant finish?????? Discharged by
impossibility YES. not in breach for finishing the JOB repairer is excused and so is the owner. THIS wasnt divisible the
only recovery that the repairer could have RESTITUTION. can recover for the reasonable value of the services the work has
been a benefit to the owner even though the breach has gone what is the issue with the LUMBER???? NO BENEFIT to the
owner we know that restitution attempts to avoid the unjust enrichment to restore a benefit conferred on the owner here that
benefit cant be restored get paid for it the LUMBER has not benefited owner which is pure reliance
PERILLO says its unjust impoverishment not unjust enrichment DOESNT allow here allow there are a lot of cases there
are some cases extending restitution generally what has happened the promissory estoppel doctrine has taken over reliance we
see it as promissory estoppel not restitution
So no breach, no 3 views here!!!

4. Kelley a mining engineer was hired by Thompson to supervise the prospecting of coal on a large tract of land. It was agreed that
he would be paid 125 per month. In addition, if the prospecting were successful and certain other conditions were met, Thompson
agreed to form and manage a corporation to operate a coal mine at the site and to give Kelley a 1/8 interest in the corporation.
Kelley located a rich vein of coal and the other conditions occurred. Thompson died before forming a corporation and his
representative refused to carry out the promise to form a corporation and to give Kelley 1/8 interest in it. Kelley sues. What result?
Kelley has a personal service K here b/c premised on his abilities but Kelley doesnt die the K would be discharged by
impossibility BUT Thompson DIES i f he died during prospecting in a personal service Thompson has a duty of personal
supervision Thompson the death of employer also destroys the K BUT in this case everybody was alive when the personal
services were performed so the prospecting was successful. THE issue arises b/c once Kelley completes the personal services he
is entitled to reward, Thompsons agreement to give the 1/8 upon formation.so the conditions occurred.so whether Thompson
now has an in delegable obligation COURT says that even though a mere transfer of interest forming and managing this
corporation thompsons death discharged whole K is discharged.Kelleys claim is restitution Thompson benefited by
kelleys services had gotten 125 per month maybe got total 25 dollars

ii. Failure of the Contemplated Mode of Performance (13.4)


1. Incidental not the heart of the K
a. Mode of payment
b. Mode of delivery

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2. Question is whether there is a reasonable substitute
a. If yes, substitute should be used and defense of impracticability NOT accepted
3. UCC 2-614:
a. Where without fault of either party the agreed berthing, loading, or unloading
facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of
delivery otherwise becomes commercially impracticable but a commercially
reasonable substitute is available, such substitute performance must be tendered and
accepted.
i. Important the that the failure of mode of delivery NOT be caused by the
party who attempts to substitute for the agreed mode of delivery
b. If the agreed means or manner of payment fails because of domestic or foreign
governmental regulation, the seller may withhold or stop delivery unless the buyer
provides a means or manner of payment which is commercially a substantial
equivalent. If delivery has already been taken, payment by the means or in the manner
provided by the regulation discharges they buyers obligation unless the regulation is
discriminatory, oppressive or predatory.
i. First part deals with where the delivery has NOT yet been made and payment
in accordance with the terms of the agreement becomes illegal under the
applicable foreign or domestic relations
ii. Second part applies where the goods have already been delivered
American Trading and Production Corp. v. Shell International Marine, LTD, Second Circuit, US CT APPEALS, page 619
Suez canal was temporarily closed due to war problem on way to Bombay gets to suez canal and finds the canal is closed and
turns around so instead of going to suez canal turns around and goes around cape of good hope which doubles the mileage of
the trip. So it increased the cost of performance about 1/3 over the K price. Held: Surprisingly, the court is treating this route as an
alternate ROUTE even though the price fixed here seems to presuppose the suez crossing the court treats the cape of good hope
as an alternative way to perform b/c does not say the K provides the vessel will go through suez so you can look at this case
that doesnt even get past the 1st issue (is there is a supervening event as agreed) NO. agreement will go through the suez if
there are 2 ways, the other is still available there is nothing to talk about

iii. Supervening Prohibition or Prevention by Law (13.5)


1. When something becomes illegal after the fact
2. If the law intervenes b/c of the promisors fault, defense is denied b/c of contributory fault and
the impracticality is only subjective
3. Non-judicial action by a govt agency affecting a particular party rather than the public
generally has been held to excuse performance
a. Taking of property for war
4. A promissory may assume the risk of a change of law or other govt. action
a. Such assumption will result in a denial of the defense of
impracticability
5. Foreign Law
a. Early cases: prevention of foreign law was not an excuse for nonperformance
b. Modern cases: discarded that rule
c. UCC: equates foreign law with domestic law (2-615(a))
6. Changes in law that affect govt. contracts
a. Legislation acts as a breach by repudiation unless the legislation is so general to fall
under the sovereign acts doctrine

5. In consideration of a right of way given by P to defendant, a railroad, the D agreed to give to the P annual passes during Ps life.
After about 10 years the Fed. Govt. enacted a law that made it illegal for the D to issue any further annual passes. What are the
rights of the parties?
Obligation of railroad has become illegal --- one of the traditional cases recognizing impossibility of performance the K is
dischargedthe only question is the restitution suit owner gets restitution railroad is running through the property cant give
lifetime b/c that would be expectation recovery. Restitution is to give back the benefits conferred..benefit that owner conferred on
the railroad is a right a way so assuming cant get tracks pulled back give restitution is monetary value of right of way gets
value of the right a way I money the owner has to give back to the railroad which was 10 years LESS the 10 years value of the
passes restitution conveyed

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7. P contracted with the defendant for the sale and purchase of certain silk. By the terms of the agreements shipment was to be
made by freight before march 4. Shipment was not made until March 12 b/c of an embargo placed by the railroad administration
on shipments of silk by freight. What result?
b/c of temporary impossibility defense there was a supervening illegality does the seller get a temporary impossibility defense?
If its like PROBLEM 5, then yes (and the eastern case).but is it like problem 5? NO. this is a failure of the manner of
performance but not the performance itself (not illegal to sell silk but the shipment is illegal).so this is governed by 2-614.2-
614 talks about failure of the manner of performance relates to both buyers and sellers..sellers one is subsection 1 of 2-614
commercially reasonable substitute must be tendered. If trucking is a commercially reasonable substitute should have delivered
by truck and it would have been on time. Seller had obligation to use commercially reasonable substitute had to accept delivery
by truck (this is qualification of perfect tender rule) are trucks commercially reasonable if so delivery has to
be made and accepted if not; then there would be a temporary impossibility defense go into the 2-616 b/c there was no
commercially reasonable way to perform

iv. Failure of the Intangible Means of Performance (13.6)


1. Prevention under foreign law JUST DISCUSSED and strikes
2. Second restatement (unlike first restatement): doesnt distinguish between tangible and
intangible means both restatements thought there shouldnt be a distinction in treatment
a. Doesnt mention strikes b/c the parties often provide for this eventuality and where
they do not it is particularly difficult to suggest a proper result without a detailed
statement of all the circumstances
3. Under the old view: the distinction would have been necessary
v. Death or Disability (13.7)
1. Ordinarily death of the offeror terminates the power of acceptance but different when the death
occurs after the formation of the K
2. If the K calls for personal performance and death, promisors duty is excused unless the risk
was assumed
3. Foreseeability test is NOT applicable
4. Personal representative of the deceased employee is entitled to quasi K recovery
vi. Apprehension of Impracticability or Danger (13.8)
1. Reasonable apprehension of impracticability excuses beginning or continued performance i.e.
health or danger to life
a. Actor excused from performance
2. The doctrine is NOT ordinarily applied where the danger to be apprehended relates to land or
goods b/c ordinarily that situation will NOT involve impracticability
e. Impracticability (13.9)
i. Current doctrine
1. More traditional: only impossibility
2. Modern/UCC: ok JUST impracticability
a. Williston: Impracticability is not obtainable except by means with an expense
impracticability in a business sense
b. Restatement 2d: extreme or unreasonable difficulty expense injury or loss
c. UCC: Increase cost alone does not excuse performance unless the rise in cost is due to
some unforeseen contingency which alters the essential nature of the performance

10. D contracted to deliver to P fixed quantities of pulpwood over a fixed period of time from a particular tract at 5.50 per cord.
Before any deliveries were called for under the K all of the pulpwood on the tract was fortuitously destroyed by fire except the
trees on top of a high mountain which could be cut and delivered only at an expense of 20 per cord. D refused to deliver this
pulpwood. P sues for damages for failure to delver pursuant to the terms of the K. What result? Would the result be different in
some of the pulpwood could and should have been delivered prior to the fire?
Partial impossibility only have 3 trees at the top of the mountain.D refused to deliver and P sues fr failure to deliver this
involves 300% increase before we get there, the issue relates to the trees that are still standing if the seller excused as to all 7
UNLESS b/c of the event the remaining part of the performance is substantially more burdensome translates into impracticable
this is a damages cause of action not going to get trees not going to top of the court damages are difference between K price
of 5.50 per cord and the market price if particular tract is the one put on the board that is the tract mountain is on the tract
seller had in mind cut down trees now that those trees been destroyed which the seller could cut down seller refuses to
in a way you could say this is smart thing for seller to do save money by paying damages cost too much to harvest those trees
would the result be different if the seller could deliver another two trees prior to the fire..then the sellers fault is going to keep

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seller from getting defense of those trees . 3 left and 4 destroyed 2 should have been delivered before excused as to
two.that would have been contributory fault had it not been for delay avoid problem..impossibility in fact doesnt
necessarily give defense .NEED no fault and all that.

f. Impracticability as an Excuse of Condition (13.10)


i. Preceding sections about excusing a promise
ii. Taylor v. Caldwell: would mean that b/c the fire burnt down hall, the condition was excused and
therefore payment is still due this makes no sense
1. Couldnt be excused b/c P would have to pay for the use of the HALL!!
iii. BUT condition has been excused b/c of impracticability when it is similar to forfeiture issue
1. Will excuse if leads to extreme forfeiture but cant excuse a material part of the exchange with
impracticability
a. Same basic rule for excusing based on impracticability except that the forfeiture need
not be extreme
2. Cannot excuse a constructive condition to performance b/c that is by definition such a
condition is a material part of the agreed exchange
iv. Good example
1. Contractor that cant produce a certificate b/c the architect diedassuming substantial
performance otherwise
2. Had contractor NOT substantially performed
a. The K would be discharged and the contractor would be limited to quasi-K recovery
v. UCC 2-305: if the price is not fixed in the manner agreed, the K will be construed to mean that a
reasonable price must be paid on delivery
1. If the parties intended not to be bound unless the price is fixed in the manner agreed on the K
is discharged even though the gods have been delivered
2. Buyer must return the goods or pay a reasonable price

13. P contracted to excavate certain rock estimated at 110 cubic yards. He was to be paid pursuant to a formula based on the actual
amount of rock excavated as determined by the certificate of a registered surveyor. The plaintiff excavated and the surveyor
made measurements of the excavation from time to time but because of the destruction of his records by fire the surveyor is unable
to certify the quantities, but is able to estimate them. The D refuses to pay because of the absence of a certificate. What result?
Lets say the surveyor died. If the surveyor were to die before stuff happens the entire K would be discharged here though we are
talking about where the K has been performed.made measurements b/c of the destruction cannot certify the worker has done
the work and excavated the rock the condition cannot be complied with b/c of this event the fire without fault of anybody and
here you have impossibility of condition to occur the condition here purely immaterial certificate as opposed to estimate have
an immaterial condition didnt excuse the condition would have been forfeiture not talking about beginning talking about the
end .therefore this is another excuse of condition due to impossibility but limited to avoidance of forfeiture similar to
avoidance of forfeiture doctrine additional element of impossibility for condition to occur [add to list of excuse of condition]
court should excuse condition and D should pay even though certificate has not been given

g.
Existing Impracticability (13.11)
i. Generally same rules apply except
1. Party seeking to use doctrine must show the absence of knowledge or reason to know the facts
that made performance impossible
2. Existing impracticability results in a void K whereas supervening impracticability
discharges a contract that has already arisen
ii. Knowledge of the impracticability is one way of creating an assumption of the risk
XV. Frustration of the Venture (13.12)
a. Impracticability: Person who cant supply goods uses impracticability
b. Frustration: person who cant pay uses frustration
In impracticability cases, one party cannot perform or can perform only in a more
burdensome way than had originally been contemplated. In frustration cases, performance
is practicable, but the purpose of at least one of the parties is frustrated to the extent that
the performance contracted-for has become valueless (or nearly so).
i. Restatement 2d rules: SALE OF GOODS
1. Object of one of the parties in entering the K must be frustrated by a supervening event

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2.The other party must also have contracted on the basis of the attainment of this object. The
attainment of this object was a basic assumption common to both parties
3. The frustration must be total or nearly total (distinction similar to impossibility v.
impracticability)
4. The party seeking to use the defense must not have assumed a greater obligation than the law
imposes (cant be guilty of contributory fault)
ii. UCC: contains no specific provisions however the Code intends that the common law of frustration
should apply
c. Krell v. Henry, Ct. Appeal, KB 637
i. P had granted the D a license to use apt for 2 days to view coronation procession of King Edward and D
agreed to pay 75 for this privilege. After agreement made, coronation was canceled b/c the King was
sick.
1. Held: D was excused from duty to pay
2. Performance wasnt impossible and payment could have been made

Savoy: 407 East 61st Garage v. Fifth Ave. Corp. Ct. Appeals NY page 644
Hotel K with garage to use reasonable efforts to supply hotel guests and the savoy has financial troubles and goes out of business
breach of K? No implied right to terminate.you have a 5 year obligationsavoy is seeking under impracticability and frustration
of the venture.what is the impracticability? Argumentcannot perform b/c have no hotel anymore ..financial inability to
perform is NEVER excuse each party bears the risk even if impossible still dont get impossibility defensewhat about
frustration? since we have no guests? Principle purpose is defeated. Held: self-induced frustration is NO excuse.

d. Temporary Impracticability or Frustration (13.13)


i. Temp. Impracticability or Frustration may give rise to a prospective inability to perform
ii. Where the promisor encounters temporary impracticability, whether or not the encounter provides an
excuse, the prospective inability will normally give the other party a right to suspend performance
iii. If it is so serious that there is reasonable probability that substantial performance will NOT be
forthcoming, the other party may cancel the K
iv. Illness is a defense for any action for breach
v. Party who has the defense of temporary impracticability may also cancel the K if the delay will make
performance substantially more burdensome

UCC: If the seller expects to be late in tendering delivery and if the lateness is excusable b/c of impracticability the seller must
seasonably notify the buyer of any expected delay. The buyer may then cancel any non-installment K. the buyer may cancel any
installment delivery or an installment K under the criteria for their cancellation discussed in connection with exceptions to the
perfect tender rule. On the other hand the buyer may within a reasonable time not exceeding 30 days, agree to accept the delayed
delivery or deliveries.
vi. UCC 2-615: The seller must notify the buyer seasonably that there will be delay or non-delivery and
when allocation is required under paragraph B of the estimated quota thus made available for the buyer
1. Seller must notify the buyer in writing of the estimated quota thus made available for the buyer
vii. UCC 2-616: Where the buyer receives notification of a material or indefinite delay or an allocation
justified under the preceding section he may by written notification to the seller as to any delivery
concerned and where the prospective deficiency substantially impairs the value of the whole K under
the provisions of this Article relating to breach of installment K then also as to the whole,
1. (a) terminate and thereby discharge any unexecuted portion of the K
2. (b) modify the K by agreeing to take his available quota in substitution
3. (2) if after receipt of such notification from the seller the buyer fails so to modify the K within
a reasonable time not exceeding 30 days the K lapses with respect to any deliveries affected.
4. (3) the provisions of this section may not be negated by agreement except in so far as the seller
has assumed a greater obligation under the preceding sections.

e. Partial Impracticability (13.14)


i. When promisors have the defense of impracticability as to only part of their performance they are
excused from performing those parts except that if they can render a reasonable substitute they are
obliged to do so
ii. If substantial performance is still practicable (taking into account any reasonable substitute
performance) performance of the remainder of the K is required

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iii. Performance is deemed impracticable if the partial impracticability has made the remaining
performance substantially more burdensome
1. Event though substantial performance is no longer possible, continuation of performance is
required if the other party within a reasonable time promises to perform in full
2. The other party has the power to cancel the K if the par that is unperformed prevents aside
from any permitted delay the possibility of substantial performance
iv. If the failure to perform the part that is partially impossible does not prevent substantial performance,
both parties are obliged to perform the rest of the K
1. The party who has a defense is excused as to the partially impossible part and the other party
may have a claim for restitution
UCC: allocation is the key concept when the seller on grounds of impracticability can deliver only part of the promised goods. As
in the case of excusable delay, the seller must seasonably notify the buyer of the shortfall and communicate the estimated quota
allocated to the buyer. The quota must be fixed in a fair and reasonable manner. In fixing quotas the seller may include allocations
for regular customer who are not under K, and also an allocation for regular customers who are not under K, and also an allocation
for its own needs. The buyer has a reasonable time, not exceeding 30 days, to accept the allocation. Otherwise, the sellers duties
are discharged. If the K is an installment K, the buyers rights to cancel are subject to the criteria for canceling installment Ks
discussed in connection with exceptions to the perfect tender rule.
v. UCC 2-615(b): Where the causes mentioned in paragraph A (SEE ABOVE) affect only a part of sellers
capacity to perform, he must allocate production and deliveries among his customers but may at his
option include regular customers not then under K as well as his own requirements for further
manufacture. He may so also allocate in any manner which is fair and reasonable
1. Comes into play where the excuse found under paragraph A affects only a part of the sellers
capacity to perform
2. Requires the seller to allocate the available supply among its customers in any manner which is
fair and reasonable
vi. UCC 2-616: can modify by the K by agreeing to take available quota

f. Subjective Impracticability Contributory Fault (13.15)


i. First restatement: objective impracticability required
ii. 2nd restatement: recognizes the subjective impracticability involves assumption of the risk or
contributory fault
1. A person who is guilty of contributory fault or who assumes the risk is denied the defense of
impracticability
2. Illustration of assumption of the risk is impracticability that arises from insolvency
a. The promisor is NOT excused b/c the insolvent party is deemed to have assumed the
risk of becoming insolvent
b. B/P on the person asserting impracticability if it comes about b/c of own voluntary
act NOT excused
g. Assumption of the Risk (13.16)
i. Whether the promisor assumed the risk in question
ii. Absent a clear assumption of the risk, courts often conclude that the promisor has assumed the risk
iii. Some cases conclude from surrounding circumstances that a party assumed risk
h. Technological Impracticability Unforseen Possibilities (13.17)
i. Technological Impracticability
1. Generally the cases have held that the contractor has assumed the risk that production was
possible b/c it knew or should have known of the limits of existing technology
2. On the other hand, where detailed plans of manufacturing processes as opposed to goals which
the end product must meet, are provided by the govt, it has been held that the govt assumes the
risk b/c it warrants that the plan will produce desired results
ii. Unforseen Possibilities
1. Really whether the K allowed for
i. Forseeability (13.18)
i. If the event that is basis for claim of impracticability was foreseeable, the defense will be lost
because the promisor should have provided for the contingency of the K
1. Failure to provide for contingency implies the risk was assumed
2. Death or illness though foreseeable dont count here

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ii. Definition: an event so unlikely to occur that reasonable parties see no need explicitly to allocate the
risk of its occurrence, although the impact it might have would be of such magnitude that the parties
would have negotiated over it had the event been more likely
iii. A few authorities argue that allocation of the risks on the basis of forseeability should be abandoned or
at least modified
1. Restatement 2d: foreseeability is only one of the factors to be considered in determining
whether the defense of impracticability is available
2. One view: should be able to explain that they signed a standard form, etc.
3. Another view: Foreseeability is of no importance when it is clear that the parties did not intend
that the risk of the occurrence should be assumed by the promisor
j. Force Majeure Clauses (13.19)
1. A clause that provides against foreseeable risks in the agreement
2. clause may be oral
3. General terms: excusing only unforeseen events which make performance impracticable
[EQUIVALENT of impracticability doctrine]
a. Some say broadening the protection available under impracticability doctrine, should
be described with particularity and not in general language
4. Rule of ejusdem generis:
a. broad introductory language is cut down by the specific language that follows so that
if the particular risk is NOT indicated in the listing it will not serve as an excuse
unless it is very similar to the specific events
b. USE including but not limited to to avoid this issue
5. Use of word impracticable:
a. if performance is impracticable under existing law, the clause is NOT needed. If
performance is NOT impracticable, then the use of the word prevents the clause from
applying

Eastern Airlines Inc. v. McDonnell Douglas Corp., US CT Appeals 5th Circuit, page 628
K breach for 100 JETS. The breach was for late deliveries. Jawboning became a common practice. Telephone calls to business
executives requesting priority on an informal basis. The clause was not limited to specific delays but the trial court instructed the
jury to view it that way. The clause is duplicative of 2-615 of the UCC (Force Majeure clause). Trial judge erred in instructing the
jury that the events specifically listed in the excusable delay clause must have been unforeseeable at the time the Ks were entered
into for McDonnell to claim exemption from liability. Always an excuse of breach when acts of govt involved.

The general language of the force majeur clause has general and specific language specific language lists number of specific
events GENERAL language is the same as the impossibility doctrine and in order to expand, specific events must be listed

Excuse the seller even if those events are foreseeable ejusdem generic the trial court didnt give jury instructions based on 2-
615, but that was wrong b/c they were careful to use including but not limited to which cuts out the rule of interpretation and
reinstates the idea that general language is the equivalent of impracticability like 2-615 effectively construes the specifically listed
excusable causes of delay as restricting the application of the more general phrase2-615 excuses delay or nondelivery when the
agreed upon performance has been rendered commercially impracticable by an unforeseen supervening event not within the
contemplation of the parties at the time the K was entered into. Under section 2-615, the impossibility defense is available to the
seller only if he has not assumed a greater obligation than that imposed upon him by this provision. Held: The trial court below
INCORRECTLY ruled that section 2-615 was no applicable for this reason (waived the protection of 2-615 because the K were
interpreted as limiting McDonnels impossibility defense to delays caused by events similar to those specifically provided for in
the excusable delay clauseincluding but not limited to does not make narrower the excuses)

k. Underlying Rationale (13.20)


i. K law: No-fault liability
ii. Policy has tried to adjust for when situations are beyond control of contracting parties
iii. Impracticability and Frustration are like Mistake (but limited to where there are mistakes made as to a
fact)
iv. Views
1. Talked in terms of existence of implied in fact terms
2. Parties did not (based on the facts) intend that performance would have to be rendered if an
unexpected event would create a radical change in nature of performance
3. Based on constructive conditions but often there is more risk than inferred by law

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4. Restatement 2nd: Even though the promise is in terms absolute, it was not intended to cover
the situation that in fact arose, and therefore the court is free to supply a term that will do
justice PREVAILING THEORY
l. Effect of Impracticability on a Prior Repudiation (13.21)
i. If A and B enter into an agreement under which A is to serve B for a year and B repudiates before the
time for performance arrives and A dies within that time, although A had a cause of action for the
repudiation, As estate could not recover, b/c it would be necessary to show that A would have been
ready, willing, and able
ii. What if A repudiates but then his performance becomes impossible
1. One view: subsequent impracticability should not be taken into account b/c the rights of the
parties become fixed by the repudiation
2. Better view: subsequent impracticability will discharge an anticipatory breach and will
ordinarily limit damages in the case of a non-anticipatory breach
a. So if A repudiates and then died before the time for performance, B would NOT be
entitled to any recovery
b. If A repudiated and then died one month after performance was to begin, B would be
entitled to damages for only one month
c. So if A performed for 2 weeks and A then repudiated and died 2 weeks later, A would
be entitled to damages for the two weeks following the repudiation and preceding As
death

11. Gasco contracted to deliver to P all of Ps requirements of propane for a five year term up to a total maximum count. Gasco has
numerous other customers but is not bound by K to any of the other customers. During the energy crisis of 1973, there was a
shortfall of propane available to gasco. The circumstances were such that the shortfall was due to a contingency the non-
occurrence of which was a basic assumption on which the K was made. Gasco has notified plaintiff that it would limit deliveries to
a started % of Ps actual requirements. P sues contending truthfully that Gasco has adequate supplies to supply Ps requirements. P
argues that the shortfall should be visited soley upon Gascos non-contract customers. What result?
UCC subsection B 2-615 seller allocates among all the customers permitted under the UCC P is wrong and D is right.

12. When a buyer is rightfully told by the seller that b/ of impracticability he will be shipped only 75% of the quantity of goods he
has contracted to buy, must the buyer accept?
If the buyer remains silent does the buyer accept??? 2-616 the buyer has a right to terminate the K the buyer does not have to
take the allocation and in subsection 2 if the buyer had failed to modify within a reasonable time the K lapses [what if there
was no agreement?????].failing to respond the K is discharged.receipt of the notice

m. Adjusting the rights of the parties (13.23)


i. Total supervening impracticability or frustration EFFECT is to discharge the excused partys remaining
duty
1. Simultaneously the other party is discharged b/c the performance of the excused party will not
be forthcoming
ii. If the supervening impracticability or frustration is only prospective the other party has the same
options as in a case where the non-performance would be a breach, except that there will not be a cause
of action for breach (see 12.8)
iii. See above for temporary and partial impracticability (13.13 to 13.14)
iv. Adjusting rights
1. Divisibility might help recover lo
2. sses
a. Some courts severe anyway despite divisibility not working
3. Restitution
a. Though its tough to prove
b. Parties should be placed in the position they would have been in at the occurrence of
the frustrating event
4. Reshape the K so that the duties of the parties will continue
a. Done by allocation, Partial or Temporary impracticability, or by supplying term that is
reasonable
5. Waiver

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a. The party to whom performance is owed has the power to reshape the contract by
waiving restrictive clauses, or substantial non-performance
b. Defense of impracticability can be waived by virtue of a source of supply not
contemplated by the K
n. Risk of Casualty of Losses (13.24) [PROPERTY CONCEPT]
i. When goods or real property are in the process of being sold, or are under lease or bailment, frequently
the question arises as to which of the parties must bear the risk of damage or destruction of the subject
matter
1. 3 views
a. Majority: places the risk of loss on the purchaser by applying the concept of equitable
conversion: once the K is made, the purchaser is regarded by a court of equity as the
owner under this view, risk of loss means that the buyer must pay for the property
even though the buyer did not have legal title to it at the time of the casualty
b. Minority: the buyer does not assume this risk; seller as legal owner of a property
simply loses the seller own property and is not entitled to look to the buyer for
payment seller suffers risk of loss
c. Third view: places the risk of loss on the purchaser only if the purchaser is in
possession or has legal title

XVI. Remedies (restatement)


a. Specific Performance: forces contract to be upheld
b. Substituted Relief (damages) (rs. 344)
i. Expectation: interest in having the benefit of his bargain by being put in as good as position as he would
have been had the contract been performed
1. Hawkins: would actually not be paid for pain and suffering b/c you have to PAY for the
contract
a. Difference between 100% perfect hand and hand in current condition any avoided
costs (no doc fee unpaid that would have been deducted)
ii. Reliance: which is his interest in being reimbursed for loss caused by reliance on the K by being put in
as good a position as he would have been in had the K not bee made
1. Hawkins: pain and suffering
iii. Restitution: interest in having restored to him any benefit that he has conferred on the other party
1. take Hawkins: got the benefit of money docs fee; often the smallest

Railroad example with mitigation of damages:


Price is 20,000
cost of full performance 16,000
Profit = 4000 profit
Revoke halfway through Under Rs. 45 NOT a permissible revocation
Damages at time of revocation: cost to-date 10,000 + projected profit 4000 = 14,000 OR Price 20,000 cost avoided 6,000 =
14,000

Damages are calculated at time of repudiationto the detriment of the railroad to extend the lines so they shouldnt do itDUTY
is misleadingcould not recover enhanced damages.so you have incentive NOT to extend linesyou are cutting into your own
profit and you arent going to get any more than 14,000.

Reliance recovery: would just get 10,000: cost to date

So beginning performance is in option contract so it can be breached and there can be expectation remedy.USUALLY no right to
payment until the performance is completebut b/c of the property owner, the continuing performance is excused

c. Damages in general (346)


i. Will get damages unless prevented for some reason
ii. Otherwise get nominal
d. Expectation
i. Measure of damages in general (rs. 347)
1. Expectation interest as measured by: [L/V+OL-avoided costs = expectation damages]

112
a. the loss in the value to him of the other partys performance caused by its failure or
deficiency, PLUS
i. requires determining the value of those performances to the injured party
himself and not their value to some hypothetical reasonable person or on
some market (preclusion of foreseeability 351 and certainty (352))
b. Any other loss including incidental or consequential loss, caused by the breach
LESS
c. Any cost or other loss that he has avoided by Not having to perform
ii. Alternatives to Loss in Value (rs. 348)
1. If the loss in value is not proved with reasonable certainty then he may recover damages
based on the rental value of the property or on interest on the value of the property
2. If a breach results in defective or unfinished construction and the loss in value to the injured
party is NOT proved with sufficient certainty, he may recover damages based on
a. Diminution in the market price of the property caused by the breach OR
i. Because the cost to complete is usually less than the loss in value, limited to
this recovery based on avoidability
b. Reasonable cost of completing performance or of remedying the defects if that
cost is NOT clearly disproportionate to the probable loss in value to him
i. Better to be overcompensated for fixing than under compensated for
misevaluating loss in value
ii. BUT if to undo and redo costs TOO MUCH b/c you have to UNDO what has
been improperly done will not be made but rather based on the difference
between the market price of the property with the defects and without the
defects [b/c you could always sell] J&J
3. If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the
event would have occurred had there been no breach, the injured party may recover damages
based on the value of the conditional right at the time of breach.
e. Limitations
i. Attorneys fees
1. Cant recover them (Mader)
ii. Avoidable Consequences
1. Rs. 350
a. Except as stated in subsection 2, damages are not recoverable for loss that the injured
party could have avoided without undue risk, burden or humiliation
b. The injured party is not precluded from recovery by the rule stated in subsection 1 to
the extent that he has made reasonable but unsuccessful efforts to avoid loss

f.
Avoided consequences
i. Situation where you just take the other job and deduct
g. Affirmative avoidable consequences
i. Incidental and consequential have to be proved whereas general
damages dont have to be proved
h. Forseeability (something not in the ordinary course of business)
i. Restatement section 351 Unforeseeability and Related limitations on damages
1. Damages are not recoverable for loss that the party in breach did not have reason to foresee as
a probable result of the breach when the K was made
2. Loss may be foreseeable as a probable result of a breach b/c it follows from the breach
a. In the ordinary course of events or [GENERAL] dont have to be proved
b. As a result of special circumstances beyond the ordinary course of events, that the
party in breach had reason to know [consequential] have to be proved and
foreseeable
i. Cant be for an abnormal use
Incidental generally sale of goods like the cost of shipping back, etcthese also have to be
proved
3. A court may limit damages for foreseeable loss by excluding recovery for loss of profits by
allowing recovery only for loss incurred in reliance or otherwise if it concludes that in the
circumstances justice so requires in order to avoid disproportionate compensation. (NOSE JOB
CASE)

113
Hadley v. Baxendale, Court of Exchequer 1854, page 664
Hadley plaintiff operated a grist mill which was forced to suspend operations b/c of a broken shaft. Ps employee brought the
broken shaft to the D for shipment to an engineering company which was to manufacture a new shaft, using the broken one as a
model. The Ds inexcusably delayed the shipment for several days. As a result the mill was shut down for a greater period of time
than it would have had the shipment been seasonably dispatched. A jury verdict for the P included an award of damages for the lost
profits of the mill. The trial courts judgment was revered.
This is the case which tries to put some control around the jury verdict rather than do what you think is right JURY instructions
u can avoid damages based on the following: page 665 bottom EITHER arising naturally that is according (usual course of
things) [GENERAL] OR such as made reasonably supposed in the contemplation of both parties at the time they made the
K as the probable result of the breach of it (this is important communicated at time K was made and NOT at the time of
breach)
Usually delay results in a loss of the value of its use for the period of delay (the rental value) and so anything in excess will be
awarded if such additional damages were in the contemplation of both parties as a probable consequence of a breach. So such
consequences must be foreseeable.

ii. Comment
1. Need not made tacit agreements to be liable for loss just reasonable standard
iii. General and Special Damages
1. Loss resulting from a breach in the ordinary course of events is foreseeable as the probable
result of that breach
2. If loss results that arent in the ordinary course of events unless there was special
circumstances known when K was made

Ballard v. El Dorado Tire, US Ct Appeals 5th circuit 1975, page 679: ballard sues the tire company for the
breach what does the P have to prove here --- being that they breached expectation damages the balance of the salary under
the K 5 years left, 5 years of salary that is the LOSS in value under the tire companies promiseballard sues for and recovers
on that basis --- P proves the balance of the salary due how does the mitigation issue come in?? el dorado appeals b/c ballard
didnt seek OTHER employment but ballard was afraid to then he wouldnt be able to compete BUT in light of the fact that
ballard is free to enter into other employment ballard COULD have taken another job IF ballard unreasonably failed to mitigate
failed to take similar employment that salary would nevertheless be deducted from the damages from the 46,000 if similar
employment available EVEN though he didnt take it its a hypothetical WHO has to prove that ballard failed to mitigate
employer has to prove and he didnt..the difference is REALLY the RESALE formula under the UCC (2-206) has to
sell his services elsewhere the market formula the mkt value of the services would be deducted in the sale of goods
situation the sellers damages the seller has to prove both of those figures in sale of goods
the seller is going for the K price minus mkt price seller has to prove BOTH here its the
same seller of services not goods but seller of services only has to prove K price and
the buyer has to prove the market was available.

Shirley MacLaine contracted with D (FOX) to play the female lead in bloomer girl a musical to be filmed in Cali for a minimum
guarantee compensation of $750,000. D decided it would not produce BG. In substitution, D offered Miss MacLaine the Lead in
Country a western to be filmed in Australia. She declined to pay what result?
Is it similar employment? NO. one showcases her singing and dancing and western is for men and on the other side of the world
NOT similar employment she recovers the full salary on this movie. There was no claim she should have looked elsewhere
probably b/c she was in exclusive arrangement failure to take subsequent movie b/c dissimilar employment and gets the full
salary

This is a case where the D himself that is offering the substitute K the standard on avoidable consequences rule
Rs. 350: without undue risk, burden and humiliation not a proper offer of substitute k if 20th century had offered her another
musical on condition she give up her damages that would NOT be unreasonable failure that would be on condition she give up
her rights NOT a hard and fast rule what the situation when the D is offering himself

Emery case again: page 750 wanted the cost to repair the land in order to permit a hay crop to be harvested the costs to
remedy to bring the land back for hay crop ITEM 3 losses suffered b/c they couldnt plant HAY if the emeries had gone out
and spent themselves the $$ they could have restored the land and they wouldnt have incurred the 3000 loss of the haycrop and
the claim was made they could have spent $$ and unreasonably failed to MITIGATE Not an unreasonable here b/c too expensive
UNDUE burden/risk b/c nobody knows the outcome of litigation that is just increases stakes

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i. UCC
i. 1-106. Remedies to be Liberally Administered.
ii. (1) The remedies provided by this Act shall be liberally administered to the end that the aggrieved party
may be put in as good a position as if the other party had fully performed but neither consequential or
special nor penal damages may be had except as specifically provided in this Act or by other rule of law.
iii. (2) Any right or obligation declared by this Act is enforceable by action unless the provision declaring it
specifies a different and limited effect.
iv. Between buyer and seller: important to figure out whether you have
talked about goods accepted by the buyer or goods NOT accepted by the
buyer
1. 2-703. Seller's Remedies in General
a. Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a
payment due on or before delivery or 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 (Section 2-612), then also with respect to the whole undelivered balance, the
aggrieved seller may
i. withhold delivery of such goods;
ii. stop delivery by any bailee as hereafter provided (Section 2-705);
iii. proceed under the next section respecting goods still unidentified to the
contract;
iv. resell and recover damages as hereafter provided (Section 2-706);
v. recover damages for non-acceptance (Section 2-708) or in a proper case the
price (Section 2-709)
vi. cancel.
2. 2-711. Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods.
a. (1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects
or justifiably revokes acceptance then with respect to any goods involved, and with
respect to the whole if the breach goes to the whole contract (Section 2-612), the
buyer may cancel and whether or not he has done so may in addition to recovering so
much of the price as has been paid
i. (a) "cover" and have damages under the next section as to all the goods
affected whether or not they have been identified to the contract; or
ii. (b) recover damages for non-delivery as provided in this Article (Section 2-
713).
b. (2) Where the seller fails to deliver or repudiates the buyer may also
i. (a) if the goods have been identified recover them as provided in this Article
(Section 2-502); or
ii. (b) in a proper case obtain specific performance or replevy the goods as
provided in this Article (Section 2-716).
c. (3) On rightful rejection or justifiable revocation of acceptance a buyer has a security
interest in goods in his possession or control for any payments made on their price
and any expenses reasonably incurred in their inspection, receipt, transportation, care
and custody and may hold such goods and resell them in like manner as an aggrieved
seller (Section 2-706).
v. Goods accepted
1. SELLER
a. 2-709. Action for the Price.
i. (1) When the buyer fails to pay the price as it becomes due the seller may
recover, together with any incidental damages under the next section, the
price
1. (a) of goods accepted or of conforming goods lost or damaged
within a commercially reasonable time after risk of their loss has
passed to the buyer; and
2. (b) of goods identified to the contract if the seller is unable after
reasonable effort to resell them at a reasonable price or the
circumstances reasonably indicate that such effort will be
unavailing.

115
ii. (2) Where the seller sues for the price he must hold for the buyer any goods
which have been identified to the contract and are still in his control except
that if resale becomes possible he may resell them at any time prior to the
collection of the judgment. The net proceeds of any such resale must be
credited to the buyer and payment of the judgment entitles him to any goods
not resold.
iii. (3) After the buyer has wrongfully rejected or revoked acceptance of the
goods or has failed to make a payment due or has repudiated (Section 2-
610), a seller who is held not entitled to the price under this section shall
nevertheless be awarded damages for non-acceptance under the preceding
section.
2.BUYER
a. 2-714. Buyer's Damages for Breach in Regard to Accepted Goods.
i. (1) Where the buyer has accepted goods and given notification (subsection
(3) of Section 2-607) he may recover as damages for any non-conformity of
tender the loss resulting in the ordinary course of events from the seller's
breach as determined in any manner which is reasonable.
ii. (2) The measure of damages for breach of warranty is the difference at the
time and place of acceptance between the value of the goods accepted and
the value they would have had if they had been as warranted, unless special
circumstances show proximate damages of a different amount.
iii. (3) In a proper case any incidental and consequential damages under the
next section may also be recovered.
1. Incidental includes: brokerage commission, storage charges,
advertising costs, and auctioneers fees made necessary by the
others breach
vi. Goods Not Accepted
1. Seller (wrongful rejection or buyer repudiation)
a. Resale
b. K price resale price (with incidental)
c. 2-706. Seller's Resale Including Contract for Resale.
i. (1) Under the conditions stated in Section 2-703 on seller's remedies, the
seller may resell the goods concerned or the undelivered balance thereof.
Where the resale is made in good faith and in a commercially reasonable
manner the seller may recover the difference between the resale price and
the contract price together with any incidental damages allowed under the
provisions of this Article (Section 2-710), but less expenses saved in
consequence of the buyer's breach.
ii. (2) Except as otherwise provided in subsection (3) or unless otherwise
agreed resale may be at public or private sale including sale by way of one or
more contracts to sell or of identification to an existing contract of the seller.
Sale may be as a unit or in parcels and at any time and place and on any
terms but every aspect of the sale including the method, manner, time, place
and terms must be commercially reasonable. The resale must be reasonably
identified as referring to the broken contract, but it is not necessary that the
goods be in existence or that any or all of them have been identified to the
contract before the breach.
iii. (3) Where the resale is at private sale the seller must give the buyer
reasonable notification of his intention to resell.
iv. (4) Where the resale is at public sale
1. (a) only identified goods can be sold except where there is a
recognized market for a public sale of futures in goods of the kind;
and
2. (b) it must be made at a usual place or market for public sale if one
is reasonably available and except in the case of goods which are
perishable or threaten to decline in value speedily the seller must
give the buyer reasonable notice of the time and place of the resale;
and

116
3. (c) if the goods are not to be within the view of those attending the
sale the notification of sale must state the place where the goods are
located and provide for their reasonable inspection by prospective
bidders; and
4. (d) the seller may buy.
v. (5) A purchaser who buys in good faith at a resale takes the goods free of any
rights of the original buyer even though the seller fails to comply with one or
more of the requirements of this section.
vi. (6) The seller is not accountable to the buyer for any profit made on any
resale. A person in the position of a seller (Section 2-707) or a buyer who has
rightfully rejected or justifiably revoked acceptance must account for any
excess over the amount of his security interest, as hereinafter defined
(subsection (3) of Section 2-711).
d. Market Formula
i. Unpaid K price - Mkt Price (with incidental)
e. 2-708. Seller's Damages for Non-acceptance or Repudiation.
i. (1) Subject to subsection (2) and to the provisions of this Article with respect
to proof of market price (Section 2-723), the measure of damages for non-
acceptance or repudiation by the buyer is the difference between the market
price at the time and place for tender and the unpaid contract price
together with any incidental damages provided in this Article (Section 2-
710), but less expenses saved in consequence of the buyer's breach.
ii. (2) If the measure of damages provided in subsection (1) is inadequate to put
the seller in as good a position as performance would have done then the
measure of damages is the profit (including reasonable overhead) which the
seller would have made from full performance by the buyer, together with
any incidental damages provided in this Article (Section 2-710), due
allowance for costs reasonably incurred and due credit for payments or
proceeds of resale.
2. Buyer COVER (seller repudiates)
a. K price - Cost of cover (with incidental and consequential)
b. 2-712. "Cover"; Buyer's Procurement of Substitute Goods
i. (1) After a breach within the preceding section the buyer may "cover" by
making in good faith and without unreasonable delay any reasonable
purchase of or contract to purchase goods in substitution for those due from
the seller.
ii. (2) The buyer may recover from the seller as damages the difference between
the cost of cover and the contract price together with any incidental or
consequential damages as hereinafter defined (Section 2-715), but less
expenses saved in consequence of the seller's breach.
iii. (3) Failure of the buyer to effect cover within this Section does not bar him
from any other remedy.
c. Market price (K price - price at time of learned breach)
d. 2-713. Buyer's Damages for Non-Delivery or Repudiation.
i. (1) Subject to the provisions of this Article with respect to proof of market
price (Section 2-723), the measure of damages for non-delivery or
repudiation by the seller is the difference between the market price at the
time when the buyer learned of the breach and the contract price
together with any incidental and consequential damages provided in this
Article (Section 2-715), but less expenses saved in consequence of the
seller's breach.
ii. (2) Market price is to be determined as of the place for tender or, in cases of
rejection after arrival or revocation of acceptance, as of the place of arrival.
vii. Incidental and Consequential
1. 2-715. Buyer's Incidental and Consequential Damages.
a. (1) Incidental damages resulting from the seller's breach include expenses reasonably
incurred in inspection, receipt, transportation and care and custody of goods rightfully
rejected, any commercially reasonable charges, expenses or commissions in

117
connection with effecting cover and any other reasonable expense incident to the
delay or other breach.
b. (2) Consequential damages resulting from the seller's breach include
i. (a) any loss resulting from general or particular requirements and needs of
which the seller at the time of contracting had reason to know and which
could not reasonably be prevented by cover or otherwise; and
ii. (b) Injury to person or property proximately resulting from any breach of
warranty.
2. 2-710. Seller's Incidental Damages.
a. Incidental damages to an aggrieved seller include any commercially reasonable
charges, expenses or commissions incurred in stopping delivery, in the transportation,
care and custody of goods after the buyer's breach, in connection with return or resale
of the goods or otherwise resulting from the breach.
b. No seller consequential only bargained for money
3. Consequential damages are often limited
8. Jack was highly skilled production manager in the ladies ready to ear industry. He entered in a 3 year K with D to work in this
capacity in Dallas, a city in which positions of this type were rare. Soon after the performance of the K began Jack was fired
without cause. He spent over 1300 in advertising and travel costs in an unsuccessful attempt to find a comparable position. He
ultimately took a temporary and less skilled job at a lesser salary for a period of time that was less than the unexpired contract
term. Under the principle of mitigation of damages how should his expense and temporary job earnings be treated?
Temporary terms are the actual substituted those get deducted even though dissimilar employment BUT what about the
reasonable expenses incurred for mitigation THOSE are recoverable as part of the affirmative aspect of the RULE the
reasonable cost to mitigate losses are recoverable that is true even if they are unsuccessful and no mitigation at all same result

viii. Emotional Disturbances Rs. 353. Generally Dont apply unless bodily injury
ix. Uncertainty. American invention.
1. Rs. 352: Damages are not recoverable for loss beyond an amount that the evidence permits to
be established with reasonable certainty
2. We have seen this issue with indefiniteness and specific performance
3. 2 aspects
a. Causation damages must be caused by the breach
b. Measurement aspect there must be reasonable basis from which jury can calculate
damages
i. So expectation recovery might be out of the question
ii. Gruber: was too difficult to estimate the best efforts b/c nothing similar
done before
j. Reliance Interest
i. Rs. 349. As an alternative to the measure of damages stated in 347, the injured party has a right to
damages based on his reliance interest, including expenditures made in preparation for performance or
in performance, less any loss that the party in breach can prove with reasonable certainty the injured
party would have suffered had the K been performed
1. Choose to do this when profit uncertain, but it is open to party in breach to prove the amount of
loss to the extent that he can do so with reasonable certainty under standard stated in 352 and
have it subtracted from the injured parties damages.
2. Foreseeability might be a limitation P could recover for essential but not non-essential
reliance
3. Major Promissory estoppel recovery
4. Avoidable consequences also applies dont just sit around with the cards
5. Cases divided on the recovery of wasted expenditures that were incurred prior to entry into the
K
a. To the extent that it was foreseeable that these losses would be incurred, recovery
should be allowed
b. Although they would have been incurred had the K not been entered into, t is not
clear that they would have been wasted if the K had not been made such recovery
would be a surrogate for opportunities forgone in reliance on the K

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c. Alternatively, one could characterize such recovery as a portion of an expectation
measure assume zero profits and apply a standard expectation measure recovery
including pre-K expenses and a share of overhead (page 579 hornbook)
k. Restitution
i. Restatement 371: Measure of restitution interest.
1. If a sum of money is awarded to protect a partys restitution interest, it may as justice requires
be measured by either
a. The reasonable value to the other party of what he received in terms of what it would
have cost him to obtain it from a person in the claimants position, or
b. The extent to which the other partys property has been increased in value or his other
interest advanced
ii. Restatement 373. Restitution when other party is in breach
1. Subject to the rules stated in subsection 2, on a breach by non-performance that gives rise to a
claim for damages for total breach or on repudiation, the injured party is entitled to restitution
for any benefit that he has conferred on the other party by way of part performance or reliance.
2. The injured party has no right to restitution if he has performed all of his duties under the K
and no performance by the other party remains due other than payment of a definite sum of
money for that performance.
a. If the breach is by nonperformance, restitution is available only if the breach gives
rise to a claim for damages for total breach, not merely claim for partial breach
b. From comment A restitution is available even in those exceptional situations
in which no claim for damages for total breach arise
i. THIS is the uni exception that when full performance has been
tendered, and the other party repudiates [BUT has to be non-money
owed] even though no damages, can still get restitution
iii. Full Performance
1. In full/substantial performance you are the limited K price NOT
reasonable value of services Could have sued in expectation
iv. Losing Contract: an injured party who has performed in part will usually prefer to seek expectation;
but where there is a loss, his restitution interest may give him a larger recovery than would damages on
either basis 2nd restatement gives him that right
1. Limitations
a. One that is applicable to any claim for restitution: the party in breach is liable only to
the extent that he has benefited from the injured partys performance
b. If the injured party has completed performance and nothing remains for the party in
breach to do but to pay him the price, his recovery is limited to the price.
2. Restitution in general for losing Ks
a. $850 and cost spent 2000 with 3000 left to spend 3 views
i. 2/5*850 would be the restitutionary recovery (more than expectation
recovery as well as the reliance recovery b/c it is affirmative amount K
price is the conclusive measure [MINORITY]
ii. K price is a ceiling you would have to prove the reasonable value of the
services but collect NO more than $850 [50/50]
iii. $2000 reasonable value of the servicesK price is evidence.so
introduce that really worth 2000 and jury can believe that. [50/50]

Oliver v. Campbell, Sup. Ct. Cali, 1954, page 729


P was the attorney for the deceased Campell in divorce action D is the client and P is the attorney and it was a divorce action --
$850 P will represent D in divorce action the P has substantially performed so then the D decides to fire lawyer and represent
himself gets sense he is going to loselawyer sues forsuit is for reasonable services -- $5000 P suing for more the P
inflates the value BUT they find that reasonable value is $5000 P sues for reasonable value of services this suit have to
describe as restitution. Entitled to K price b/c it was liquidated and there was substantial performance

l. Punitive Damages
i. Rs 355. Punitive damages are not recoverable for a breach of K unless the conduct constitutes the
breach is also a tort for which punitive damages are recoverable

119
ii. Posner advocates efficient breach idea (Pareto) punitive damages are no good b/c they deter efficient
breaches
1. If a party breaches and is still better off after paying damages to compensate the victim of the
breach, the result is Pareto superior, and the parties are better off b/c of the breach
2. But is OK with carving out for opportunistic breaches (fraud etc. include that)
iii. Friedman: more wary of efficient breaches (transaction costs)
iv. Efficient breaches in general consistent with
1. Expectation damages
2. No punitive damages
3. Specific performance generally not available (but where no market then it is)
4. Generally no restitution of gains
v. Efficient theory criticism
1. It assumes no transaction costs
2. Rules of K often fail to compensate for all the losses of the party injured by the breach i.e.
foreseeability and certainty are barriers
3. Damages for mental distress, etc. arent compensable

Patton v. Mid-Contienent Systems, Inc. 7th Circuit, page 703


No award of punitive damages b/c no sign of malicious, fraudulent, oppressive, or even grossly negligent.

m. Liquidated Damages
i. Traditional Test
1. 3 part test (from Wassenaar)
a. Did the parties intend to provide for damages or for a penalty
i. Little weight anymore but dont label penalty
b. Is the injury caused by the breach one that is difficult or incapable of accurate
estimation at the time of the K
c. Are the stipulated damages a reasonable forecast of the harm caused by the breach?
i. **Looking prospectively at reasonability v. 2nd which if they get lucky
and same its ok
ii. Modern/2nd/UCC 2-718
1. 356. Liquidated damages and Penalties
a. Damages for breach by either party may be liquidated in the agreement but only at an
amount that is reasonable in light of the anticipated or actual loss caused by the
breach and the difficulties of proof of loss. A term fixing unreasonably large
liquidated damages is unenforceable on grounds of public policy as a penalty
2. Shotgun/Blunderbuss clause: as long as you get lucky doesnt matter if foreseeable
iii. What if no harm caused by a breach?
1. Traditional: valid
2. 2nd restatement: valid/but no windfall to the P
iv. KEY from class
1. when P is seeking liquidated damages D is going to claim penalty
2. When D is seeking liquidated damages P will want to show low/unconscionable

Wassenaar v Panos, sup ct Wisconsin 1983, page 711


Employment K with liquidated damages clause. Doesnt follow anything we said but rather says what is reasonable under all
circumstances both anticipated and actual

n. Specific performance
i. Adequacy of damages is key point.
1. Factors affecting (restatement 360)
a. Difficulty of proving damages with reasonable certainty
b. Difficulty of procuring a suitable substitute performance by means of money awarded
as damages and
c. Likelihood that an award of damages could not be collected

120
ii. Only at law when remedy not available but even the court might not
1. dont want to force bad service
2. Indefinite K
iii. Traditionally
1. grant when the property was unique

Laclede Gas Co v. Amoco Oil. Co, page 737.


Requirements K for the good of public specific performance granted. Didnt matter there was no mutuality of remedy and didnt
matter if indefiniteness can be seen as a cure??

Northern Indiana Public Service Co. v. Carbon County Coal Co, page 739
Shouldnt continue if not economical

XVII. Statute of Frauds (19.1)

Covered = Within = writing = cant be performed in less than a year


Full performance, promissory estoppel take out of SOF
Within statute and writing not satisfied = unenforceable
So in breaching situation only the three views whereas VOIID always should get restitution
i. Certain Ks have to be in writing
1. A promise by an executor or administrator to answer damages out of his own estate
2. A promise to answer for the debt, default or miscarriage of another person
3. An agreement made in consideration of marriage
4. Any K for the sale of land or interests in land
5. Any agreement that is not to be performed within the space of on year from the making thereof
ii. Purpose:
1. Promoting writing prevents perjury and promotes certainty
b. Computation of the One Year Period (19.17)
i. an agreement that is not to be performed within the space of one year from the making thereof. (when
will it be completed)
1. start the very next day is FINE
c. Possibility of Performance within 1 Year (19.18)
i. Would it be a breach of K to perform in less than a year; only then is the K within the one-year section.
a. Distinct Minority: taken into account how the parties intended and expected that the
K would be performed and if they expect performance to endure beyond a year from
the making of the K it is held to be within the Statute.
2. Indefinite duration: not within the SOF
3. Monthly installments is a good indicator of whether it can be performed in one year or
not

C.R. Klewin Inc. v. Flagship Propperties, Sup. Ct, Conn. 1991, page 838
Performance was left indefinite so therefore could be performed in one year

d. Performance Conditioned on an Uncertain Event (19.19)


i. Ks of indefinite duration are not within the one year section b/c CAN be performed within one
year
1. Insurance Ks are generally not within b/c the condition could occur any time
ii. There is an exception that legislation in some jurisdictions has extended the SOF to Ks which are not
performable before the end of a lifetime to Ks make testamentary dispositions
e. Promise Terminable on an Uncertain Even (19.20)
i. War could end
ii. Even though a K for 2 year employment does fall within SOF and death is a possibility, courts hold that
where the K is phrased in terms of a number of years rather than in terms of a lifetime, death operates as
a defeasance (discharge of obligation) of the K rather than as its fulfillment
iii. Lifetime NOT within statute

4. Which if any of the following Ks is within the SOF?

121
A. A agrees to work for B for 2 years.
WITHIN SOF. Couldnt happen in one year -- death would result on discharge b/c impossibility that is a defeasance of the K it
possible that B might braech still that doesnt make any difference we are looking at when performance would be complete.
B. A agrees to work for B for As lifetime not exceeding 2 years.
Performance complete at the end of the lifetime so its not within the SOF. Could die tomorrow so shouldnt be within SOF
Promise lmited by the lifetime of the person b/c not within the SOF b/c death could occur within the year.
C. A agrees to work for B for 2 years if A lives that long
More like within the SOFnot definite answer says more like A more like 2 yearsI think this would fall b/c thats not the crux
of it..stated in terms of years
D A agrees to work for B for 2 years but if A dies the K shall be terminated.
There is no agreement on the law here

f. Alternative Performances; Options to Terminate (19.21)


i. Where a contracting party promises one of two or more performances in the alternative the promise is
NOT within the one-year section if any of the alternatives can be performed within one year from the
time of the making thereof
ii. If there are is a termination option
1. Majority view: Statute is a defense b/c although defeasance is possible within a year,
performance is NOT (within the statute) should have been in writing
2. Minority view: K is not within the SOF; looks as alternative promises b/c one is outside the
SOF, the whole K is outside (no need for writing so probably enforceable)
3. NY: K is not within the statute if the option of termination is bilateral, or if the option is in the
defendant, but that the Statute would be a defense if the option of termination is only in the P
a. If the D is stuck in a long-term K, the D gets the SOF defense i.e. D is bound in a
performance that will not be completed within one year (p sues D for breach and D
wants to claim SOF)
b. In the music manager example b/c the D doesnt have control over who buys the
records, he would be stuck so in NY would be able to use the SOF defense (Ehrlich
v. Diggs)

Ehrlich v. Diggs page 845


P was a manger of musical group and D was the rapper. P and Gravediggaz entered into a written K under which the Gravediggaz
retained P as their exclusive representative and then Gravediggaz entered into K with Gee Street with an option for recording
services of D as a solo artist. Then P and Gravediggaz agreed to P becoming manager but it was oral. P claimed 15% It was
terminable by either P or the group at any time. P sues for breach. D claims SOF. So under majority view: within the SOF,
Minority: NOT within the SOF. NY: not really in anyones control but of the music listeners. D is stuck b/c has to turn over a gross
percentage for all entertainment-related employment, engagements or agreements commenced or entered into while P served as
manager of Gravediggaz.

3. P entered Georgetown Law School as a 1L. D an old friend of the family hired P to be a part-time resident manager of an apt
complex controlled by D. P was promised a rent-frere apt plus a salary. The agreement which was oral provided that the position
was to continue until P completed his law studies at Georgetown or was obliged to discontinue these studies. Five weeks after the
agreement was made, P was dismissed from his job at the apt complex. When P sued for breach, D raised the defense of SOF.
What result?
So D breached and P sues and D raises the D of SOFwithin the SOF????
Majority decided: Law school obligation is 3 years and the discontinuance is a defeasance NOT full performance and therefore
within the SOF and poor law student is out of luck.
Minority? You could also treat as alternative performances where its like a termination thing promise to employ for 3 years or for
as long as there under that approach would be outside the SOF
NY: D is stuck in the LT K YES! NY would bring it is in the majority so within the SOF

iii. Options
1. Same split as terminations
2. New York: if the option to extend or renew that could require performance for more than one
year is held by the P, the K is within the SOF. If the option is bilateral or is held by the D alone
the K is outside the reach of the statute
g. Multiple Promises in one K (19.22)

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i. Where any of the promises on either side of a bilateral K cannot be fully performed within one year
from the time of the formation of the K, the entire K is within one-year section of the SOF.
1. Meaning that the K is unenforceable by either party in the absence of a sufficient record or in
the absence of performance
h. Performance Under the One-Year Section (19.23)
i. Majority view: full performance on one side renders a K within the one year section enforceable
(should have been in writing but wasnt full performance) so K remedies
ii. Minority view: performance is ineffective to render the K enforceable, restricting the performing party
to a quasi-contractual remedy
Minority treats unenforceable LIKE VOID!!!!
iii. Party performance
1. Traditionally: part performance on one side does not entitle either party to sue to enforce the K
a. unless according to some authorities the K is divisible
b. or estoppel
2. Quasi is available
iv. FULL performance by both unanimously outside SOF page 788

14. A and B entered into an oral K whereby A agreed to render periodic services to B for a 2 year term for the sum of 5,000
payable at the end of the term.
At the end of the 2 year period A brought suit for the reasonable value of the services. What result?
A has worked for the 2 years claim in restitution FULLY performed and D only owes fixed amount of moneyunder the
majority full performance on one side takes the K outside the SOF so not unenforceable and in restitution B owes a fixed
amount of money limitation on restitution SUM CERTAIN

Minority view including NY (not taking case outside the SOF): full performance doesnt take it out of the SOF P cannot enforce
the K P cannot get the price no remedy in K or restitution could devise in promissory estoppel BUT we shouldnt apply the
exception to restitution here [exception of full performance] P cannot recover the PRICE b/c its unenforceable in this
exceptional case we should allow restitution MONEY GOOD case for restitution shouldnt allow greater than the K price
Suppose instead that after 6 months A refused to perform unless the compensation was raised to 7,500. B refused. A discontinued
services and brought suit for the reasonable value of the services rendered prior to this disagreement. What result?
Not justified this is a breach breach an unenforceable K is A entitled to restitution3 viewsthis is a breacher K
enforceable still a K that cannot breach seeking restitution can apply here.however, under fewer jurisdictions --- where K
would be void or unenforceable cannot be breached A is entitled to restitution just as much as under part C key difference of
unenforceable v. VOID.
Suppose instead that after 6 months A offered to sign a memo asked B to sign a memo and B refused. A discontinued services and
sued for the reasonable value of the As services. What result?
Dont think sowouldnt be enforceable a party in an unenforceable K is insecure if they have no memorandum that person is
entitled to ask the other party A is right in offering to sign a memo B should say yesA is entitled to suspend performance. A
demands assurances by asking for the memo entitled to suspend until B gives assurances B refuses here B is perfectly entitled
to stop working --- ONLY recovery is going to be restitution A quit working in a way that was justified b/c there was a refusal to
sign a memo is A entitled to reasonable value of services YES.restitution is available

i.
Unilateral Ks (19.24)
i. Majority: Uni-Ks are enforceable without reference to the one year SOF stemming from the majority
view that where the P has fully performed, the one year provision is NOT a defense.
ii. Minority: it is still arguable that a uni-K would not ordinarily be within the SOF
1. If A says to B if you walk across the BB 3 years from today, I promise to pay you $100
immediately after you walk
a. Not within 1 year section b/c by its terms its performance is to take place
immediately after the K is made
b. BUT would be different if A promised to pay a a year and a half after you walk
j. Sufficiency And Effect of a Record
i. Assuming a K is within the SOF, it is enforceable if the K itself is in a record or a memorandum is
recorded
ii. Parol evidence and the record (19.27)
Either to invalidate the record or to enforce different terms!!!!!
1. Record sufficient to satisfy the SOF need NOT be an integration

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2. However, the state of the record (i.e. whether it is an integration is important)
a. Not Integrated
i. It may be shown that the oral agreement contained essential terms different
from or additional to those stated in the record
ii. When the record is thus exposed as inaccurate, the party sought to be
charged may obtain a dismissal of the case b/c the record does not contain
the essential terms of the agreement
Important that non-essential terms arent included
OR adding a term that makes it alternative
b. Total Integration
i. Record may not be varied, contradicted, or supplemented in order to show
c. Integration:
i. BUT when the party seeks to introduce oral evidence in order to establish
terms not found in the record for the purpose of enforcing those terms
1. Here, consistent additional non-essential terms may be shown
unless there is a total integration
d. Extrinsic evidence should be admissible in aid of interpretation unless it is excluded
by the rules of interpretation
iii. The Contents of the Record (19.29)
1. the identity of the parties
a. need not be named if they are described
b. Extrinsic evidence is admissible to clarify the description
2. the subject matter of the K so that it can be identified either from the record alone or with the
aid of extrinsic evidence
3. The essential terms and conditions of all the promises constituting the K and by whom and to
whom the promises are made
iv. The Form and Timing of the Record Delivery
Parties, essential terms, subject matter
1. Writing
a. Record that satisfies the Statute need not have been made to satisfy the statute
i. Could be a receipt, telegram etc
b. Need not be prepared with the purpose of satisfying the Statute nor at the same time
that the K is mad; but according to the first restatement it must be made before the
suit is instituted
c. Need not be delivered and need not exist at time of the suit; sufficient it once existed
2. Recording, Electronic Message and Oral Stipulations
a. Such a communication must suitably memorialize the agreement
b. Tape recording unsure
c. VIDEO there is majority and minority
3. Admissions
a. Admission in pleading or in court satisfies the sale of goods requirement for a record
even if the admission is compelled by cross-examination
4. Usage, Course of Dealing and Course of Performance
a. SOF cannot be waived by an actual or imputed agreement; however a consistent
usage or course of dealing can be the basis of estoppel and course of performance
may modify a K
v. Signed by the Party to be Charged (19.31)
1. Signature includes any mark or sign, written etc just needs to be authenticated
2. Some states say subscribed rather than signed
3. Need only be signed by party being charged ordinarily the D but in case of
counterclaim P

8. A wrote to B offering a franchise for a two year term on given terms. B accepted orally. In an action by B for breach, the A
pleads the SOF. What result?
A has a writing signed by the A B doesnt sign itB sues A for breach. And A asserts SOF defense.its within the SOF.A has
a sufficient memo so there is no SOF defense.

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A was thinking that it wasnt signed by both parties but doesnt have to be signed .only has to be signed by one partyin this
situation the present situation that B can enforce the K against A but A cannot enforce it against B b/c B has not signed a
memorandum.
A has made enforceable promise and B has made an unenforceable promise is it still a valid K b/c we dont need mutuality of
obligation b/c really have mutuality of consideration..there isnt mutuality of obligation but consideration NOT VOID. B can
enforce against A and A cant against B
In the situation where B hasnt signed sufficient memo this is performance discussion.B is in good shape b/c A is vulnerable
if A is performing he will be concerned.A can make a demand that B sign a memorandum.if B refuses to do so A would be
entitled to suspend performance.if refusal to sign, A is discharged. A has to ask B to do this though.

4.Some states use vendor or licensor


5.A number of states have by statute provided that if the K is within the SOF the agents
authority must be evidence by record but often limited to real property statute of frauds
vi. Record Quilted from Several Records (19.33)
1. If there is more than one record and all the records are signed by the party there is no problem
but if the party to be charged has singed only one of the documents, the matter is more
complicated
a. Question is whether there was assent
i. One view: the unsigned document is not sufficiently authenticated
ii. Other view/Better: even if the signed document does not expressly refer to
the unsigned document or if the unsigned document is not attached, it is still
sufficient if the documents by internal evidence refer to the same subject
matter or transaction (Crabtree)

Crabtree v. Elizabeth Arden Sales Corp, page 851


Question in Cabtree can more than one doc be combined to create a memorandum --
Wants a 3 year K but doesnt get gets 2 year with escalating salary unfortunately what happens is he gets after one year so C
claims breach against EA and EA says SOF violation (wasnt a K to begin with) P has to come up with sufficient memorandum
and is able to come up with memo to files and a payroll change CARD. PCC has name, position and salary and signed with initials
of RPJ sales manager the problem is PCC doesnt have the duration. Now the duration with some interpretation which is fine in
the memo to files 2 years to make good is printed and has the name, salary but its not signed ---- so to come up with sufficient
memo have to connect the two documents if they are stapled together FINE. If the signed one specifically refers to the
unsigned one FINE. BUT this case goes farther and expands that idea to the rule that you can connect the two if there is internal
references to indicate its the same K so here, same name, same salary, etc.written evidence themselves refer to the same
transaction one have that the 2 connected extrinsic evidence can be introduced to show EA did assent to the assigned document

Also, D would have incentive to show that the written record is insufficient see parol evidence rule

1. In that event extrinsic evidence is admissible to help show the


connection between the document and the assent of the party to be
charged
2. IT is necessary that the signed document evidence a contractual
relationship
a. Thus a signed cover letter transmitting an unsigned
proposed K is NOT a sufficient basis for treating the
unsigned document as a sufficient record
k. Effect of Non-Compliance Unenforceability (19.35)
i. Unenforceable is the right word to use; differences as follows
1. Majority: if the record is signed by one party it is enforceable against that party and operable
for a wide variety of purposes
a. Under Majority: SOF must be pleaded as an affirmative defense b/c viewed at as
unenforceable
2. Minority: since the return promise of the unsigned party is not sufficient consideration, being
void, the entire K is unenforceable under the doctrine of mutuality of obligation [but this
is weird b/c its really mutuality of consideration]

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a. Under Minority: since the oral agreement is no K at all, this may be shown under a
general denial or if no record is pleaded a MTD for failure to state a cause of action
(cant be raised for first time on appeal)
ii. Rational for NOT VOID
1. Where K has been fully performed on both sides it is unanimously agreed that the Statute has
NO effect thus indicating that the oral agreement isnt void
2. The record can be made after the contracting time which wouldnt be the case if it was void
3. A third party couldnt assert its invalidity only those in privity a major difference from a
void K
l. Effect of Part of a K being unenforceable (19.36)
i. General RULE: Where one or more of the promises in a K are within the Statute and others are not, the
general rule is that no part of the K is enforceable
1. A large number of cases have applied the same rule even though the K might be considered
divisible
2. Contrary cases:
a. if the K is divisible and the part that is not within the SOF is performed, the
corresponding promise may be enforced
b. Substantial performance takes the K outside of the SOF
ii. Exceptions
1. Where all the promises within the statute have been performed, then all of the other promises
become enforceable
2. Where the party who is to receive the performance under the only promise or promises within
the Statute agrees to abandon that part of the performance
3. One party can enforce the alternative promise without the statute
iii. Oral rescission or Modification (19.37)
1. General RULE: a K made in a record may be rescinded or modified orally
a. consideration generally the issue
2. Does the same general rule apply when a K is within the SOF and is evidenced by a sufficient
record?
a. Majority: an executory K that satisfies the SOF may be rescinded orally, thus
inducing some contracting parties to draft clauses that purport to forbid oral rescission
b. Some: when a K is within the SOF and is in a record, it may not be modified by an
oral agreement
c. BETTER: if the new agreement is NOT within the SOF (can be performed in less
than a year), it is not only enforceable without a record, but also serves to discharge
the previous agreement
i. If the agreement as modified is within the SOF, the original K evidence by
a record, coupled with the modification constitutes the K
1. If the original record sufficiently evidences the K, there is no need
for the modification to be evidenced in a record
2. Just saying you have flexibility with the record
ii. If the modified agreement is within the SOF and is unenforceable b/c it is
insufficiently memorialized, the former K remains enforceable unless the
new agreement takes precedence under waiver and estoppel
1. But waiver may be retracted by reasonable notice that strict
performance will be required of any term waived unless the
retraction UNJUST in view of material changes

15. P entered into a written K for 2 years employment as a doc with the D clinic. After six weeks the parties orally agreed that the
agreement would be rescinded immediately. P soon thereafter and before any change of position by D changed his mind tendered
his services which were refused and brought suit to enforce the written K. What result?
Can you orally rescind a K within the SOF but you have the sufficient memorandum
P is arguing that the oral rescission is ineffective and the original written K is still in force
The first one is enforceable K there is consideration for the rescission so each gave something UP Valid K for formation

Does it have to be evidenced by signed writing: there is no reasonyou can ORALLY rescind. Takes effect immediately. Not within
the SOF but you might be concerned that allowing oral rescission deprives assurance of written K if that is your concern you

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have to rely on statutes 2-209 and GOL that permit parties to exclude the oral rescission just as no oral mod. No oral
rescission this is how you protect against false claim of oral rescission (same area covering NOM)
16. Assume the same as 15 except that the oral conversation resulted in an agreement that he employment term would expire in 2
month. What result?

Now we have a modification reducing 2 months any problems its oral and consideration and no need for writng NO problem
enforceable modification
17. Assume the same facts as case 15 except that the oral conversation resulted in an agreement that the employment term would
be extended an additional 6 months. What result?
Cant be performed within a year extending an additional 6 months so the modification is UNENFORCEABLE
If the modification is unenforceable so the original should still be in effect wouldnt intend to discharge enforceable w/
unenforceable
However when you see unenforceable modification consider whether there is reliance if there are facts of showing reliance of
extending period takes a longer lease then you can talk about promissory estoppel
take case out of SOF enforce the unenforceable K b/c of PE
might be limited to reliance

iv. Defensive Use of an Unenforceable K (19.38)


1. General RULE: a K that is not enforceable b/c of the SOF may not be used by way of action
or defense
a. Oral K may not be used by way of set-off
i. If the P is suing on an oral K and has a sufficient record signed by the D
alone, the D may still use any defense arising out of the term and conditions
of the K, including counterclaim in the nature of recoupment
b. Exceptions
i. When the P is suing in quasi K but is in default, and the D is not and has
never refused to sign a sufficient record when requested
v. Remedies (19.40)
1. Courts have developed doctrine to allow for enforcement of K falling within SOF but not in
writing i.e. full performance on one side
2. P who has rendered SOME performance BUT has not defaulted may recover in quasi K for the
value of the benefits conferred on the D, other expenditures in reliance on the K and in some
instances specific restitution
a. Majority: involve a performance that is not sufficient to bring into operation the rules
permitting enforcement of the K
3. Can a 3rd party beneficiaries
a. recover has been denied on ground that the P had conferred no benefit on the D
vi. P must not be in default (19.41)
3 views approach to quasi-K relief of breaching party
1. One view: P who is entitled to restitution for his performance under an unenforceable K must
not be in default under the agreement which of course means that the D must have repudiated
or otherwise materially breached the K
2. Two view: can recover quasi-K
a. Logically follows that in such jurisdictions a defaulting party may have quasi-K relief
under a K unenforceable by the SOF
vii. Measure of Recovery (19.44)
1. Ps recovery is the value of the benefit conferred on the D
a. Injury incurred by the P in reliance on the K
2. Many courts gone beyond concept of benefit and have permitted recovery for reliance losses in
actions for restitution or on a theory of promissory estoppel
viii. Contract Price as Evidence of Value (19.45)
1. If A orally agrees to perform services for 2 year period in return for Bs promise to pay 20,000
the K is within the SOF. What if discharged after 6 months K price?
a. Majority: price is admissible into evidence, despite the fact that in many cases the
jurys verdict will often be the equivalent of what it would have been
2. Results differ depending on the K price
ix. Equitable estoppel and SOF (19.47)

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1.If equitable estopppel present, party to be charged will not be permitted to raise the defense of
SOF
2. Saying you signed can be a SOF assertion too
3. Has been used where the claimant had suffered an unconscionable injury by reliance on an oral
or insufficient memorialized K
x. Promissory estoppel (remember enforces K with expectation or reliance)
1. Older view: such a holding is clearly impossible of justification on any theory, in view of the
language of the statute
a. Doesnt make sense based on CL and legislation
2. 1st restatement: appears in context of promise to make a record which if relied on may give rise
to an effective promissory estoppel if the Statute would otherwise operate to defraud
3. 2nd restatement: enlarged to overcome SOF
a. based on unconscionable injury
b. unjust impoverishment
c. Extent to which conduct in reliance on the K corroborates the making of the
agreement
4. Easiest: to find favor in the courts: party agreed to sign a memorandum and the other party
relies by performing under the K reliance on promise to sign easy case SOF shouldnt
be available as defense [so outside the SOF]
5. Middle: reliance on an oral modification where there is no signed the court could apply
promissory estoppel see 15, 16, 17
6. Most difficult case: reliance on the initial K on the initial unenforceable K (McIntosh)

McIntosh v. Murphy, Sup Court HA, 1970 page 856


Lets assume the K formed on Sat April 25 on the telephone and the prospective employee employer offers the job for one year
employment beginning on April 27 Monday. The employee says yes but assuming formed on telephone call now the employee
gets rid of apt and moves stuff and rushes to Hawaii and starts working before the year is up so the employee gets fired and sues
for breach of K and the employer asserts the SOF defense is this K within the one year provision of the SOF??? Yes within the
SOF.the trial court tried not to count SUNDAY but wrong. How do you alleviate in an unenforceable K the potential recovery
is in restitution. The employee if not paid for services could always cover restitution claim quantum meriut and that requires
unjust enrichment here there is no allegation the P hasnt paid the P has spent all this money in moving which did not benefit
the D enriched the moving company etc.the Ps losses would not be covered by restitution at all so that is why good case for PE
to cover those reliance not terribly willing to apply PE bottom of 859 if restitution is adequate wont use PE but here b/c
reliance there is an interest the court willing to apply it. Have the inadequacy of other remedies -- so want to find some sort of
notion of other corroboration

XVIII. Third Party Beneficiaries (17.1)


Two questions to ask: do we recognize the P as a TPB and will the party win (raising
questions of defenses)
Policy: especially in donee situations there is no incentive for the promisee to sue etc.

a. Historically: only person in privity could sue on the K


i. Privity: those who exchange the promissory words or to those to whom the promissory words are
directed
ii. Dutton v. Poole
1. D had promised his father to pay Ds sister 1000 if the father would forbear from selling
certain property
2. Ds sister sought to enforce the promise, D took position that his sister was not in privity,
but as beneficiary court allowed
iii. So we have promisor (defendant), promisee (father), and plaintiff is donee beneficiary
1. father intended to and did confer on his daughter a gift in the form of a promise but doesnt
require delivery b/c it was purchased by the consideration furnished by the father
iv. In every bilateral K there are at least 2 promisors
1. Promisor has made the promise that benefits the third party
2. Promisee: who is
v. Lawrence v. Fox
1. Creditor beneficiary: promisees purpose was to have the creditor paid

128
Lawrence v. Fox: Holly owed Lawrence $$ and Fox said he would pay Lawrence if Holly would give him an overnight loan.
Upheld b/c of gambling situations. Lawrence didnt supply consideration but thats OK b/c there was consideration between Holly
and Fox. Creditor beneficiary. Foxs promise to pay 300 to Lawrence the next day satisfied intent to benefit test.
TPB: Lawrence (plaintiff)
Defendant/Promisor: Fox
Promisee: Holly

b. First restatement (17.2)


i. Two types of 3rd party beneficiaries
1. Creditor beneficiaries: if the purpose of the promise is to discharge an actual or supposed or
asserted duty of the promisee to the beneficiary
a. If a promisee extracts from the promise to render a performance to a third person
because the promisee is indebted to the third person then the third person is a
creditor beneficiary
2. Donee beneficiaries: if the purpose is to confer a gift the third party is a donee
a. If the promisees purpose in extracting the promise is to confer a gift upon the third
person, the third person is a donee beneficiary
3. Incidental beneficiaries: others that will benefit but with no enforceable rights and doesnt fall
into above categories
c. The Test of Intent to Benefit (17.3)
i. Many have ignored first restatement for intent to benefit test
1. Whose intent do we seek and what evidence is admissible
a. Some: emphasize promisee
b. Others: emphasize promisor
2. Interpretation issues come up again
3. Intent to benefit Test
a. largely a fiction except in cases of pure donative intent
i. Doesnt connote benevolent intent
b. Presumption: parties contract for their own benefit and not for the benefit of a third
person
i. However: if the parties explicitly agree that a third party shall have an
enforceable right, their express agreement on the point will be given effect
ii. If their agreement states that no 3rd party will have an enforceable right, that
express intent will be honored
c. If there is no clear expression of intent there are ways to ascertain the intent to
benefit
i. Such an intent is established if it is clear that the promisors
performance is to run directly to the beneficiary [mechanical test]
1. If it is decided that the performance is to run directly to the
promisee, the third party is ordinarily an unprotected incidental
beneficiary
a. Example: if a bank promised A a loan with which to pay
creditors, the creditors would be deemed incidental
beneficiaries, but if the banks promise was to pay the
money directly to the creditors, they would be classified as
intended beneficiaries
2. Some cases hold that the patron is a third party creditor beneficiary
of the promise
ii. Whether the promisor reasonably understood that the promisee
intended to benefit the third person; that is, whether the third person
was an ultimate intended beneficiary of the promisors performance.
1. Lucas v. Hamm
2. Particularly appropriate where the intent is donative
ii. Cases are also decided for other reasons beyond intent: policy and reliance
1. Reliance
a. Law firm: prepares an opinion letter for a client knowing that a potential lender will
rely on the content of the letter, the firm is liable for its negligent preparation

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Lucas v. Hamm, supt ct cali 783
Testator: Promisee
Lawyer: Promisor
Beneficiary: Plaintiff suing for the 75,000 that they are out b/c of the fault of the lawyer
Stated here that it was enough that the promisor understood the promisee had such intent but this case was dismissed b/c it was a
breach of rule against perpetuities something too hard to be held accountable for.

Reliance HYPO: P was an employee who was injured but the P was injured in a way that the employer had no obligation to take
care of the P the P was injured and the coworkers started a collection to benefit the plaintiff (promisees) BUT disbanodned the
efforts when the employer promisor promised to pay the Ps expenses

Promise by the employer to the coworkers to pay Ps injuries and as a result of the promise the coworkers relied by disbanding
their efforts the employer doesnt keep the promise to pay and the P sues the employer court says the P did not rely didnt in
any way change position in reliance the only person relying is the promisee SO the P has to be the one relying
iii. Things to remember/consider
1. 3rd party presence
a. TPB doesnt have to exist
i. Funeral Home example from class
2. There could be one TPB out of multiple promises
3. There could be two promisors

Could be two promisors: A and B both promise each other that will give each 1000 to cancer fund each promise is for the benefit
of C so would be 2 triangles A is promisor making promise to pay C and B is promisor making promise to A to pay C each of
these cases donee beneficiary C could sue A and C could sue B matters who has breached etc.

2nd restatement (17.4)


d.
i. Avoids use of donee and creditor
ii. Adopts the test of intent to benefit
iii. Qualify as intended beneficiaries (otherwise just incidental beneficiary)
1. 3rd party must show that recognition of a right to performance in the beneficiary is appropriate
to effectuate the intention of the party.
2. Party must show one of the following
a. The performance of the promise will satisfy an obligation of the promisee to pay
money to the beneficiary OR [creditor]
i. Requires an ACTUAL obligation owning from the promisee to the
beneficiary whereas 1st restatement only requires supposed
ii. Creditor beneficiary in first restatement becomes a
donee beneficiary in second restatement when there
is only a supposed obligation
iii. Has to be MONEY too
b. The circumstances indicate that the promisee intended to give the beneficiary the
benefit of the promised performance [donee]
i. No requirements for close family relationship
c. A third person can reasonable in relying on a promise to establish a TPB
Reliance can establish a TPB relationship
3. So, widened donee but shrank creditor so if there was a subcontractor situation, the
owner would be a donee TPB
iv. The parties (so long as not against public policy) may expressly agree for a TPB situation
e. Mortgage Assumption Cases (17.6)
i. Vrooman v. Turner
The TPB does not qualify as a TPB creditor unless there is an actual debt running from the
promisee to the beneficiary.
1. Promisor who buys property that is encumbered by a mortgage promises the seller to pay off
the mortgage loan
2. Mortgage is a security interest in real property typically given in exchange for a loan
a. Loan is usually evidenced by a bond or note that creates personal obligation
ii. Court held that there must be an obligating owing from the promisee to the beneficiary

130
1. First restatement disagreed b/c: only needed a supposed obligation not actual
2. 2nd restatement disagreed b/c: would qualify then as a donee beneficiary

iii. New York: donee beneficiary may recover if there is a close family relationship between the beneficiary
and the promisee and then later held that even that relationship not necessary
1. thus eradicating Vrooman decision but Vrooman is still upheld in many jurisdictions

Vrooman v. Turner sale of house and there was no assumption of mortgagethen that person sold to D who assumed the
mortgage C never promised to pay the bank bank cant sue C B can take property but recourse would be against A C sold the
property to D D assumed the mortgage why on earth would C bother to get D the mortgage (C only had the risk of losing the
property) C believed he was under liability and got D to assume which means the same it meant before D promises C to pay B
Doctrine is LIMITED to where the promisee owes the plaintiff a debt

P is not a third party beneficiary no debt from the promisee to the plaintiff so that means in a mortgage assumption where there
is a break in the assumption no matter how many other people the bank has no right to get deficiency judgment against

Seaver v. Ransom ct appeals NY


Dying wife and her husband the judge and the niece in 30s in ill health and the wife is dying..
Husband is the D (promisor)
Wife: Promisee
Niece: TPB (plaintiff)
AFTER VROOM and there concern of no debt owing from promisee to the Plaintiff might think that donee beneficiaries
wouldnt be recognized but that didnt have that effect if you read the seaver case -- they call Lawrence v. Fox is great case
permit to sue directly seaver feels comfy definitely do not limit TPB to the creditor category accept donee beneficiaries

f.
Public contracts (17.7)
1. Three types
a. Where a contractor agrees to perform a duty that the municipality owes to individual
members of the public and the breach of which would create tort liability against the
municipality
b. Where the contractor promises the govt. body to compensate members of the public
for injuries done them despite the absence of govt. duty and
c. Where the govt body enters into a K to gain advantage for individual members of the
public
CRUSHING BURDEN

H.R. Moch v. Rensselaer


Ps warehouse catches fire and there is damage and P finds out the Ps warehouse was damaged by fire spread by somewhere else
and the hydrants werent working
Court concluded not a donee beneficiary. Policy reasons too.

2. D contracted with the city of Duluth to do certain work including blasting, in connection with construction of a sewer. The K
provided that the D would be liable for any damages done to the work or other structure or public or private property and injuries
sustained by the persons in the operation. Ps property located some 100 yards outside the Citys boundaries was damaged by
blasting. May P recover in a K action against D?
In the K you have provision that D will be liable for any damages done to private property D promises to be liable for damage to
private property this specifically says he is answerable to individuals for property interest so here intent to benefit the plaintiff
based on this language
3. The NY State Thruway Authority entered into an agreement with D under which D was granted the exclusive franchise for auto
servicing along the thruway. Ps car became disabled to due flat. Despite many calls for assistance the D did not respond. After 3
hours P a middle aged accountant who was unaccustomed to physical assertion attempted to change the tire and died of a heart
attack. The K between the D and the authority expressly provided that D agrees that it will have sufficient roadside automotive
services vehicles equipment and personnel to provide roadside auto services to disabled vehicles within a max of thirty minutes
from the time a call is assigned to service vehicle. Is P an intended beneficiary?
court says the performance runs to the P so he is a TPB beneficiary (lower court) CT of Appeals even though runs to the plaintiff
this is govt. contract cases we are very concerned of the crushing burden they cite the Moch Case they say the P is NOT a
TPB beneficiary not answerable to individual members of the public MOCH there it didnt run anyway.there were two

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reasons here in the thruway case, performance runs to the plaintiff but there is an overriding concern alternative holding
HADLEY v. Baxendale this type of damage is NOT foreseeable at the time of contracting at the time of contracting is when the
K is made not expect to be liable to personal injury
If you have a promise here of a maximum RATE the defendant does show up and overcharges the P then the P would be a TPB
then the TPB could sue and get back the overcharge -- -- P would be a TPB for maximum rates but not promise to respond for 30
minutes

g. Promisors defenses and counterclaims (17.10)


i. General rule: promisor may assert against the beneficiary any defense that the promisor can assert
against the promoisee
1. Right of the beneficiary dont exceed those of the promisee
a. same result for: fraud, mistake, lack of consideration, illegality or SOL
ii. Exceptions to the rule:
1. Where the parties agree that the beneficiaries will have an enforceable right despite any
defense which the promisor has against the promisee
a. Fire insurance: mortgagee/TPB may recover on the policy despite any act or neglect
of the mortgagor/promisee
i. So possible for the mortgagee to recover from the insurer despite fraud or
nonpayment of premiums by the promisee
ii. Fire insurance policies purchased by homeowners often cover the interests of
both the homeowner and the mortgagee. These frequently provide that the
mortgagee (as a TPB) may recover despite the failure of the owner to pay the
premium. In the event a fire occurs after the owners failure to make timely
payment, and before any notice of cancellation is received by the mortgagee,
the mortgagee may recover on the policy although the owner may have no
right to recover for injury to the owners interest in the property.
2. Vesting (17.11)
a. Where the rights of the beneficiary have vested, the rights may not be varied by
subsequent agreement between the promisor and the promisee.
i. Could not have vested to a party unidentified like the funeral home case
b. Can B and C by an agreement subsequent to the K destroy or curtail As rights?
i. This may not NOT be done if the rights of the beneficiary have vested before
the second agreement was made
1. When do the rights of the beneficiary vest
a. First restatement: When the CREDITOR beneficiary
brings an action to enforce the K or otherwise materially
changes positions before learning of the discharge or the
modification
i. Requires injurious reliance
b. When DONEE beneficiary: the right s of the beneficiary
vest immediately on the making of the K
i. requires injurious reliance
c. Second view: rights of a creditor beneficiary vest on
learning of the initial K and assenting to it
i. there is subtle reliance
d. Second Restatement: (no donee/creditor distinction)
i. rights of a beneficiary vest as provided in the K
ii. when the beneficiary materially changes positions
in justifiable reliance on the promise
iii. brings suit on it or manifests assent to it at the
request of the promisor or promisee
2. Vesting constitutes exception to the general rule that the promisor
may assert against the beneficiary any defense which the promisor
could assert against the promisee [after the rights of the
beneficiary have vested, the promisor may not raise any defense
stemming from a subsequent agreement or consensual
discharge made with the promisee]

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a. BUT if the K fails for some reason, the relevant rule is that
the promisor may assert against the beneficiary any
defense that the promisor could assert against the promisee
3. Whether and when a 3rd party beneficiary may disclaim the rights
created by the K between the promisor and promisee
a. Rule: beneficiary may within a reasonable time after
learning of the K for his or her benefit render any duty to
himself inoperative from the beginning by disclaimer
However, once the beneficiary has manifested assent,
disclaimer is operative only if the requirements are met for
the discharge of a K duty
h. May a promisor raise the promisees defenses? 17.12
i. Already seen whether the promisor can asset against the beneficiary a defense the promisor has against
the promisee; here is whether the promisor may assert against the beneficiary a defense that the
promisee has against the beneficiary
1. Matter of Interpretation
a. One view: Promisor promises to pay whatever the promisee owes
i. ** can use this as defense against TPB
b. Other view: Promisor promises to pay irrespective of the liability of the promisee to
the beneficiary
i. **cant assert the defense against the TPB

Rouse v. United States. P assignor sold on oil burner to B on credit. When B sold the house, the D purchaser agreed to
assume the payments still due on the oil burner K. The D failed to pay and sought to interpose as a defense that Ps assignor had
breached a warranty made to B Issue was whether the promisor (D) may assert against the beneficiary (P) a defense (breach of
warranty). Court held that the issue was one of interpretation and states that there are 2 possible interpretations. One is that the
promisor promises to pay whatever the promisee owes. So under this interpretation, the promisor is permitted to use the defense.
Other possible interpretation is that the promisor promises to pay irrespective of the liability of the promisee to the beneficiary.
Under this understanding the D may not assert the defense that the promisee has against the beneficiary. Court then held that the
promise to assume was a promise to pay irrespective of the liablilty of the promisee. Here there was a voidable promise unlike in
Vrooman where there was NO PROMISE.

i. Rights of the Beneficiary against the promisee 17.13


i. Whether the beneficiary also has a claim against the promisee impt to distinguish donee v. creditor
1. Creditor scenario:
a. C is indebted to A
b. B for a consideration assumes this indebtedness
c. A is an intended creditor beneficiary
i. A has cause of action against B
ii. A does not lose rights aginst C original obligation continues unimpaired
iii. Net result: A may obtain a judgement against both C and B but is entitled to
only one satisfaction
iv. Between C and B: principal-surety relationship
1. B is principle and C is the surety
2. A donee beneficiary has no rights against the promisee
a. There is no antecedent obligation owing from the promisee to the beneficiary and the
promisee undertakes no obligation to the beneficiary by virtue of the K
i. However there is authority to the effect that where the promisee receives
consideration for a promise to discharge or modify the promisors duty, a
donee beneficiary may have an interest in the consideration received for the
promisee
ii. First restatement: beneficiary was required to elec whether to assert a right
against the consideration so received or whether to pursue the promisor
iii. 2nd restatement: requirement for election is eliminated and substituted
therefore is a rule of what is equitable under the circumstances
j. Rights of the Promisee against the promisor 17.14
i. In addition to the promisors liability to the beneficiary, the promisor is under an obligation to the
promisee for performance of the K

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1. It should not be forgotten that the promisors contract is with the promisee.
2. Donee: the promisee usually suffers no damages by a promisors breach and restitution may
not be a satisfactory remedy
a. The legal remedy may thus be inadequate and if so an action for specific performance
will be entertained
3. Creditor: breach by the promisor can cause substantial harm to the promisee
a. If such damages occur, they are recoverable
b. Promisor is primarily liable and the promisee is secondarily liable
c. As far as the beneficiary is concerned primary and secondary liability is totally
irrelevant both are liable
d. However, between the promisor and promisee the status as primary or secondary
obligor is very important the party who is secondarily liable and is made to pay has
an action over against the party who is primarily liable.
e. Majority: breach of the promise to pay the debt permits the poromisee to recover the
amount of the debt
i. To avoid double recovery: some courts have ruled that the promisee may
recover the debt only if the poromisee has paid the creditor
ii. Promisor could pay creditor prior to judgment
XIX. Assignment and Delegation (18.1)
a. Basics (18.1)
i. Suppose A promises to pay Runner 30,000 if Runner wins the Boston Marathon. Runner now assigns to
Creditor this conditional right to payment
1. Assignor/Obligee: Runner
2. Assignee: Creditor
3. Promisor: A before the race
4. Obligor: A after the race b/c Runner performed and now obligated to pay
ii. Could have been bilateral: the party who owes the obligation sought to be enforced by the assignee or
alleged assignee
iii. Assignment: transfers rights must intend to transfer the rights from
assignor to assignee
iv. Delegation: appointment of another to perform ones duties
1. In a TPB situation, the promisor was delegated the duty to pay the TPB
2. In all creditor beneficiary situations there is a delegation!!!
v. Confusion over assignment and TPB
1. Difference: rights of TPB are created by the K of the two parties to the K whereas the rights of
assignee only arise when a party who has rights under a K transfers to an assignee the rights
that had previously been created
b. Nature of An assignment (18.3)
i. Two purposes of assignment: (THINK PROPERTY transfer of a right)
1. May intend an outright transfer of the right in question or they may intend that the right
be transferred as collateral security for a debt
2. As collateral: creates a security interest in the assignee, a property interest comparable to that
which a mortgage lender obtains in mortgaged real estate
a. Parol evidence wouldnt bar evidence of intentions of outright transfer or merely the
creation of security interest
3. Outright: may be defined as a manifestation of intent by the holder of a right an oblige
to the assignee to make a present transfer of the right to the assignee
a. Ordinarily: outright assignment extinguishes the right in the assignor and transfers it
to the assignee
i. Even if the transaction meets the definition of assignment, the assignors
powers are not fully extinguishable where the assignment is gratuitous,
voidable or equitable
b. Executed transaction cannot be an assignment b/c a promise is executory
i. A promise to assign at some future time the right that the promisor presently
owns
1. Mr. Cobb owned a wholesale meat business. Although he had accounts receivable which were payable weekly or, in some cases,
monthly, he was short of cash. He entered into a written agreement with Mrs. Baxter in which he stated that he had sold certain
described accounts to Mrs. Baxter at a specified discount. Does the writing amount to an assignment?

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Yes. Rights to 100,000 but assigns that right to A --- the payments are not due instantly there is value of the time the concern
for the risk of nonpayment A is going to pay 90,000 for the rights to 100,000.Cobb said he sold those to A A is the assignee

Donovan v. Middlebrook, appellate division NY page 800


Toch has as a broker sold some real property for the owner and is therefore entitled to a 2% commission but Horowitz helped
Toch make this sale he says I agree with Horowitz hat horwitz is entitled to half of the commission H is entitled to the
commission.

This is easily a promise to Horowiz when in doubt they throw in a dollar promise to pay the commission NO assignment:
he hasnt transferred the right to the commission promise to say something entitled something NEED the language to show
right to move Horowtiz has no right to sue the seller for the commissionHorowtiz sue Toch.so no assignment

2 C had some money which was being held for him by the Continental Escrow Company. When C hired A, an attorney, C told A
that If I get this money, I will pay you from this fund. Does this amount to an assignment?
NO assignment promise to pay out of the fund NOT a present transfer property/property

3. D owes C 1000. C writes to D, please pay the balance due me to A. Does this amount to assignment?
The manifestation of the assignment from the assignor to the assignee here its simply an order from creditor of debtor that
doesnt transfer the right to A.

c. Formalities (18.5)
i. Manifestation of intent need not be in writing
ii. Outright performance of an account is unenforceable unless it is evidenced by an authenticated security
agreement authenticated by the assignor or is one of the kind of assignments
d. Deviants from the Norm (18.6)
i. Ordinarily: outright assignment terminates a right in the assignor and transfers it to the assignee
ii. There are situations where an assignment may be terminable or revocable so the assignor retains certain
powers while the rights of the assignee are in limbo for a period of time
iii. Gratuitous Assignments (18.7)
1. Assignment = executed transaction and therefore there is no requirement that it be supported
by consideration
a. Assignment for value: if the assignee parts with consideration or if the assignment is
taken as security for or in total or partial satisfaction of pre-existing debt
b. Gratuitous: assignment NOT for value [not an issue raisable by obligor as a defense
against the assignee RATHER an issue between assignor/assignee]
i. Whether the gratuitous assignee will have rights under the assignment
depends on which occurs first: termination event or the completion of the
gift
ii. Terminable by
1. Death of the assignor
2. Subsequent assignment of the same right
3. Notice of termination communicated by the assignor to the assignee
or to the obligor
iii. To complete the gift
1. Gift must be completed by delivery but a RIGHT cannot be
physically delivered So there are certain substitutes for delivery
a. Complete the gift by obtaining payment from or judgment
against the obligor OR by a substitute agreement with the
obligor (a binding agreement with the obligor to pay the
assignee or to substitute some other performance)
b. Symbolic writing could count that surrenders on payment
i. Bonds, mortgages, savings account books, life
insurance policies and stock certificates
c. Restatement 2nd: adds need an integration that embodies
the K

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i. So some courts have held: delivery of the K
embodying a right is sufficient delivery
d. GOL 5-1107: An assignment shall not be denied the
effect of irrevocably transferring the assignors rights
because of the absence of consideration if such an
assignment is in writing and signed by the assignor, or by
the assignors agent.
e. Estoppel: if the assignor should reasonably forsee that the
assignee will injuriously change position in reliance on the
assignment and such reliance does occur, assignment is
revocable

Speelman v. Pascal, Ct appeals NY 802


Right to produce theatrical musicals from the play Pigmalian Pascal has the rights to produce the musical but he has no K yet
to produce the musical the K is going to be w/ someone else. before this K comes into being Pascal 4 months before he dies
writes to GIVE YOU from my shares of the profits certain percentage etc. out of Ks not yet entered into says its OK here.b/c
the right came into being Pascals death after the death so K came into existence.
K is equitable assignee [SEE BELOW] b/c it is based on future performance.

assignment for value or gratuitous


Consideration here? If she took own other work nice fresh etcbut doesnt do that; if he owes money for work already done if
she hasnt paid salary then if she is taking assignment of total or partial satisfaction that is also VALUE.SO by default its
gratuitous what about the fact in recognition past consideration that is NOT consideration.its a gratuitous assignment
transfer but not for value.gratuitous assignment is FINEits still effective which means if the Kingman gets the right and as a
right to sue for the percentage of the profits
It is subject to termination by certain events which are listed in hornbook unless the gift has been completedthe stock certificate
would complete the gift some rights are embodied in pieces of paper. Otherwise the 2nd restatement says if the K generates the
right is an integration final writing handing over that K would effect the delivery

iv. Assignment of Future Rights (18.9)


1. Present assignment of a future right as opposed to the assignment of a present right
a. Often confusion when there seems to be both a present and future assignment
b. Today: concept of assignment of a future right is applicable only when the assignment
is of a right under a K that is not in existence but that the assignment expects to enter
into.
c. Equitable assignee: assignment of a right under a K not yet in existence
amounted to an equitable assignment
d. Assignee of a future right has rights inferior to a number of potential 3rd party
claimants
i. Subordinate to bankruptcy trusts
ii. A good faith value purchaser would prevail over the equitable assignee
iii. Attaching creditor would prevail too

Unusual case: assignment of future rights.


Bell printer did work for NYC. Lets suppose there is a present K for NYC Bell hasnt yet performed the work entitling to
payment.the price for work unearned for 10,000.

Bell assigns to A right for 10,000. Is this is a present right? even though not yet earned by performanceYES. That might come
up in defensesit is considered for present transfer of present right.

Problem occurs when there is NO K but at the moment Bell doesnt have the K and yet Bell needs the money and gets
someone to buy the right under future K that is not present right to form the basis of the right called a future right not
considered assignments. At the moment NO transfer but equity would recognize this type of assignment the moment there is a K
between Bell and NYC. at that moment equity would recognize an equitable assignment equitable assignments did not have the
same force as legal assignments. UNUSUAL situation of equitable assignment.

e. Non-assignable rights (18.10)

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i. Earlier law: not all rights assignable
ii. Modern view: emphatically to the effect that rights are ordinarily assignable
1. Exceptions/Both restatements and article 2 UCC 2-210: right is not assignable when
a. If the assignment would materially change the duty of the obligor
b. If the assignment would increase materially the burden or risk imposed on the obligor
by the K
c. If the assignment would impair the obligors chance of obtaining return performance
OR according to Rs. 2, if the assignment would materially reduce the value of the
return performance to the obligor
2. Generally the obligor can waive some of these rights
f. Assignment Materially Changing the Obligors Duty (18.11)
i. All assignments change to a certain extent the right of the obligor
ii. Requirements K
1. Would the requirements of the assignee approximate the requirements of the assignor
2. UCC: the requirements buyer may generally assign the right to purchase

Leonardo has a K to pain Mon Lisas portrait assign the right payment to a paint store (A) in exchange for this assignment . A can
sue MONA LISA for payment. This isnt a material change for ML. On the other hand, ML assigns the right to have her portrait
painted to her friend X. L says NO b/c this assignment does materially change his obligation. This right is NOT assignable.
When X shows up in the studio paint me instead? Can he immediately sue for repudiation?? Initially viewed as do you mind not
a repudiation. When he says he does mind, ML would commit a repudiation if there is insistence. But suppose L decides he will
go along with it that would be a waiver of non-assignability. So with the improper assignment, ML gets no rights. This is
protection of L. He can paint Xs portrait b/c he has waived the non-assignability. ML cant sue for painting X instead of ML.

g. Assignment Materially Increasing the Obligors Burden of Risk (18.12)


i. Consent may be sought, etc. / she didnt teach us this
h. Assignment Materially Impairing the Other Partys Chance of Obtaining Return Performance (18.3)
i. Incentive may be lost of the assignor b/c given up part of consideration
ii. Reduction in incentive would not impair the other partys chance of obtaining return performance
iii. Assignment could be coupled with improper delegation
1. 2 types of improper delegation
a. Where the duty is nondelegable
b. Where the delegated is unqualified
i. Where an assignment is void for example b/c it placed a conflicting interest
2. Coupling of an improper delegation with an assignment results in an assignment that is void

If Leonardo delegates performance to Michelangelo that would be improper b/c ML has bargained for the talents cant
substitute another painter. ML has bargained for the talents so this delegation would be improper by itself but with assignment
it might be proper LEO might assign payment to Michelangelo so this is otherwise assignable right but tied with improper
delegation, it impairs materially his chance of obtaining return performance

i. Attempted Transfer of a Non-assignable Right (18.14)


i. Attempted assignment of a right that is not assignable need not be honored by the obligor
1. However, the obligor may waive the fact of non-assignability and the assignor may not object
2. Generally held that assignment of a non-assignable right does not amount to a material breach
3. unless the assignor insists that the improper assignment be accepted
ii. Assignor does not impliedly warrant that the right purported to be assigned is assignable except for
maybe restitution based on voiding the transaction for mistake of law
iii. Obligor is generally empowered to raise the defense of non-assignablility against the assignee
j. Assignment Prohibited by Statute or Public Policy (18.15)
i. Most states regulated wage assignments by outright prohibition or by limiting their duration or effect
k. Clause Prohibiting or Authorizing an Assignment (18.16)
i. Minority: contractual provision prohibiting the assignment of rights created by the K is an unlawful
restraint on alienation
ii. Majority: refusing to interfere with the parties freedom of K in such an explicit manner
1. Often, treated it as if just a mere promise not to assign which means that the assignment
would be effective and the obligor has a cause of action against the assignor for breach of K

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a. Which wouldnt be material even if you then assigned
2. If the provision expressly states that any assignment shall be void, or used other equivalent
language, the courts generally held that the purported assignment is ineffective, unless the
obligor consents to the assignment
iii. UCC provisions
1. UCC: 210(2): a right to damages for breach of the whole K or a right arising out of the
assignors due performance of his entire obligation can be assigned despite agreement to the
contrary.
2. Restatement 2 (accord)/210(3): unless the circumstances indicate the contrary, a prohibition of
assignment of the K is to be construed as barring only the delegation to the assignee of the
assignors performance
a. So where there is no delegation of duties NO issues this would be fine
b. And you could still assign, even with a purported delegation, as long as the original
party did the duty
3. 210(4): an assignment of the K or of all my rights under the K or an assignment in similar
general terms is an assignment of rights and unless the language or circumstances (as in an
assignment for security) indicate the contrary, it is a delegation of performance of the duties of
the assignor and its acceptance by the assignee constitutes a promise by him to perform those
duties. This promise is enforceable by either the assignor or the other party to the original
contract.
a. Restatement 2nd agrees: but carve out property cases where it would just be an
assignment
i. Seller had a K with buyer who assigned rights to C. Court said he only had
the right and buyer still would have had to pay
b. Following the lead a lot of courts: tending to hold that anti-assignment clauses are
ineffective unless the obligor has a legitimate interest in non-assignability
iv. A provision permitting assignments: will be honored (except a case of illegal assignment) even if the
rights under the K would otherewise be non-assignable
l. Defenses of the Obligor Against the Assignee (18.17)
i. General RULE: Obligor may generally assert against the assignee the defenses the obligor could have
asserted against the assignor
1. i.e. nonperformance, consideration, illegality, SOF, incapacity, duress, etc.
ii. Exception (similar to vesting): an assignee is NOT bound by any defense resulting from an agreement
reached between the obligor and the assignor or payment made to the assignor after the obligor has
notice of the assignment.
1. Notice received by the obligor of the assignment vests the rights of the assignee in the sense
that after notice, the assignees rights are not defeasible by agreement of the original
contracting parties or by payment made by the obligor to the assignor
a. Notice is NOT necessary to the validity of the assignment
i. Although an assignment is effective, failure to give notice may destroy the
rights of the assignee b/c they wont vest
b. NOTE: vesting is only relevant when notice has been given and a defense is based on
a subsequent agreement between the obligor and the assignor or payment made by the
obligor to the assignor
c. If the assignment hadnt been properly delivered in a gratuitous situation, then it
will be subject to a revocationbut could also have been binding
2. Estoppel
iii. **an assignee stands in the shoes of the assignor**
1. assignee has NO better rights than the assignor
a. Even if the assignee is a good faith purchaser for value, the assignees rights are
subject to the legal rights of third parties in the assigned rights
m. Defense of the Assignor against the Assignee (18.18)
i. A void assignment should ge governed by the rules relating to void Ks
n. Priorities Between Successive Assignees (18.21)
i. If you assign to two people, its unlawful
ii. Between the innocent assignees, there are three views
1. English view: between successive assignees the last will prevail if this party is the first to give
notice and acts without notice of any prior assignment and pays value

138
a. Rule designed to encourage notice to the obligor so that the obligor is in a position to
answer inquiries as to who owns the claim
b. Failure to give notice is negligent
2. New York rule: gives priority to the first assignee
a. First assignee may recover from the second assignee even if the second assignee who
the obligor has paid was the first to give notice
i. Obligor is discharged by payment to the second assignee
ii. Rationale: as between 2 competing claims of title, first in time is first in right
1. Having assigned once, nothing left to assign
b. Exceptions: Second assignee will prevail when
i. Where the first assignment was voidable r was a gratuitous uncompleted gift
ii. If the necessary elements of estoppel are present, the first assignee may be
estopped from asserting priority as for example by failure to take possession
of a symbolic writing
iii. Second assignee prevails under statutes
iv. Assignment of future rights: second assignment is legal and the assignee
pays value and takes without notice
3. Restatements/Massachusetts/Four Horseman Rule: first assignee prevails UNLESS
i. A second assignee who pays value in good faith without notice obtains
payment from the obligor
ii. recovers judgment
iii. enters into a new K with the obligor
iv. OR receives delivery of a tangible token or wit
b. Rationale: second assignee takes a legal title and qualifies as a purchaser for value
o. Warranties of the Assignor (18.24)
i. If the assignee has any rights against the assignor, likely to be on a warranty theory
ii. What does an assignor warrant when making assignment?
1. Parties may agree that the assignment is without warranty if express warranty is made it will
be enforced
2. If assignment is for value and the parties are silent on the subject three warranties are implied
a. Rights exists and is subject to no defense or limitations except as stated or apparent
b. Assignor will do nothing to defeat or impair the value of the assignment and has no
knowledge of any fact that would do so
c. Documents delivered as part of the transaction are genuine
3. No warranty of solvency of obligor or that he will perform
4. Unless intended expressly, such warranties dont run to subassignee
p. Delegation (18.25)
i. When a right is assigned, the assignor normally no longer has any interest in the claim
ii. When a duty is delegable, the delegating party continues to remain liable otherwise every solvent
person could absolve themselves of debt by delegating to insolvent
iii. Delegation involves the appointment by the obligor-does not free the delegant from the duty to see to it
that performance is rendered, unless there is a novation
iv. Delegation = EMPOWERMENT (not a transfer of right)
1. There should be consideration between delegant and delegate and so could assert failure of K
against obligor
q. Liability of the delegate (18.26)
i. TPB liability
ii. NOVATION could release the promisees duties in a TPB claim
1. Novation: a substituted K that operates immediately to discharge an obligation. If the
discharge is to take place upon performance, the tripartite agreement is merely executory
a. THE COURTS FIND Consideration so dont need seperate
iii. Delegation could also occur in incidental beneficiary situations where promisee delegates to promisor
but promisor only really pays promisee
r. Problems of Interpretation (18.27)
i. At times unclear whether a party intends to assign rights or delegates duties or both
ii. I assign this K or all my rights under this K
1. Some courts: have adhered to the rule that such phraseology creates merely an assignment of
rights

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2. Modern view/UCC (2-210(4): probable intention is to create not only an assignment but
also a delegation and assumption of duties
s. Non-delegable duties (18.28)
i. Today: subject to exception, duties are delegable
ii. Except
1. where performance by the delegate would vary materially from performance by the obligor
a. Test:; whether performance by the delegating party (delegant) or under this partys
personal supervision, has been bargained for
2. If the K is premised on the artistic skill or unique abilities of a party, the duties are not
delegable
3. Duties of construction are delegable
4. Duties to pay money are delegable
5. Duty of lawyer not delegable
6. Duty to use best efforts not delegable
t. Attempted Delegation of a Non-delegable Duty (18.29)
i. If the delegant delegates a delegable duty to a delegate and the delegate performs, the duty of the
delegant will be discharge.
1. Implying that the other party must accept the performance of the delegate and that a refusal to
do so is a repudiation
ii. If the duty is NOT delegable, the other party may refuse to proceed
1. NOT a repudiation
2. An attempted delegation of a non-delegable duty amounts to nothing more than an offer to
waive non-delegability
a. Offer accepted if the other party refuses to accept the offer and the delegant refuses to
honor
b. Will be accepted if the other party assents by dealing with the delegate
iii. If the other party refuses to accept the offer and the delegant refuses to honor the K unless the other
party unless the other party assents, the delegant REPUDIATES
iv. If the other party consents to the delegation, this consent standing alone, does NOT result in a novation

8. S and B entered into a K for the purchase and sale of a piece of real property. B was to pay of the purchase price in cash and
the other half be given a bond and mortgage. Before closing, B assigned his rights and delegated performance of his duties to A.
When A tendered cash and his own bond, S refused. What result? What result if A had tendered a bond of B?
Right: to the property and Performance delegated: give a bond and mortgage and CASH. A tenders cash and his own bond
performance non-delegable BOND that is the promise to PAY promise is NOT delegable b/c its personal the BOND =
PROMISE. Since the delegation is improper the assignment is improper under the third category have the whole transaction
fails.Part b would be fine S is entitled to Bs bond.

7. S and B entered into a K under which S agreed to furnish B with its requirements of ice in his business as an ice cream
manufacturer up to 250 tons over week for 5 years. B agreed not to purchase elsewhere except if B needs exceeded the weekly
maximum. After 1 year, B sold its plant to C and at the same time assigned its rights and delegated performance of its duties under
the K with S to C. While B did business only in one plant in Maryland, C was a large corporation and was engaged in the ice
cream business in several states. Are the rights assignable and performance delegable?
Requirements K: rights would be the right to buy requirements and the duty would be to order and pay at first blush you might
think there is a maximum here.and no concern ordering much more than B but the court was concerned, since C does business
in many statesif this ice K became less desirable C could transfer more of icre cream to other plants many fewer requirements
that was the concern in a requirements K the buyer has the discretion and that is the buyer is doing the assigning and
delgating under the UCC there should be less of a concern the UCC talks about merchants C is merchant and B is merchant
the duty of good faith in a merchant and observance of reasonable standards C should try to maintain so you have that
element and you have 2 other provisions that may help

u. Effect of repudiation by delegating party (18.30)


i. In 18.29 saw that attempted delegation of a non-delegable duty does not amount to an offer of novation
1. NOVATION: When delegating party delegates a duty the delegants liability continues unless
there is a discharge by the other party in consideration of the delegates assumption of the
delegants duty
2. If the delegating party delegates a duty and asserts that his or her liability is now at an end:
a. Could be offer to novation

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i. Offer from delegant to other party to substitute the liability delegate
ii. OR an immaterial breach that ripens into a repudiation if persisted
b. If other party deals with potential delegate there is authority to the effect (knowing of
the potential delegation) that the offer to the novation has been accepted
c. Seems unfair that delegant would be released of own duty by its own repudiation
seems to stem from viewing the breach as an offer
d. Restatements: other party may defeat the occurrence of a novation by notifying
either party of intention to retain K rights
Western case: B says I am no longer liable. One way to characterize is a repudiation. The other is a n OFFER to a novation.
B says I am going to give you Cs liability in exchange for MINE S can say OK and then novation. Or S can accept through
conduct

v. Assignment Coupled with Delegation (18.31)


i. The assignment of an assignable right is not rendered ineffective even if it is coupled with the
delegation of a duty if the duty is delegable
ii. Cant delegate if you have a substantial interest in WHO it is that delegating to
iii. Can waive non-delegability so can end up being binding
iv. 2-210(5): other party may treat nay assignment which delegates performance as creating reasonable
grounds for insecurity and may without prejudice to his (or her) rights against the assignor demand
assurances against the assignee.
1. This is in accord with restatement 2nds prospective non-performance idea

Mackie: pizza had no choice to deal with Mackie b/c the assignment was valid as was the delegation. Mackie could breach and
then there could be a cancellation of K.

Seale: but Bates has delegating the duty to teach ballroom dancing. Wasnt delegable but then they accepted performance from
the delegateHad the new studio breached then liability.
w. Option Ks: Assignment and Delegation (18.32)
i. An offer can be accepted only by the person or persons to whom it is made
ii. Offer is NOT assignable
iii. Assigning depends on a number of factors including whether the underlying K is unilateral or bilateral
1. whether the act of acceptance is delegable
2. If personal service act would be non-delegable but the right assignable

13. S offers to sell a specific car to B for 10,000. B assigns the offer to C who tenders 10,000 to S. Is S bound to take the money?
This is just a revocable offer C cant accept it. Only the offeree can accept. This is true for uni and looking for money cant just
acceptC is not entitled

14. S offers to sell a certain car to B if B drives the car in the Indy 500 and wins, and if B pays 52,000 thereafter, and if B gives
100 to keep the offer open until after the race. B gives S 100. May B now assign the rights and delegate the performance of the
conditions to C?
Becomes irrevocable by giving consideration NOW the offer has become irrevocable and an OPTION K so now it can be
assigned and delegatedas long as rights are assignable and performances delegable
Driving in the race is premised on Bs particular talent and skil and so non-delegable performancehere you could never talk
about a duty just if you drive and pay the additional money you can have the great carthe rights are non-assignablethe
whole thing would fail
If B drives the car and winsNOW C has a right to the car upon paying 52,000now the right to the carthe performance is just
paying money which is a delegable performance

XX. Executory Accord Accord and Satisfaction Substitution Agreement (21.4)


a. Bilateral executory accord: an agreement that an existing claim shall be discharged in the future by the
rendition of a substituted performance.
i. Historically: was without any effect even with consideration
1. Was nothing more or less than a bilateral K
ii. Now they exist:
1. C creditor writes D debtor: I promise to discharge the debt you owe me upon delivery of your
black Mercedes if you promise to deliver the Mercedes to me within a reasonable time. D

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promises. Bilateral executory accord. If D delivers and accepts it, there is an accord and
satisfaction. Agreement is accord and performance is satisfaction supported by consideration.
iii. New York: Common law has been changed by statute but needs to be in writing GOL 15-501 [accord
itself]
b. Substituted Agreement: B/c the discharge is immediate, NOT an accord and satisfaction (b/c it discharges right
away). Here where a substituted agreement is created, C asks for and accepts Ds new promise in satisfaction of
the original claim whereas in the first C made it clear that the original claim will not be discharged until the
debtor performs the new agreement (so that was a executory accord). (first you need the event to happen, here
just saying youll do it is sufficient).
i. C creditor writes to D debtor: if you will promise to deliver your black Mercedes within 30 days I will
immediately treat the debt you owe me as satisfied and discharged. D accepts.
c. Difference between an accord and a substituted K (21.5)
i. Enforceable executory accord
1. The original obligations of the parties are not satisfied until the bilateral executory accord is
performed
a. Executory accord has a suspensive effect on the prior obligations
i. If debtor materially breaches the agreement, the prior obligation revives and
the creditor has the option of enforcing the original claim or the executory
bilateral accord
1. Part performance by the debtor followed by unjustified failure to
complete does not prevent action by the creditor on the original
claim but a three day delay in making final payment is not a
material breach of the accord and even if it were the creditors
acceptance of the payment is a waiver
ii. If the creditor breaches as by refusing the debtors tender, the debtor may
raise the exeuctory accord as a defense against an action by the creditor on
the original claim so would get damages here
1. May maintain an action for specific performance of the accord OR
damages

8 C has a claim against D in the amount of 1000. C and D agree that C will take a horse worth 500 in exchange. D tenders the
horse and C refuses to take it. What are the rights of the parties? Would the result be different if the horse were worth 2000?
Executory accord: b/c it says C and D agreed that he will take the horse in exchange not he promise assuming its valid (taking
the modern view)
If debtor materially breaches the executory accord materially breaches by either repudiation or fails to deliver: creditor now
has a choice could sue for breach for executory accord but could also sue for the original claim elect one way or the other
But if C breaches by refusing to take the horse: the exeuctory accord has not been performed so the debt is still out there.
Choice: Sue for damages or specific performance
Specific performance: if D is able to get specific performance of executory accord, C has to take the horse and the original debt is
wiped out
Damages: the original debt is not extinguished and so C could recover 1000 against D so D will end up in the rightful position.
in this situation, D has to pay 1000 to C and C has to pay 500 so that is really what the deal was anyway
Would the result be different 2000? Specific performance same.
Damages however: NO damages b/c this was a really bad dealdischarge a 1000 debt by delivering 2000 horse

ii. Substituted K
1. Immediately discharges the prior claim which is merged into the new agreement and so the old
claim can no longer be enforced
a. Majority: In the event of a breach, any action would have to be brought on the
substituted agreement
i. If the substituted agreement is unenforceable or voidable, the original claim
either remains unimpaired or is revived by avoidance of the new agreement
by avoidance of the new agreement
b. Some: upon a material breach of the substitute K, the aggrieved party may cancel it,
reviving the original claim
c. Restatement 2nd: disapproving of above even though the result is achieved by normal
principles regarding cancellation for material breach followed by restitution

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7. A is indebted to B and they enter into an agreement by the terms of which B presently discharges As debt in exchange for a
promise made by A. A materially breaches the promise. May B still successfully sue A on the original claim?
Substitute agreement. Dont think so b/c this has already been completed. The original claim merges into and is substituted by
Majority view: even if the debtor materially breaches the substitute agreement, the creditor has to sue for breach on the substitute
and so cant go back
Some cases: where the creditor could enforce the original claim when the second one is unenforceable, void, or voidable they
wouldnt have intended to replace a valid agreement with an unenforceable agreement
Minority: if the debtor materially breaches, the creditor can go back and sue for the original debt which makes look like executory
accord

d. Distinguishing an Accord from a Substituted K (21.6)


i. Executory accord and substituted K: often determined by intentions of the parties
1. When the parties have not expressed themselves on the matter the courts often emphasize the
fact that the burden of proof of discharge of a claim is on the party asserting the discharge
which is the equivalent of holding that the agreement is presumed to be an executory accord
that merely suspends the claim
a. General rules of thumb
i. IN cases involving a disputed and unliquidated obligation -- presumption is
there is a substituted agreement
1. Rather get the certainty of promise than uncertainty of unliquidated
claim
2. This may turn on the deliberation of the new agreement
a. An agreement made with little deliberation and formality
is not likely to be deemed to discharge the prior claim (so
then executory)
ii. If there is a liquidated and undisputed obligation it will be a presumption for
executory

Goldbard v. Empire State Mutual Life Ins. Co., Sup Ct NY appellate division 1958 page 896 . P
was a barber and had an insurance policy believes they owe him 2800 dollars. Arguable the parties enter into a settlement
agreement: first the insurance company says well settle for 800 but not surrender the. they insist they sign a release but there is a
lot of doubt that entered into settlement they may not have agreed at all
But even if they agreed in informal manner might not have intended to be bound until formal agreement but its only on the
assumption that they agreed that we get to issue
Held: an executory accord b/c this was very informal we had doubt whether agreement at all so its at best executory accord
but we are in NY and an executory accord is a nullity unless there is a signed writing; therefore nullity and our barber is not
stuck with 800. could and is entitled to sue for 2800.

e. Offers to a unilateral Accord (21.7)


i. Although most accords are bilateral, it is possible to have an offer of accord looking to uni-K
1. C writes to D if you deliver your black Mercedes within a reasonable time, I promise to
discharge your debt. If D tenders the mercedees and C accepts it there would be an accord and
satisfaction. If D tendered the Mercedes and C refused it, setting aside questions of accord,
there would be a uni-K
a. Until recently C was free to reject the tender without being guilty of any legal wrong
i. Modern authorities and GOL 15-303: by statute if the offer is in writing
and signed by the offeror or the offerors agent would be binding [JUST the
offer]
ii. Modern view: debtor could sue for specific performance of the accord by
keeping the tender good OR DAMAGES just like normal executory accord
1. Specific enforcement of the accord would obviously defeat an
action upon the original claim as would allowing the accord to be
pleaded and proved as an affirmative defense, provided the debtor
continues ready to perform

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9 A is a mortgagee and B is a mortgagor (owner). A agrees to take 5000 less than the face amount of the mortgage loan if B will
tender the amount prior to July 1. B makes the tender which A refuses to accept. What are the rights of the parties? (similar to
petterson)
Unlike in Petterson there was a tender which A refuses. This picks up the dictum of Kellogg where he said: it is unnecessary to
determine the tender b/c there was no tender but had tender been made goes own to say it is the individual view that
creditor would be entitled to refuse the payment this would be so b/c the act requested which was incapable of performance.
Kellog is wrong in applying this to all unilateral K but he was right under the existing NY law even if the mortgagor had
actually tendered payment the mortgagee was entitled to refuse ithe was right b/c at this time, NY had not enacted the statute
about a signed writing so the only difference is its not a bilateral K but rather an exeuctory uni-K of accord its an offer to a
uni-K of accord which would have been considered a nullity and its for that reason the creditor could have refused the payment
uni-K still hasnt been performed on both sides only on both sides do you need up until the creditor takes the money you have
no accord and satisfaction
Kellogs dicta was impetus for NY passing of the statute: accord is valid when signed by the party to be charged.
Here there was a signed writing so not revocable.
In NY for this to be valid, the mortgagee (party promising to discharge) would have had to sign a writing. If D makes the tender, C
would be in breach valid uni-K of accord and A would be in breach.

Uni-K is still not performed on both sides until creditor takes and a nullity so in NY need a signed writing

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