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Contents
SECTION 1: THE EFFECTS OF ADOPTING A WRITING ....................................................... 2 SECTION 2: INTERPRETING THE PROMISE ....................................................................... 8 SECTION 3: CONTRACTS WITHOUT BARGAINING ....................................................... 10 SECTION 4: MISTAKE, MISREPRESENTATION, WARRANTY, AND NONDISCLOSURE ................................................................................................................. 15 SECTION 5: CHANGED CIRCUMSTANCES JUSTIFYING NONPERFORMANCE ....... 20 CHAPTER 5: POLICING THE BARGAIN................................................................................. 26 SECTION 1: COMPETENCY AND OTHER LIMITS ........................................................... 26 SECTION 2: DURESS AND COERCIVE RENEGOTIATION ............................................. 28 SECTION 3: SCRUTINY OF LIMITED COMMITMENT .................................................... 31 SECTION 4: STANDARDIZED TERMS, UNCONSCIONABLE INEQUALITY, AND GOOD FAITH .......................................................................................................................... 33 CHAPTER 6: THE MATURING AND BREACH OF CONTRACT DUTIES .......................... 38 SECTION 1: THE INTERDEPENDENCE OF PROMISES ................................................... 38 SECTION 2: INTERPRETING CONDITIONS ...................................................................... 44 SECTION 3: CONDITIONS OF SATISFACTION ............................................................. 48 SECTION 4: PROTECTING THE EXCHANGE ON BREACH ............................................ 49 CHAPTER 7: THE RIGHTS AND DUTIES OF NONPARTIES ............................................... 52 SECTION 1: THIRD PARTY BENEFICIARIES .................................................................... 52 SECTION 2: ASSIGNMENT AND DELEGATION............................................................... 55

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CHAPTER 4: IDENTIFYING THE BARGAIN

SECTION 1: THE EFFECTS OF ADOPTING A WRITING
Parol Evidence Rule Parol Evidence Rule = Limits the use of prior agreements to vary a written contract (Restatement 213) 1. Must first determine there is a written K. 2. Next, is it "final"? a. Does it express the final intention(s) of the parties? 3. Is this the entire deal? a. Complete expression of all the terms? i. Yes => Evidence excluded ii. No => Continue analysis 4. Does proposed evidence contradict the terms of the agreement? a. No => Evidence admitted b. Yes => Evidence excluded Oral Evidence must not be so clearly connected with the principal transaction as to be part of it Restatement 214 = Exceptions to PRE, allowing prior agreements for certain purposes 214(d) => invalidating causes 214(e) => grounds for allowing/denying remedies Restatement (First) 240(1)(b) => An oral agreement is not superseded by a later writing if it is not inconsistent with the writing and is such an agreement as might naturally be made as a separate agreement by parties situated as were the parties to the written agreement. Requires courts to determine to determine what would be "natural" and what would not Limitations on the admissibility of evidence in cases involving the partial integration doctrine If the parties in fact have assented to the writing as the embodiment of their entire agreement, each should be able to rely on the terms of the writing as conclusive evidence of what they have agreed to RESTATEMENT 209: INTEGRATED AGREEMENTS 1. An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement 2. Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule 3. Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression (Written Agreement = Integrated agreement if viewed as final)

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RESTATEMENT, 213: EFFECT OF INTEGRATED AGREEMENT ON PRIOR AGREEMENTS (PAROLE EVIDENCE RULE) 1. A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them 2. A binding completely integrated disagreement discharges prior agreements to the extent that they are within its scope 3. An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated. Comment: b. Inconsistent Terms. Whether a binding agreement is completely or partially integrated, it supersedes inconsistent terms of prior agreements. The court must make preliminary determinations that there is an integrated agreement and that it is inconsistent with the terms in question. Illustrations: 2. A orally agrees to sell a city lot to B. The city is installing a sidewalk in front of the lot, and A orally agrees to pay the cost be assessed by the city in an amount not exceeding $45. B then retains a lawyer to draw up a written agreement, and A and B execute it, A without reading it. The agreement provides that A will pay all costs of the installation of the sidewalk, but does not mention any dollar limit. If the written agreement is a binding integrated agreement, any agreement for a $45 limit is discharged RESTATEMENT, 214: EVIDENCE OF PRIOR OR CONTEMPORANEOUS AGREEMENTS AND NEGOTIATIONS Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish a) That the writing is or is not an integrated agreement; b) That the integrated agreement, if any, is completely or partially integrated; c) The meaning of the writing, whether or not integrated; d) Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; e) Ground for granting or denying rescission, reformation, specific performance, or other remedy RESTATEMENT, 216: CONSISTENT ADDITIONAL TERMS 1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated 2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is a. Agreed to for separate consideration, or b. Such a term as int eh circumstances might naturally be omitted from the writing

Page 4 of 57 Comment b. Consistency: The determination whether an alleged additional term is consistent requires interpretation of the writing in the light of all the circumstances, including the term e. Written term excluding oral terms (merger clause): clauses stating that there are no representations, promises, or agreements between the parties except those found in the writing. Such a clause is likely to conclude the issue whether the agreement is completely integrated. Consistent additional terms may then be excluded event though their omission would have been natural in the absence of such a clause. But such a clause does not control the question whether the writing was assented to as an integrated agreement. UCC 2-202: FINAL WRITTEN EXPRESSION: PAROL EVIDENCE 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 a) By course of dealing or trade usage (1-205) or by course of performance (2-208) 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 terms of the agreement A writing is integrated when the parties intend it to be and it means what they intended it to mean. Therefore, integration may be lacking even if the additional terms ordinarily and naturally would have been included in the writing and an integrated writing can have a meaning to which a reasonable person could not subscribe. Conditional Delivery LONG ISLAND TRUST CO. v INTERNATIONAL INST. FOR PACKAGING EDUC., LTD. UCC 3-305, 3-306 carried defense of conditional delivery Where the terms of the conditional delivery have not been complied with, the instrument is unenforceable and parol evidence is admissible to show that the delivery of the instrument to the payee was a conditional delivery Among the conditions precedent that may be proved by parol evidence is that the instrument was not to take effect until the payee had procured other signatures An alleged condition precedent that contradicted the express terms of the written agreement could not be proved by parol evidence If the CP in no way contradicts the express terms, it may be proved by parol evidence An integrated written obligation may not be avoided by the tender of parol evidence which contradicts or varies the written obligation. Exception: a party is free to establish by PE that the written undertaking by which he is bound never came into existence because of a precondition that it not take effect unless and until the precondition has come to pass Exception: it is inapplicable if the PE itself contradicts or varies the terms General Principle: The precondition must be consistent with the written undertaking

Page 5 of 57 THE FRAUD EXCEPTION TORT AND CONTRACT The law of fraud seeks to protect against injury those who rely to their detriment on the deliberately dishonest statements of another. Where conduct alleged beaches a legal duty which exists independent of contractual relations a plaintiff may sue in tort If the only interest is that of holding D to a promise, the plaintiff may only have a K claim If in addition there is an interest in protecting the plaintiff from other kinds of harm, the plaintiff may recover in tort whether or not he has valid breach of K claim LIPSIT v LEONARD A promise, which carries an implied representation that there is a present intention to carry it out, is recognized everywhere as a proper basis for reliance. A misstatement of a present intention is regarded as a misrepresentation of material fact A promise without the intent to perform is held to be a sufficient basis for an action of deceit or for restitution or other equitable relief An action may be maintained when the promise itself cannot be enforced as where it is: without consideration, is illegal, is barred by the SoF, or the SoL, or falls with the PRE, or a disclaimer of representations PE may be introduced where the relief sough is rescission or restitution Ex: repudiation or avoidance fo the K as distinct from affirmation and enforcement of it Action is allowed in tort for money damages, as distinct from one in breach of contract, based upon oral fraudulent promises and misrepresentations which induced the written agreement PE is permitted to establish the same The PRE is no bar Out of Pocket Rule - In actions for money damages for fraud in the inducement, the measure of damages is indemnity for the actual pecuniary loss sustained as a direct result of the wrong The contract, with the addition of the oral promises or representations, cannot be enforced in a tort action in fraud for money damages Distinct from the loss or benefit of the bargain rule BANK OF AMERICA NAT. TRUST v PENDERGRASS Parol evidence of fraud to establish the invalidity of the instrument is admissible where it relates to some independent fact, some fraud in the procurement of the instrument or some breach of confidence concerning its use. Parol evidence is NOT admissible where it would prove a promise directly at variance with the promise of the writing. CONFINING PROMISSORY FRAUD

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Claims of fraud in the inducement are not barred by the PRE Writings in general supersede oral statements PREs principal purpose is to block attempts to vary the terms of a written K

SABO v DELMAN An action in contract to enforce an oral representation or promise relation to the subject matter of the contract must fail If a promise is made with a preconceived and undisclosed intention not to perform it, there is a misrepresentation of a material existing fact which justifies rescission PRE does not block proof of fraud, neither does a merger clause LaFAZIA v HOWE A person who has been induced by fraud to enter into a contract may pursue either one of two remedies. That person may: Rescind the contract Affirm the contract and sue for damages in an action for deceit If one is granted, the other is withheld The right to rescind a contract must be exercised with reasonable promptness after the discovery of the facts that give rise to the right General Rule: the party claiming deceit must present evidence that shows that he was induced to act because of his reliance upon the alleged false representations. Where the merger/disclaimer clause is a specific disclaimer, not of a general nonspecific nature, the provision shall not destroy the contract if it was read and understood by the party now claiming fraud and the provision itself was not procured by fraud Such a specific disclaimer destroys the allegations that the agreement was executed in reliance upon these contrary oral representations Advice: Include a specific merger/disclaimer clause in a contract UCC 2-316: EXCLUSION OR MODIFICATION OF WARRANTIES 1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol evidence (2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. 2) Subject to subsection (3), to exclude or modifty the implied warranty of merchantability o rany part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modifty any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that There are no warranties which extend beyond the description on the face hereof. 3) Notwithstanding subsection (2) a. Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like as is, with all faults or other language which in common understanding calls the buyers attention to the exclusion of warranties and makes plain that there is no implied warranty; and

Page 7 of 57 b. When the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defends which an examination ought in the circumstances to have revealed to him; and c. An implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. 4) Remedies for breach of warranty can be limited in accordance with this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719). HOFFMAN v CHAPMAN A court of equity will reform a written instrument to make it conform to the real intention of the parties, when the evidence is so clear, strong, and convincing as to leave no reasonable doubt that a mutual mistake was made contrary to their agreement. PE is inadmissible to vary or contradict the terms of a written agreement But equity refuses to enforce this rule whenever it is alleged that fraud, accident, or mistake occurred in the making of the instrument Will admit PE to reform the instrument, even though within the SoF If an agreement is so vague and indefinite that the court finds it impossible to gather from it the full intention of the parties, it must be held void, for the court cannot make an agreement for the parties If the intent of the parties can be determined from the express terms or by fair implication, the contract should be sustained If the parties to a contract did not understand each other as to the identity of the property, they cannot invoke the aid of equity Equity reforms a contract simply to enforce the actual agreement to prevent injustice The court will never add a term or provision which had not been agreed upon General Rule: people cannot sign papers carelessly wand then expect a court to excuse them from their negligence But, mere inadvertence, or negligence not a mounting to a violation of legal duty, does not bar relief, especially if the defendant has not been prejudiced It is not necessary for the Plaintiff in a suit for a reformation to prove that he exercised diligence to ascertain what the instrument contained at the time he signed it A mistake of law in the making of an agreement is not a ground for reformation Where a mistake is unilateral, equity will not afford relief except by rescission on ground of fraud, duress, or other inequitable conduct THE PAROL EVIDENCE RULE AND THE STATUTE OF FRAUDS The SoF makes certain contracts unenforceable unless evidenced by a signed memorandum Thus, a writing is required only in the sense that the lack of a writing is a defense to enforcement of a contract SoF is not a basis for challenging the existence of a contract Establishes no requirements for the making of a contract

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The PRE does not require a writing at all, except that it can apply only where there is a written document adopted by the parties as an integration of their agreement The SoF can be satisfied by writings that were never effect, or intended to be, as an integration of the agreement The memorandum need only be signed by the party to be charged, and can be supplied at any time prior to the action brought upon the contract This can be done without the knowledge or consent of the other party The SoF requires that a memorandum be signed by the party to be charged The PRE can operate on a document signed by either party The SoF is based on a distruct of oral evidence and thus requires written evidence The PRE excludes both written and oral evidence from extraneous sources The PRE does not prevent a subsequent modification or adjustment by oral agreement However, a later oral agreement may itself fall under one of the clauses of the SoF

SECTION 2: INTERPRETING THE PROMISE

WWW ASSOCIATES, INC. v GIANCONTIERI Clear, complete writings should generally be enforced according to their terms A part for whose sole benefit a condition is included in a contract may waive the condition prior to expiration of the time period set forth and accept the subject property as is First Step in analysis: Before looking to evidence of what was in the parties minds, a court must give due weight to what was in the contract. When parties set down their agreement in a clear, complete document, their writing should, as a rule, be enforced according to its terms. Evidence outside the four corners as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing This rule safeguards against fraudulent claims, perjury, and improper evaluation of extrinsic evidence Whether or not a writing is ambiguous is a question of law to be resolved by the courts. Extrinsic evidence should not be considered in order to create an ambiguity in the K. PACIFIC GAS & ELEC. CO. v. G.W. THOMAS DRAYAGE & RIGGING CO. When a court interprets a contract, it determines the meaning of the instrument in accordance with the extrinsic evidence of the judges own linguistic education The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible To limit the determination of the meaning of a written agreement to its four corners would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision our language has not attained. The meaning of words or groups of words varies with context and surrounding circumstances Accordingly, the meaning of a writing can only be found by interpretation in the light of all the surrounding circumstances

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Although PE is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not PE is being offered for a prohibited purpose

COLUMBIA NITROGEN CORP. v ROYSTER CO. UCC 2-202 allows evidence of course of dealing or usage of trade to explain or supplement terms intended by the parties as a final expression of their agreement The test of admissibility is whether the evidence reasonably can be construed as consistent with the express terms of the agreement FDIC v W.R. GRACE & CO. Language in a K is not rendered ambiguous simply because the parties do not agree upon its meaning The fact that parties disagree about a Ks meaning does not show that it is ambiguous, for if it did, then putting contracts into writing would provide parties with little or no protection An offer to show that anyone who understood the context of the contract would realize it couldnt mean what an untutored reader would suppose it meant will suffice UCC 202-2 NOTE Written agreements are to be read on the assumption that the course of prior dealings between the parties and the usages of trade, unless carefully negated, were taken for granted when the document was phrased SPAULDING v MORSE Every instrument in writing is to be interpreted with a view to the material circumstances of the parties at the time of the execution, in the light of known pertinent facts, and in such manner as to give effect to the desired goal RESTATEMENT, SECOND 212: INTERPRETATION OF INTEGRATED AGREEMENT 2) A question of interpretation is to be determined by the trier of fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from PE. Otherwise a question of interp. of an integrated agreement is to be determined as a question of law. Comment: d) Question of Law: What meaning is attached to a word by one or more people is a question of fact. But general usage as to the meaning of words is commonly a proper subject for judicial notice without the aid of PE. Moreover, questions of interp. of written documents have been treated as questions of law in that they are decided by the judge rather than by a jury. FRIGALIMENT IMPORTING CO. v V.N.S. INTERNATIONAL SALES CORP. What is a chicken? The making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs

Page 10 of 57 Not on the parties having meant the same thing but on their having said the same thing Plaintiff has burden of persuasion When one of the parties is not a member of the trade, his acceptance of the standard must be made to appear by proving either that he had actual knowledge of the usage or that the usage is so generally known in the community that his actual individual knowledge of it may be inferred Requires a showing that the usage is of so long continuance, so well established, so notorious, so universal, as that the presumption is violent that the parties contracted with reference to it, and made it a part of their agreement

SECTION 3: CONTRACTS WITHOUT BARGAINING

LIVINGSTONE v EVANS When an offer has been rejected it is thereby ended and it cannot be afterwards accepted without the consent of him who made it The making of a counter-offer is a rejection of the original offer A mere inquiry does not constitute a counter-offer/rejection If message by Defendant was simply a rejection of the Plaintiffs counter-offer, it amounts to nothing. If, however, it was a renewal of the original offer it gave the plaintiff the right to bind Defendant to it by his subsequent acceptance of it THE DEVIANT ACCEPTANCE RULE DAR: The introduction of new or variant terms means that the offer is dead and the process of contract formation must start over again The rule contains a number of qualifying doctrines: Immaterial variances between offer and acceptance are usually disregarded If the offerees acceptance attempts only to make explicit terms which were already implicit in the offer If the offeree merely suggests a new term without insisting on its inclusion An expression of lack of enthusiasm, perhaps even outright dissatisfaction, is appended (the grumbling acceptance) It may make a difference whether a party invokes the DAR defensively or offensively Defensively: original offeror seeks to avoid offerees more onerous demand Offensively: offeree seeks to escape contract formation on basis of its own additional demand The fighting issue in DAR cases is whether the offerees purported acceptance is absolute or conditional An acceptance may be valid despite conditional language if the acceptance is clearly independent of the condition When the answering communication is held to be qualified, and thus deviant, the analysis resumes with an inquiry as to whether the response found to operate as a rejection can also serve as a counteroffer which the original offeror can in turn accept If it can, there must be conformity between the acceptance and the counter-offer

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UCC 2-204 Authorizes formation of a contract for the sale of goods in any manner sufficient to show agreement and declares unnecessary an actual identification of the offeror, the offeree, and the moment of making the contract Tolerates even contradiction in offer and acceptance, thereby restricting greatly the DAR of the common law Events that ordinarily terminate a power of acceptance, including a deviant acceptance, do not have that effect when the offer that created the power is a binding option

Contract Formation Through Exchange of Printed Forms

Merchants do not negotiate the details of every transaction. They prefer instead to exchange forms containing the standard terms on which they conduct business At the formation of stage, the battle of the forms, instead of discussion and settlement of important details by negotiation, attention is fixed on only a few key elements. The rest is left to standardized language At a later time, attorneys will be interested in whether a party to contract uses its bargaining position to take advantage of some else UCC 2-204, 2-206 The latter gives effect to any to any reasonable manner of acceptance unless the offeror has made quite clear that it will not be acceptable Also makes either shipment or a promise to ship a proper means of acceptance of an order looking to buy goods for current delivery UCC 2-207 Substitutes for a formal rule of offer and acceptance a general standard under which the court is to look to the gist of the parties communications to determine if they have formed a contract In so doing, the court is to overlook any express terms in those communications that do not fairly reflect the parties agreement

RICHARDSON v UNION CARBIDE INDUS. GASES, INC. Comment three of 2-207 suggests that both additional and different terms are governed by 2-207(2) Comment six of 2-207 suggests that conflicting terms in exchanged writing must be assumed to be mutually objected to by each party with the result of a mutual knock-out of the conflicting terms Knock-Out Rule Three recognized approaches by the courts to the issue of conflicting terms in contracts: Majority view: The conflicting terms fall out and, if necessary, are replaced by suitable UCC gap-filler provisions AKA, the Knock-Out Rule Minority view: The offerors terms control because the offerees different terms cannot be saved by 2-207(2), because that section only applies to additional terms Third view: The terms of the offer prevail over the different terms in the acceptance only if the latter are materially different.

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Mirror Image Rule: At common law, there could be no meeting of the minds and thus no contract, unless there was agreement on all the terms of the contract. UCC does away with this by recognizing the existence of a K even though certain terms remain in conflict or are unresolved

UCC 2-207: TERMS OF CONTRACT; EFFECT OF CONFIRMATION Subject to Section 2-202, if (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner is confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract, are: (a) Terms that appear in the records of both parties; (b) Terms, whether in a record or not, to which both parties agree; and (c) Terms supplied or incorporated under any provision of this Act. NOTE: THE QUALIFIED OR CONDITIONAL ACCEPTANCE TODAY Restatement 59: A reply to an offer which purports to accept it but is conditional on the offerors assent to terms additional to or different from those offered is not an acceptance but is a counter offer. Comment: A qualified or conditional acceptance proposes an exchange different from that proposed by the original offeror. It is a counter-offer and ordinarily terminates the power of acceptance of the original offeree A definite and seasonable expression of acceptance is operative despite the statement of additional or different terms if the acceptance is not made to depend on assent to the additional or different terms ProCD, INC. v ZEIDENBERG Transactions in which the exchange of money precedes the communication of detailed terms are common o Examples given: Insurance; Airline tickets; Concert tickets; Prescription drugs; Radio Much software is ordered over the internet now and never include a box The UCC does not object to the sequence of money now, terms later UCC 2-204(1) o A vendor, as a master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance o A buyer may accept by performing the acts the vendors treats as acceptance Any buyer finding an unreasonable demand can prevent formation of the K by returning the package UCC 2-206 o A buyer accepts goods when, after an opportunity to inspect, fails to make an effective rejection o ProCD extended the opportunity to reject; Zeidenberg inspected, used the software, learned of the license, and did not reject the goods

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Terms of use are no less a part of "the product" than are the size of the database and the speed with which the software compiles listings

HILL v GATEWAY 2000, INC. An agreement to arbitrate must be enforced save upon such grounds to exist at law or in equity for the revocation of any contract A contract need not be read to be effective If they constitute the parties contract because the Plaintiff had an opportunity to return the product after reading them, then all must be enforced Payment preceding the revelation of full terms is common for many endeavors Practical considerations support allowing vendors to enclose the full legal terms with their products Cant expect cashiers or phone-salespersons to read legal documents to customers before ringing up sales Customers are better off when vendors skip costly and ineffectual steps and use instead a simple approve-or-return device Competent adults are bound by such documents, read or unread Shoppers have three principal ways to discover information regarding warranties: They can ask the vendor to send a copy before deciding whether to buy Firms are required to distribute their warranty terms upon request They can consult public sources that may contain this information They may inspect the documents after the products delivery Will be subject to any timeliness requirements KLOCEK v GATEWAY, INC Under UCC 2-207, the Standard Terms constitute either an expression of acceptance or written confirmation As an expression of acceptance, the Standard Terms would constitute a counteroffer only if the vendor expressly made its acceptance conditional on plaintiffs assent to the additional or different terms If plaintiff is not a merchant, additional or different terms contained in the Standard Terms do not become part of the parties agreement unless plaintiff expressly agreed to them CONDUCT AS ASSENT: THE IMPLIED CONTRACT The assent required for the formation of a contract can be inferred from many things However, it is necessary to recall The offeror is master of the offer. The power to specify an acceptable exchange surely includes the power to designate the response that will constitute a valid acceptance If an express contract is established, it will of course bar claims of implied undertakings on matters within its scope, unless the express K has itself been modified by conduct Two problems in the implied-contract cases: The effect of failing to reply to an offer. (silence as acceptance) The limits, if any, on an offerors power to bring about a contract by declaring that anothers failure to reply or act constitutes acceptance

Page 14 of 57 RESTATEMENT 69: ACCEPTANCE BY SILENCE or EXERCISE OF DOMINION (1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: a. Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know they were offered with the expectation of compensation b. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer c. Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept (2) An offeree who does any act inconsistent with the offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him COMMENT: THE PRIVELEGE OF SILENCE Courts typically say that silence will not constitute acceptance of an offer in the absence of a duty to speak Duty to Speak has been replaced by a standard of reasonable understanding. It is not enough that the actor expected to be paid It must be shown that the party to be charged in some manner assented. Under 69(1)(a), the fighting issue often will be whether the offeree had the requisite reason to know. AUSTIN v BURGE One may not have ordered supplies, yet if he continues to receive and use them, under circumstances where he had no right to suppose they were a gratuity, he will be held to have agreed by implication, to pay their value. NOTE: UNSOLICITED MERCHANDISE Unsolicited goods statutes authorize the recipient to treat unordered merchandise as a gift The receipt of any such unsolicited goods shall be deemed an unconditional gift to the recipient, who may refuse to accept delivery of the goods, is not bound to return them, and may use or dispose of them in any manner he sees fit without any obligation to the sender MARTIN v LITTLE, BROWN & CO. An implied contract is an agreement which legitimately can be inferred from the intention of the parties as evidenced by the circumstances and the ordinary course of dealing and the common understanding of men A promise to pay the reasonable value of the service is implied where one performs for another with the others knowledge, a useful service of a character that is usually charged for, and the latter expresses no dissent or avails himself of the service

Page 15 of 57 A promise to pay can, however, only be implied when they are rendered in such circumstances as authorized the party performing to entertain a reasonable expectation of their payment by the party benefited The benefit must not be given as a gratuity or without expectation of payment, and the person benefited must do something from which his promise to pay may be fairly inferred When a person requests another to perform services, it is ordinarily inferred that he intends to pay for them, unless the circumstances indicate otherwise However, where the circumstances evidence that ones work effort has been voluntarily gen to another, an intention to pay therefor cannot be inferred Where one person has been unjustly enriched at the expense of another he or she must make restitution to the other However, unjust enrichment is the key to an action for restitution The vehicle for achieving restitution is a quasi-contract, or contract implied in law To sustain a claim of unjust enrichment, it must be shown by the facts pleaded that a person wrongly secured or passively received a benefit that it would be unconscionable to retain General Rule: volunteers have no right to restitution Restatement 46: One who by extreme and outrageous conduct intentionally or recklessly causes severe emotional distress to another is subject to liability for such emotional distress. Liability has been found only where the conduct has been so outrageous and so extreme as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community The mere threat of a legal counterclaim, even if entirely lacking in merit, will not generally satisfy the strict standard required to make out a case of outrageous conduct The adversary nature of litigation invariably involves a turbulent contest of wills

COLLINS v LEWIS A true implied contract arises where a plaintiff, without being requested to do so, renders services under circumstnaces indicating that he expects to be paid, and the defendant, knowing such, avails himself o the benefit of those services. The law implies from the circumstances a promise by the defendant to pay the plaintiff what those services are reasonably worth

SECTION 4: MISTAKE, MISREPRESENTATION, WARRANTY, AND NONDISCLOSURE

JACKSON v SEYMOUR Controlling principle: o Mere failure of consideration or want of consideration will not ordinarily invalidate an executed contract o Courts cannot relieve one of the consequences of a contract merely because it was unwise

Page 16 of 57 o But, where inadequacy of price is such as to shock their conscience equity is alert to seize upon the slightest circumstance indicative of fraud, either actual or constructive Here, the inadequacy of consideration meets that definition Permitting the transaction would result in constructive fraud; thus, she is entitled to relief in equity Constructive fraud: o Is a breach of legal or equitable duty which the law declares fraudulent because of its tendency to deceive others, violate public or private confidence, or injury public interests Regardless of the moral guilt of the fraud feasor o Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud o May be inferred from the intrinsic nature and subject of the bargain itself

COMMENT: FIDUCIARY DUTIES Mere inadequacy of price, or any other inequality in the bargain, is not to be understood as constituting, per se, a ground to avoid a bargain in Equity. Every person who is not under disability is entitled to dispose of his property in such manner as he chooses o However, there may be such an unconscionableness or inadequacy in a bargain as to demonstrate some gross imposition or undue influence Where there are other ingredients in the case of a suspicious nature, or peculiar relations between the parties, gross inadequacy of price must necessarily furnish the most vehement presumption of fraud One important area of application of these ideas, namely constructive fraud, is with "confidential" and "fiduciary" relationships Fiduciary Relationships o One whose successful functioning requires a high degree of candor and reliability between the participants o A fiduciary, unlike an ordinary contract promisor, undertakes to treat the affairs of the promisee as if they were the promisor's own affairs o Examples: trustee/beneficiary, principal/agent, attorney/client, business partners o Key is one person's ascendancy over another o Often, higher standards are imposed on one party than on the other Confidential Relationships o Not so much the product of a legal status as it is the result of unusual trust or confidence reposed in fact One party exercising extraordinary influence over the other o Examples: Blood relationships, marriage, intimate personal friendship, physician/patient, minister/parishioner, next-door neighbors o Requires proof that in fact the parties did not deal on equal terms, that there was a high degree of confidence reposed in the honesty and good faith of the other party The two relationships are not mutually exclusive o The mere willingness to enter into a "fiduciary" relationship often will be a mark of confidence sufficient enough for the relationship to be "confidential" as well

Page 17 of 57 In neither type is bargaining wholly excluded o The principal requirement is one of full disclosure of all the material elements or terms of the bargain made Any transfer or exchange between the parties, either by gift or bargain, will be examined closely to be sure that there was full disclosure and no unfair advantage taken o The party in whom trust or confidence is reposed, and who seems to have profited, is forced to assume the burden of showing that the transaction was in every way fair and beyond suspicion

NOTE: NONDISCLOSURE AND CONCEALMENT A duty to disclose arises in situations involving facts that are concealed or unlikely to be discovered because of their dealings, or the nature of the fact itself A duty to disclose is rarely imposed where the parties deal at arms length and where the information is the type which the buyer would be expected to discovery by ordinary inspection and inquiry Not every failure to disclose information that would cause the plaintiff to reassess the deal is actionable Restatement 161 a vendor has an affirmative duty to disclose material facts where: o Disclosure is necessary to prevent a previous assertion from being a misrepresentation or from being fraudulent or material o Disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing o Disclosure would correct a mistake of the other party as to the contents or effect of a writing o The other person is entitled to know the fact because of a relationship of trust and confidence between them SHERWOOD v WALKER If there is a difference or mistake as to the substance of the thing bargained for, if the thing actually delivered or received is different in substance from what was bargained for, then there is no contract If it is only a difference in quality of accident, then the contract remains binding NOTE: The Replevin Remedy o UCC 2-716(3) provides: The buyer has a right of replevin for good sidentified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing. ELSINORE UNION ELEMENTARY SCHOOL DIST v KASTROFF - "honest error" may be excusable Defendant contractor refused to execute a building contract pursuant to submitted bit Timeline:

Page 18 of 57 o Prepares bid => Submits bid => Checks bid => It's good => Acceptance => Next day realized did not include plumbing figure, w/ architect => Letter to plaintiff => Refusal to release from bid Court ruled in favor of defendant o Carelessness of the bidder did not rise to the level of "neglect of legal duty" o School board would lose nothing except the benefit of an inequitable bargain o Defendant had notified the board of the error prior to receiving their acceptance A "minimal" loss is excusable, getting what the injured was expecting initially Cannot be a type of active fraud or manipulation

COMMENT: UNILATERAL MISTAKE The Grounds for Rescission Unilateral mistake is generally not a ground for rescinding a contract, or reforming one But exceptions have appeared o Usually involves a party who knew of and, saying nothing, claimed the benefit of, anothers mistake Relief for mistake is authorized where enforcement of the contract would be unconscionable o Recognized in Restatement 153 Information and Mistake Relief is routinely given in the mistaken-bid cases if the bidder-offerors error reasonably should have been known by the offeree before acceptance o Comparable to situations where parties deal at arms-length THE WARRANTY ALTERNATIVE The mistake cases commonly involve affirmative statements by the seller of the thing o Such statements may be challenged as deliberate or careless misrepresentations amounting to fraud or some similar tort o Or a sellers representation may be interpreted as a warranty of performance UCC 2-213 (express warranties), 2-314 and 2-315 (implied warranties); 2-316 (attempts to disclaim warranty liability) 2-714 (deals with relief for breach of warranty) TRIBE v PETERSON - A representation by the seller which expresses his opinion is not a warranty Plaintiff sued after a horse they purchased from defendant bucked Defendant allegedly had expressly guaranteed that the horse would never buck UCC 2-213: Express Warranties by Seller o Created as follows: Any affirmation of fact or promise made by the seller which relates to the goods and becomes part of the basis of the bargain Any description of the goods which is made part of the basis of the bargain Any sample or model which is made part of the basis of the bargain

Page 19 of 57 o Not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" o An affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion does not create a warranty Defendant only gave his opinion that the horse was gentle and kind, which expressed the seller's personal opinion of the horse Court ruled in favor of seller defendant

JOHNSON v HEALEY - Innocent, negligent misrepresentations that induce reliance = warranty of habitability Johnson, buyer, purchased house from Healey, builder, which had improperly been built on improper fill During negotiations, Healey had stated that the house was built of the best materials Even though he did nothing wrong, and did not know there was a problem, builder was liable o Did not disclose to buyer until after sale was concluded that this was the only house he had built o His statement that there was "nothing wrong" with the house could reasonably have been heard as an assertion that builder had sufficient information to justify his opinion about the quality of the house o This statement of opinion could reasonably have induced reliance by the buyer If a man makes a statement in regard to a matter upon which the other may reasonably suppose he has the means of information, and the statement is made as part of a business transaction, or to induce action from which the speaker expects to gain an advantage, he should be held liable for the consequences of reliance upon his misstatement Damages: General rule for measurement upon breach of warranty is to award the prevailing party such compensation as will place him in the same position as he would have enjoyed had the property been as warranted Length of the implied warranty is dependent upon the Statute of Limitations Suggested solutions: o Sell "As-Is"; or o Include an express "limited warranty" CUSHMAN v KIRBY - If seller makes partial disclosure, but buyer believes it a full disclosure, seller is liable if buyer acts in reliance to the disclosure Defendants, sellers, had during negotiations represented that there was good quality well water available on the land, when in fact the available water was not of good quality o Defendants told buyers that the water treatment system needed Clorox to treat hard water o Water turned out to be sulfur water o Defendant was aware the water contained sulfur to an extent requiring treatment Regardless, represented to buyers that the water was "a little hard," but that the treatment equipment would fix it Defendant never disclosed the presence of sulfur "Where one has full information and represents that he has, if he discloses a part of his information only, and leads another to believe that he has made a full disclosure and does

Page 20 of 57 this with intent to deceive, he is guilty of fraud against which equity will relieve, if his words and conduct in consequence of reliance upon them bring about the result which he desires" Silence alone is insufficient to constitute fraud unless there is a duty to speak o Duty to speak based on "superior knowledge and means of knowledge" o Where material facts are accessible to the vendor only, and he knows them not to be within the reach of the diligent attention, observation and judgment of the purchaser, the vendor is bound to disclose such facts and make them known to the purchaser Does not matter if party knew they were misrepresenting the matter

SECTION 5: CHANGED CIRCUMSTANCES JUSTIFYING NONPERFORMANCE

Where performance depends on the existence of a given thing it is excused if the thing ceases to exist or turns out to be nonexistent. A thing is "impossible" when it is not practicable and it is impracticable when it can be done only "at an excessive and unreasonable cost." TAYLOR v CALDWELL Contract for the use of gardens and music hall for four days o Plaintiffs: have use of the sites for the purpose of giving a series of four grand concerts, and day and night parties; pay $100 for each day o Defendants were to retain possession of the Hall and Gardens o Contract: Was merely to give the plaintiffs the use of them on those days Set out various stipulations between the parties Overall effect was to show that the Music Hall and Gardens being in a condition fit for concerts was essential to fulfillment of the contract o After making the agreement, but before the first day, the Hall was destroyed by fire Question at issue: o Whether the loss which the plaintiffs have sustained is to fall upon the defendants Parties made no express stipulation with reference to it Where there is a positive, absolute K: o Contractor must perform or pay damages o Contract cannot be subject to conditions Where, from beginning, parties must have known K could only be fulfilled by continued existence of some particular thing: o K is not to be viewed as a positive contract o K is to be subject to an implied condition that the parties be excused if performance becomes impossible If an author undertakes to compose a work, and dies before completing it, his executors are discharged from this contract o Where a contract depends upon personal skill, and the act of God renders it impossible it may be that the performance might be excused

Page 21 of 57 English law: o In all contracts of loan of chattels or bailments if the performance of the promise of the borrower or bailee to return the things lent or bailed becomes impossible because it has perished, this impossibility excuses the borrower or bailee from the performance of his promise to redeliver the chattel. HOLDING: Performance excused due to impossibility; Contract dissolved o Let the damages fall where they may If you want to allocate the risk, PUT IT IN THE CONTRACT

TOMPKINS v DUDLEY School burned down prior to completion TC: the contract was substantially performed, but the school was not formally accepted o Builder was still in possession o He was to deliver it over to the plaintiffs thus finished, or offer to deliver it, before his whole duty was performed to completion When a party is prevented by the act of God from discharging a duty created by law, he is excused o But when he engages unconditionally, by express contract, to do an act, performance is not excused by inevitable accident or other unforeseen contingency not within his control The party that agrees to do an act should do it, unless absolutely impossible CARROLL v BOWERSOCK Concrete floor in defendant's warehouse Partial recovery granted: o Work done in cutting the old floor away from the wall; Removing that part of the old floor as was necessary The warehouse was improved to that extent, the benefit having been inured by the owner when fire occurred o Recover for the completed concrete footings Not recovered: o Material furnished or labor performed in construction of either column or floor forms They were temporary devices Inured to nobody's benefit; not wrought into the structure o Either upright or floor rods, or for the labor of putting them into place They were not attached to the building and would not have been until the concrete was poured o Superintendence and use of tools; except for in regards to work done which has become identified with the building Benefit accrues whenever the contractor's material and labor, furnished and performed according to the contract, have become attached to the owner's realty Liability of the owner should be measured by the amount of the contract work done which, at the time of the destruction of the structure, had become so far identified with it as that but for the destruction it would have inured to him as contemplated by the contract

Page 22 of 57 If a contractor should engage to furnish all labor and material and build a house, and the house should burn before completion, the loss falls on him If contractor engages to refloor two rooms of an existing house, and should complete one room before the house burned, he ought to be paid something o Performance was prevented without fault of either party, and the true rule is that neither party can be charged with delinquency because the contract cannot be fulfilled The only basis on which the law can raise an obligation on the owner is the consideration he has received by way of benefit, advantage, or value to him o Benefit accrues whenever the contractor's material and labor have become attached to the owner's realty

ACT OF GOD DEFENSE PERMITTED ONLY WHEN SUBJECT MATTER OF K IS DEFINED, EXPRESSLY OR IMPLIEDLY (MUSIC HALL, OWNER'S WAREHOUSE), BUT NOT IF SUBJECT IS UNDEFINED (SCHOOL HOUSE, BEANS) COMMENT: RISK AND INSURANCE IN LAND PURCHASES Doctrine of Equitable Conversion o Operates to place on the vendee the risk o floss from fortuitous casualties occurring after entry into the contract of sale and prior to its closing o The contract itself, from its first moment, creates equitable ownership in the vendee The contract gives to the purchaser the substantial control of the premises and the principal value elements of property therein o With insurance, the vendee may have specific performance with a price abatement Uniform Risk Act o Absent contrary agreement agreement the risk of intervening casualty is determined by transfer of either legal title or possession o If neither is transferred, the risk of loss is on the vendor The vendor cannot enforce the contract, and the purchaser is entitled to recover any portion of the price paid o But if either legal title or possession has been transferred, the purchaser is not relieved from a duty to pay nor entitled to restitution of any portion of the price paid o UCC 2-509 and 2-510 put the risk of loss on the party that controls the goods o Summation: absent a change in title or possession, a loss is to remain where it falls, not to be shifted to another person o When the risk of loss remains with the vendor at the time of the intervening casualty, the purchaser is entitled to recover any portion of the price paid RESTATEMENT 264: PREVENTION BY GOVT REGULATION or ORDER If the performance of a duty is made impracticable by having to comply with govt regulation or order, that order is an event the non-occurrence of which was a basic assumption on which the contract was made.

Page 23 of 57 Rationale: It is a basic assumption that the law will not directly intervene to make performance impracticable when it is due LOUSIVILLE & NASHVILLE R.R. CO. v CROWE A contract which is lawful when made is terminated by a later govt regulation which renders its performance unlawful But a party who has received a performance under such an agreement should not be permitted to retain it THE ISLE OF MULL Compensation paid exceeding the contract rate is the owners gain Inadequate compensation paid would be the owners loss KEL KIM CORP. v CENTRAL MARKETS Skating Rink insurance case Generally, once a party to a K has made a promise, that party must perform or respond in damages for its failure, even when unforeseen circumstances make performance burdensome Impossibility of performance defense has been applied narrowly o Purpose of K law is to allocate the risks that might affect performance and that performance should be excused only in extreme circumstances o Impossibility excuses a party's performance only when the destruction of the subject matter of the K or the means of performance makes performance impossible o Impossibility must be produced by an unanticipated event Force Majeure Clauses - clauses excusing nonperformance due to circumstances beyond the control of the parties o Only if the clause specifically includes the event that actually prevents a party's performance will that party be excused o Principle of Interpretation: the general words are confined to things of the same kind or nature as the particular matters mentioned SNIPES MOUNTAIN CO. v BENZ BROS. & CO. If the parties contemplate a sale of the crop of a particular tract of land, and by reason of a drought or other fortuitous event, without the fault of the promisor, the crop of that land fails or is destroyed, nonperformance is to that extent excused; The contract, in the absence of an express provision controlling the matter, is considered as subject to an implied condition in this regard NOTE: ALLOCATING RISK BY CIRCUMSTANCES If the contract explicitly assigns a particular risk, there is no occasion to apply the general body of excuse doctrine The fighting issue is likely to be whether the contract, read in context, reveals an implicit allocation o Ex: whether a promise unconditional on its face was in fact conditioned on some person or thing

Page 24 of 57 Where resort to surrounding circumstances includes evidence of negotiating history, the PRE is an obstacle for the party seeking to qualify an undertaking

AMERICAN TRADING & PROD. CORP. v SHELL INTL MARINE LTD. Theory of Commercial Impracticability (Restatement 454) o Even though the owner is not excused because of strict impossibility, performance is rendered impossible if it can only be accomplished with extreme and unreasonable difficulty, expense, injury, or loss o Mere increase in cost alone is not a sufficient excuse for non-performance Must be an extreme and unreasonable expense UCC 2-615, comment 4: o The rise in cost must alter the essential nature of the performance. MAPLE FARMS, INC. v CITY SCHOOL DIST. Save for the most exceptional circumstances, a party claiming discharge from obligation because of unexpected financial burdens caused by a shift in market conditions is unlikely to get far o Foreseeable for market to shift MISHARA CONSTR. CO. v TRANSIT-MIXED CONCRETE CORP. UCC 2-615 provides as a test commercial impracticability as opposed to strict impossibility o Circumstances drastically increasing the difficulty and expense of the contemplated performance may be within the compass of impossibility o The intervening circumstance must be one that the parties assumed would not occur In industries with a long record of labor difficulties, the nonoccurrence of strikes would not be a basic assumption o Much must depend on the facts known to the parties at the time of the contract, as to the prospects for labor difficulties and the severity of their probable effects KRELL v HENRY Taylor Rule: o Where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless some particular specified thing continued to exist So that when entering into the contract they must have contemplated such continued existence as the foundation of what was to be done There, absent any express or implied warranty that the thing shall exist, the contract is not to be considered a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor Must first ascertain what is the substance of the contract Then ask whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things

Page 25 of 57 o If it doesnt, this will limit the operation of the general words o If the contract becomes impossible of performance by reason of the nonexistence of the state of things assumed as the foundation, there will be no breach of the K Test of Impossibility: o Each case must be judged by its own circumstances, and ask three questions: What, having regard to all circumstances, was the foundation of the contract? Was the performance of the contract prevented? Was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract? o If all questions are answered in the affirmative, both parties are discharged from further performance The test is whether the event which causes the impossibility was or might have been anticipated and guarded against.

RESTATEMENT 272, comment b: Recovery in impossibility and frustration cases may go beyond mere restitution and include elements of reliance by the claimant even though they have not benefitted the other party

CHASE PRECAST v JOHN J. PAONESSA CO. Restatement 265, UCC 2-615: Doctrine of Frustration of Purpose (DFP) o Where, after a K is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the K was made, his remaining duties to render performance are discharged, unless the language of the circumstances indicate the contrary DFP Test; Given the commercial circumstances in which the parties dealt: o Was the contingency which developed one which the parties could reasonably be thought to have foreseen as a real possibility which could affect performance? o Was it one of that variety of risks which the parties were tacitly assigning to the promisor by their failure to provide for it explicitly? o If it was, performance will be required o If it could not be so considered, performance will be excused

Page 26 of 57

CHAPTER 5: POLICING THE BARGAIN

SECTION 1: COMPETENCY AND OTHER LIMITS
Infancy HALBMAN v LEMKE Right of a minor to disaffirm a contract for the purchase of an item Doctrine of Incapacity - "infancy doctrine" o Absolute right of a minor to disaffirm a contract for the purchase of items where are not necessities o A minor who disaffirms a contract is entitled to recover all consideration he has conferred incident to the transaction. In return the minor is expected to restore as much of the consideration as, at the time of disaffirmance, remains in the minor's possession Restatement Section 14 o The minor's right to disaffirm is not contingent upon the return of the property, as disaffirmance is permitted even where such return cannot be made The contract of a minor for the purchase of items which are not necessities may be disaffirmed even when the minor cannot make restitution Where there is misrepresentation by a minor or willful destruction of the property, the vendor may be able to recover damages in tort o However, absent these factors, to require a disaffirming minor to make restitution for diminished value is, in effect, to bind the minor to a part of the obligation which by law he is privileged to avoid Vendor should require minor have adult co-sign the contract WEBSTER STREET PARTNERSHIP v SHERIDAN A disaffirming infant is liable only for the value of "necessaries" supplied under the contract o Term is flexible and varies with the facts of each case o Depends on the social position and situation in life of the infant, as well as upon his own fortune and that of his parents Goods or other items of property are not necessaries if the infant has a parent or guardian who is willing and able to supply them Mental Competence ORTELERE v TEACHERS' RETIREMENT BD. Teacher was mentally incompetent to alter her retirement benefits Simply having unimpaired cognitive ability is insufficient when unable to control one's conduct due to mental illness General Test: Capacity to understand the nature and consequences of the transaction RESTATEMENT 15: MENTAL ILLNESS OR DEFECT

Page 27 of 57 (1) A person incurs only voidable contractual duties by enterint into a transaction if by reason of mental illness or defect a. He is unable to understand in a reasonable manner the nature and consequences of the transaction, or b. He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition (2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires Comment: Operative effect of incompetency: o The effect on executor contracts of incompetency is very much like that of infancy o Incompetent person may affirm or disaffirm the contract upon regaining full capacity or power to affirm/disaffirm may be exercised by guardian Effect of performance: o Where the contract has been performed in whole or in part, avoidance is permitted only on equitable terms o Any benefits still retained by the incompetent must be restored or paid for, and restitution must be made for any necessaries furnished under the contract o If the other party knew of incompetency, or if he took unfair advantage of incompetency, consideration not received by the incompetent or dissipated without benefit to him need not be restored ODORIZZI v BLOOMFIELD SCHOOL DIST. Undue influence is used to describe persuasion which tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment o Includes taking an unfair advantage of anothers weakness of mind; or taking a grossly oppressive and unfair advantage of anothers necessities or distress o Involves the use of excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a servient object Over-persuasion is generally accompanied by certain characteristics: o Discussion of the transaction at an unusual or inappropriate time o Consummation of the transaction in an unusual place o Insistent demand that the business be finished at once o Extreme emphasis on untoward consequences of dealy o The use of multiple persuaders by the dominant side against a single servient party o Absence of third-party advisers to the servient party o Statements that there is no time to consult financial advisers or attorneys If a number of the above elements are simultaneously present, the persuasion may be excessive

Page 28 of 57

SECTION 2: DURESS AND COERCIVE RENEGOTIATION

BATSAKIS v DEMOTSIS A plea of want of consideration amounts to a contention that the instrument never became a valid obligation in the first place Mere inadequacy of consideration will not void a contract COMMENT: ADEQUACY OF CONSIDERATION Mere inadequacy of consideration will not void a contract Ordinarily the courts will not inquire into the adequacy of consideration It is necessary that the consideration be of some value, but it is sufficient if it be of slight value only However, one should not conclude that the broad prohibition against review of adequacy has meant that the fairness of exchange is not a legal concern Legal Duty Rule Consideration is required to form a contract and to escape from, or alter in midcourse, an unperformed contract o A contract may not be modified without consideration A contractual duty already owed does not equal consideration Extra benefit to promisor must be combined with extra detriment to promisee LEVINE v BLUMENTHAL A subsequent oral agreement was made to change and alter the terms of the written lease, with respect to the rent paid o TC: this was not supported by lawful consideration, and ineffective General Rule: a promise to do what the promisor is already legally bound to do is an unreal consideration Consideration = NEW (additional) benefit and detriment Test: o Is the consideration adequate to support an ordinary K; and o Does not consist of a duty the debtor is legally bound to do? General economic adversity is never a warrant for judicial abrogation of this primary principle of the law of contracts ALASKA PACKERS v DOMENICO The party who refuses to perform, and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party o Where the promise is simply a repetition of an existing legal promise, a party cannot lay the foundation of an estoppel by his own wrong Cannot demand extra $ for same work already obligated to do SCHWARTZREICH v BAUMAN-BASCH, INC Parties to a contract can rescind it by mutual consent

Page 29 of 57 o Can then proceed to make a new contract in which their mutual promises are consideration for each other. The time of rescission in relation to making of new contract is irrelevant

AUSTIN INSTRUMENT, INC v LORAL CORP Economic Duress Rules: o Voidable if party was forced to agree by means of a wrongful threat precluding his free will o Existence of economic duress or business compulsion demonstrated by proof of: Immediate possession of needful goods is threated; or One part to a K has threatened to breach by withholding goods unless the other party agrees to further demands o However, a mere threat to breach by not delivering the required items does not constitute economic duress Must also appear the threatened could not obtain the goods from other source and that the ordinary remedy of action for Breach of Contract would be inadequate Nonperformance by a subcontractor is not an excuse for default in the main contract One who would recover moneys allegedly paid under duress must act promptly to make his claim known o However, exception to this may be where past conduct gives threatened party reason to delay NOTE: AN IMPROPER THREAT Duress of goods is well established as a ground for rescission and restitution The refusal of a service by public utilities unless paid a sum exceeding the authorized rate is another type of relievable duress BRIAN CONSTR & DEV. CO. v BRIGHENTI When a party agrees to perform an obligation for another to whom that obligation is already owed, although for lesser remuneration, the second agreement does not constitute a valid, binding contract o Where, however, the subsequent agreement imposes upon the one seeking greater compensation an additional obligation or burden not previously assumed, the agreement, supported by consideration, is valid and binding o (More Work + More $ = Valid K) An unforeseen, burdensome condition = new detriment RESTATEMENT 89: BINDING MODIFICATION A promise modifying a duty under a contract not fully performed on either side is binding a. If the modification is fair and equitable in view of circumstances not anticipated when the contract was made; or b. To the extent provided by statute; or c. To the extent that justice requires enforcement in view of material change of position in reliance on the promise.

Page 30 of 57 UCC 2-209(1) Obligation of good faith requires inquiries into: o The parties subjective honesty, and o The justification for the decision to seek a modification. Contractual Duty Owed to a Third Person UNIVERSAL BUILDERS, INC v MOON MOTOR LODGE, INC Unless contract is for sale of goods, it may be modified orally even if contract requires it to be written Owners must pay for extra work requested at oral discretion A provision in a contract for goods that the contract can be modified only in writing is waived under the circumstnaces described by Restatement 224: o By an oral agreement or permission of the promisor tha the condition need not be performed o If the agreement or permission is given while the performance of the condition is possible, and o In reliance on the agreement, while it is unrevoked, the promisee materially changes his position Condition is waived if results in fraud Non-written modifications effectiveness depends upon whether enforcement is barred by equitable considerations o When an owner requests extra work, promises to pay for it, and watches it performed knowing it is not authorized in writing, he cannot refuse to pay on the ground that there was no written change order Liquidated Damages Clause is enforceable unless not reasonable estimate of actual or anticipated losses Finalizing Contract Disputes HACKLEY v HEADLEY Duress exists when one by the unlawful act of another is induced to make a contract or perform some act under circumstances which deprive him of the exercise of free will o Commonly either of the person or the goods of the party Duress of goods may exist when one is compelled to submit to an illegal exaction in order to obtain them from one who has them in possession but refuses to surrender them unless the exaction is submitted to o Payment by Compulsion But where the party threatens nothing which he has not a legal right to perform, there is no duress NOTE Duress should be tried on the facts Financial difficulty by itself will not justify setting aside a settlement MARTON REMODELING v JENSEN

Page 31 of 57 A single claim, including both its disputed and undisputed elements, is unitary and not subject to division so long as the whole claim is unliquidated General Rule: an accord and satisfaction of a single claim is not avoided merely because the amount paid and accepted is only that which the debtor concedes to be due or that his view of the controversy is adopted in making the settlement An accord and satisfaction requires that there be an unliquidated claim or a bona fide dispute over the amount due o Cant cancel out a condition on full payment by crossing out or writing over it

LEGAL DUTY APART FROM ACCORD A bargain by a public official to obtain additional benefits for performing regular duties is unenforceable as against public policy. DENNEY v REPPERT General Rule: Reward may not be given to employees or public officials acting w/in the scope of their employment or official duties A claimant of a reward must comply with the terms and conditions of the offer of reward A public officer within the authority of the law to make an arrest may accept an offer of reward for acts or services performed outside of his jurisdiction or not within the scope of his official duties IN re ESTATE OF LORD v LORD Contracts between spouses for money to care for the spouse is void; spouses have a legal duty to care for one another Public policy to protect the marriage institution A promise to do what a party is already obligated by contract or law to do is not consideration for a promise made in return o Ex: husband promised to be faithful in return for wife promising to stop divorce Nuptial contracts which attempt to alter the legal relations of the parties are void for want of consideration, or against public policy

SECTION 3: SCRUTINY OF LIMITED COMMITMENT

The general employment type in America is employment at-will In the absence of agreement to the contrary, the employer or the worker can end the relationship unilaterally for any reason or no reason at all However, typically Good Faith is still required SHEETS v TEDDYS FROSTED FOODS, INC Right to terminate at will is not absolute Just Cause substantially limits employer discretion to terminate, by requiring the employer, in all instances, to proffer a proper reason for dismissal, by forbidding the employer to act arbitrarily or capriciously

Page 32 of 57 Public policy imposes limits on termination of at-will employee No case has supported employer to override public policy despite outrageous circumstances Employees without bargaining power are entitled to judicial protection When there is a relevant state statute we should not ignore the statement of public policy that it represents o An employee should not have to decide between risking criminal sanctions or losing his job

PRICE v CARMACK DATSUN, INC An exception to the at-will doctrine is made only when the discharge violates a clearly mandated public policy o A matter must strike at the heart of a citizens social rights, duties, and responsibilities before the tort will be allowed o If the matter is one of private and individual grievances rather than one affecting society, the action will not be allowed McDONALD v MOBIL COAL PRODUCING, INC For a disclaimer to be effective against employees it must be conspicuous; whether it was conspicuous is a matter of law o Set off in any way o Not placed under general subheading o Capitalized o Different font size o Clear as to its effect on the employment relationship Objective Theory of contract formation o Contractual obligation is imposed not on the basis of the subjective intent of the parties, but rather upon the outward manifestations of a partys assent sufficient to create reasonable reliance by the other party KARI v GENERAL MOTORS CORP An employers communications to employees may constitute an offer to contract o But the offer must contain a promise communicated in such manner that the promisee may justly expect performance and may reasonably rely thereon DORE v ARNOLD WORLDWIDE, INC A clear and unambiguous at-will provision in a written employment contract, signed by the employee, cannot be overcome by evidence of a prior contemporaneous implied-infact contract requiring good cause for termination A verbal formulation at any time in the termination clause of an employment contract ordinarily entails the notion of with or without cause The presumption of at-will employment can be overcome by an express or implied agreement to the contrary The term at will when used in an employment contract normally conveys an intent employment may be ended by either party at any time without cause.

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SECTION 4: STANDARDIZED TERMS, UNCONSCIONABLE INEQUALITY, AND GOOD FAITH

Common law duty to read. Unless one can show facts and circumstances to demonstrate that he was prevented from reading the contract, or that he was induced by statements of the other party to refrain from reading the contract, it is binding o No party to a written contract can defend against its enforcement on the sole ground that he signed it without reading it Yet, the duty to read depends ultimately on circumstances o The duty may be raised or lowered, or even extinguished Form Contracts HENNINGSEN v BLOOMFIELD MOTORS, INC General Rule: In the absence of fraud one who does not choose to read a contract before signing it cannot later relieve himself of its burden The conflicting interests of the buyer and seller must be evaluated realistically and justly giving due weight to the: o Social policy of the Uniform Sales Act o Progressive decisions of the courts o Bargaining position occupied by the ordinary consumer in such an economy Disclaimers and the consequent limitation of liability will not be given effect if: o Unfairly procured; or o Not brought to the buyers attention and he was not made understandingly aware of it; or o Not clear and explicit In the sale of goods, the legislative will has imposed an implied warranty of merchantability as a general incident of sale of an automobile by description o Right to recover damages for personal injuries arising from a breach of warranty The disclaimer of an implied warranty of merchantability is violative of public policy SUPERWOOD CORP. v SIEMPELKAMP CORP. UCC clarifies the rights and remedies of parties to commercial transactions: o 2-314: covering warranties o 2-316: warranty disclaimers o 2-719: liability limitations o 2-607: notice provisions Economic losses that arise out of commercial transactions are not recoverable under the tort theories of negligence or strict liability RICHARDS v RICHARDS Exculpatory contracts are not favored by the law o However, not automatically void and unenforceable as contrary to public policy o Court examines whether such agreements violate PP and construes them strictly against the party seeking to rely on them

Page 34 of 57 The court will not favor an exculpatory contract that is broad and general in its terms In this case, the contract serves two purpose o Dual function was not made clear in the title o A release should be clearly labeled o To prevent confusion and provide protection, need to identify AND distinguish Standardized release, alone, is not enough to invalidate Had plaintiff been allowed to negotiate a release, she may have declined to release the company from liability or reckless actions

BROEMMER v ABORTION SERVICES OF PHOENIX Adhesion Contract = enforceable unless: o Unconscionable; or o Beyond reasonable expectations Adhesion Contract: o Standardized form o Offered to consumers o Take it or leave it o Under conditions where the consumer can only receive goods/services by agreement o One party has all bargaining power Adhesion is unenforceable if two factors: o Reasonable expectations of the signing party; o Unconscionability A court will find less reason to regard the bargaining process as suspect if there are no terms unreasonably favorable to the stronger party RESTATEMENT, 211: STANDARDIZED AGREEMENTS (1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing (2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement. Assent to unknown terms: A party who makes regular use of a standardized form does not ordinarily expect his customers to understand or even to read the standard terms. Equality of treatment: One who assents to standard contract terms normally assumes the others are doing likewise and that all who do so are on an equal footing. COMMENT: SECTION 211 AND REASONABLE EXPECTATIONS A party who adheres to the other partys standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term.

Page 35 of 57 o Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances Reason to believe may be inferred from: o The fact that the term is bizarre or oppressive o The fact that it eviscerates the non-standard terms explicitly agreed to o The fact that it eliminates the dominant purpose of this transaction In a contract of adhesion form must not be exalted over substance, and that the reasonable expectations may not be frustrated Reasonable expectations may be established by proof of the underlying negotiations or inferred from the circumstances

WOOLLUMS v HORSLEY Unclean Hands Doctrine => Equitable relief may be barred for legal contract if plaintiff came in with unethical, immoral conduct Unconscionability WATERS v MIN LTD. Courts may refuse enforcement of a bargain shown to be unconscionable by reason of gross inadequacy Unconscionability must be determined on a case-by-case basis Unconscionability must be determined at the time the contract was made High pressure sales tactics and misrepresentation have been recognized as factors rendering a contract unconscionable Gross disparity in the values exchanged is an important factor to be considered in determining whether a contract is unconscionable UCC 2-302: UNCONSCIONABLE CONTRACT or CLAUSE (1) If the contract or clause is found 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 (2) When it is claimed or appears to the court that the contract or clause 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. WILLIAMS v WALKER-THOMAS FURNITURE CO. If a contract be unreasonable and unconscionable, but not void for fraud, a court will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to Where the element of unconscionability is present at the time a contract is made, the contract should not be enforced Unconscionability: o Absence of meaningful choice meaningful choice determined by circumstances

Page 36 of 57 o Terms unreasonably favorable Ordinarily, one who signs an agreement without full knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain o But, when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms In determining reasonableness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made

BROWER v GATEWAY 2000, INC. General Rule: unconscionability requires a showing that a contract is both procedurally and substantively unconscionable when made Procedural Element: o A court will look to the contract formation process to determine if in fact one party lacked any meaningful choice. Take into consideration such factors as: The setting of the transaction, The experience and education of the party claiming unconscionability, Whether the contract contained fine print, whether the seller used highpressured tactics, Any disparity in the parties bargaining power Substantive Element: o Look at possible inconveniences o Also consider excessive cost factor Federal Arbitration Act: o Provides for such court designation of an arbitrator upon application of either party, where, for whatever reason, one is not otherwise designated o Cite this when representing Defendant if arbitration clause exists o Plaintiff should reply with unconscionability MARTIN v JOSEPH HARRIS CO. A legally sophisticated seller may not take advantage of a buyers lack of legal expertise about warranties to shift, by cryptic language, the risk of loss due to latent, undiscoverable defects in the product sold NOTE: CONTEMPORARY UNCONSCIONABILITY Doctrine of unconscionability divided into two aspects: o One intended to prevent unfair surprise o One intended to prevent oppression Where only procedural irregularities are involved, the judicial doctrines of fraud, misrepresentation, duress, and mistake may provide superior tools for analyzing the validity of contracts. RESTATEMENT 205: DUTY OF GOOD FAITH AND FAIR DEALING Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement

Page 37 of 57

MARKET STREET ASSOCIATES v FREY The lessor who fails to give reasonable consideration and thereby prevents the negotiations from taking place is breaking the contract A contracting party cannot be allowed to use his own breach to gain an advantage by impairing the rights that the contract confers on the other party A fiduciary is required to treat his principal as if the principal were he, and therefore he may not take advantage of the principals incapacity, ignorance, inexperience, or navet It is one thing to say that you can exploit your superior knowledge of the market o It is another to say that you can take deliberate advantage of an oversight by your contract partner concerning this rights under the contract COMMENT: REGULATION OF UNFAIR TERMS Compulsory Contracts Modern statutes eliminate or restrict the option not to deal by supplies of essential goods and services o Ex: Utility companies and insurance companies Compulsion of the more powerful party to deal is of limited benefit to the weaker party if the substantive terms of the required contract may be determined in the sole discretion of the former Prohibited Terms Typically prohibited due to being against public policy or illegality Requirement of Form Even if a provision is not prohibited, it may have such severe and unanticipated consequences for one of the parties that special care is warranted assure that the term is brought to the attention of the disadvantaged party o Ex: UCC 2-316 requires that if the implied warranty of merchantability is to be excluded or modified, the language must mention merchantability and, if written, must be conspicuous.

Page 38 of 57

CHAPTER 6: THE MATURING AND BREACH OF CONTRACT DUTIES

SECTION 1: THE INTERDEPENDENCE OF PROMISES
NICHOLS v RAYNBRED Dependency of mutual promises o In a promise for a promise, a party need not perform before recovery on K is allowed KINGSTON v PRESTON Three types of promises: o Mutual and independent Either party may recover o Conditions & Independent Performance of one depends on performance of another Until prior condition is performed, not liable o Mutual conditions at same time If one is ready and offers performance and other neglects, the ready party has fulfilled and may sue Dependence/Interdependence is determined by circumstances RESTATEMENT 234: ORDER OF PERFORMANCES (1) Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary When simultaneous performance possible under agreement: simultaneous performance is possible in five categories: Where the same time is fixed for the performance of each party Where a time is fixed for the performance of one of the parties and no time is fixed for the other Where no time is fixed for the performance of either party Where the same period is fixed within which each party is to perform Where different periods are fixed within which each party is to perform The Requirement of simultaneous performance applies to the first four categories RESTATEMENT 238: EFFECT ON OTHER PARTYS DUTIES OF A FAILURE TO OFFER PERFORMANCE Where all or part of the performances to be exchanged under an exchange of promises are due simultaneously, it is a condition of each partys duties to render such performance that the other party either render or, with manifested present ability to do so, offer performance of his part of the simultaneous exchange Render or Tender PRICE v VAN LINT

Page 39 of 57 General Rule: not to construe promises as independent unless the nature of the contract or the surrounding circumstnaces compel a contrary inference o Interpretation favores the conclusion of an agreed exchange of performance as the true intent unless such a conclusion violates the language of the K under the facts Where a contract contains mutual promises to pay money or perform some other act, and the time for performance for one party is to, or may, arrive before the time for performance by the other, the latter promise is an independent obligation, and nonperformance merely raises a cause of action in the promisee, and does not defeat the right making it to recover for a breach of the promise Where the mutual covenants go to the entire consideration on both sides, they are considered mutual conditions and dependent unless there are clear indications contrary A breach of contract to loan money imposes no liability to damages o Does not apply where there are extraordinary circumstances resulting in injury o RESTATEMENT 343: Damages for breach of K to lend money are measured by the (cost of obtaining the use of money during the agreed period of credit) less (interest at contract rate) plus (compensation for other unavoidable harm that the defendant had reason to foresee when K was made)

CONLEY v PITNEY BOWES General Rule: In bilateral contracts for an exchange of performances, where one partys performance is to be rendered prior to that of the other, it is a constructive condition precedent to the latters duty BELL v ELDER Tender of performance is required before claiming breach of a concurrent promise WHOLESALE SAND & GRAVEL, INC v DECKER An anticipatory repudiation of a contract is a definite and unequivocal manifestation of intention on the part of the repudiator that he will not render the promised performance when the time arrives o Manifestation of intent to repudiate may be communicated by either words or conduct o Words or conduct evidencing such refusal or inability to perform, however, must be definite, unequivocal, and absolute BREACH BY ANTICIPATORY REPUDIATION A repudiation occurs when a partys statements or actions can fairly be interpreted to mean that the party will not or cannot perform its contractual obligations Repudiation may excuse the nonoccurrence of a condition RESTATEMENT 253: ANTICIPATORY BREACH (1) Where an obligor repudiates a duty before he has committed a breach by nonperformance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach

Page 40 of 57 (2) Where performances are to be exchanged under an exchange of promises, one partys repudiation of a duty to render performance discharges the others remaining duties to render performance K& G CONSTR. CO. v HARRIS The intention of the parties, as shown by the entire K in light of circumstances, is controlling factor in deciding that the promises are dependent rather than independent General Rule: Where a total price for work is fixed by a contract, the work is not rendered divisible by progress payments Covenants are to be construed as dependent or independent according to the intention of the parties and the good sense of the case The failure of a contractors performance to constitute substantial performance may justify the owner in refusing to make a progress payment o If the refusal to pay an installment is justified on the owners part, the contractor is not justified in abandoning work by reason of that refusal o Abandonment of the work will itself be a wrongful repudiation that goes to the essence of the K, even if the defects in performance did not Unexcused failure of a contractor to render a promised performance when it is due is always a breach of contract STANLEY GUDYKA SALES CO. v LACY FOREST PRODUCTS CO. The self-help remedy afforded by doctrine of conditions is only available where termination is in proportion to the need for accountability from the breaching party, and where the breach is material rather than insignificant o If termination is not proportional to $ owed, termination is not allowed The doctrine of conditions will not permit a party to use an insignificant breach as a pretext for avoiding his contractual duties o Cant avoid duties because of a minor breach NOTE If the performing party stops performing, or performs badly, the paying party can stop paying o Yet not every self-help response to breach is legitimate, as doctrine of conditions places implicit limitations, even obligations Ex: duty to give notice and an opportunity to cure a breach ZIEHEN v SMITH General Rule: In order to entitle a party to recover damages for breach he must show performance or tender of performance on his part o Must show that the other party is in default in order to maintain the action, or that performance or tender has been waived o However, a tender of performance on the part of the vendee is dispensed with in a case where it appears that the vendor has disabled himself from performance, or that he is, on the day fixed by the contract for that purpose, unable to perform Where the acts of the parties are to be concurrent, the party claiming breach must be ready to perform his obligation AND demand performance by the other party

Page 41 of 57 If seller of real estate is unable to perform at time in K, buyer has no duty to tender or demand performance in order to enable buyer to maintain an action to recover money paid on the contract, or for damages

NEVES v WRIGHT A seller need not have legal title during the entire executor period of a real estate contract Basic Test: Whether the defect, by its nature, is one that can be removed, as a practical matter o Buyer must not act unilaterally in renouncing a contract because of a particular problem without giving the seller an opportunity and a reasonable time to explain or give assurances Where the contract contemplates simultaneous performance and contains no declaration that time is of the essence, the contract obligations can continue for some time beyond the agreed closing date o The party who desires to use legal process must put the other party in default NOTE Where conditions are concurrent, the allegation of tender need not be of absolute tender. A tender conditional on contemporaneous performance by the defendant is sufficient and necessary o Readiness and willingness on part of plaintiff is sufficient allegation In actions for specific performance, plaintiff must not only be ready and willing but he must have manifested this before bringing his action, by some offer of performance to the defendant o Otherwise, both parties might be ready and willing and be waiting for the other to come forward Since a conditional tender is necessary to put either party in default, so long as both parties remain inactive, neither is liable and neither has acquired a right of action o The possibility of putting either party in default will cease if the delay is too long Tender requirement is satisfied by conduct amounting to the giving of notice of readiness to perform o A demand for the others performance of a concurrent act is understood to indicate readiness and an offer to perform NOTE: ESTABLISHING ENTITLEMENT TO RELIEF Anticipatory breach by repudiation discharges any remaining duties of the non-breacher o That party no longer need remain ready and able to perform A plaintiff suing on anticipatory repudiation is required to demonstrate an ability to perform had the breach not occurred A repudiating partys liability for damages is discharged if it subsequently appears that there would have been a total failure of performance by the injured party STEWART v NEWBURY General Rule: Where a contract is made to perform work and no agreement is made as to payment, the work must be substantially performed before payment can be demanded

Page 42 of 57 NOTE Where one partys promise requires a substantial time for performance, some extension of credit is practically unavoidable o General Rule for such: where the other partys performance does not require a substantial time, the latters duty is conditional on performance by the former o The party whose performance requires time should extend credit to the latter Practice is to pay $ after work is completed KELLY CONSTR. CO. v HACKENSACK BRICK CO. Where the sale is of a specified quantity of goods, the contract is entire, and a failure to pay when a part delivery has been made does not excuse the seller from completing delivery, no time for payment being stated in the contract NOTE UCC 2-307: Unless otherwise agreed all goods called for by a contract 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 Where the circumstances indicate that the seller is entitled to deliver in lots, the price may be demanded for each lot if it is apportionable o Circumstances may give rise to an installment contract defined in 2-612 as one requiring or authorizing delivery in separate lots to be separately accepted RESTATEMENT 233 (1) Where performances are to be exchanged under an exchange of promises, and the whole of one partys performance can be rendered at one time, it is due at one time, unless the language or the circumstances indicate the contrary (2) Where only a part of one partys performance is due at one time under Subsection (1), if the other partys performance can be so apportioned that there is a comparable part that can also be rendered at that time, it is due at that time, unless the language or circumstances indicate the contrary TIPTON v FEITNER In contracts for the purchase of property where there is no stipulation for credit or delay on either side, the delivery of the property and the payment of the price are each conditions of the other, and neither party can sue for a breach without having offered performance on his party In the absence of a stipulation for credit we must consider that it was to be paid for on delivery, and that the delivery of the property and the payment of the price were to be concurrent acts RESTATEMENT 240: PART PERFORMANCE AS AGREED EQUIVALENTS If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a partys performance of his part of such a pair has the same effect on the

Page 43 of 57 others duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised Comment: Separate contracts distinguished: If there are two separate contracts, one partys performance under the first and the other partys performance under the second are not to be exchanged under a single exchange of promises, and even a total failure under the first has no effect on the other partys duty perform the second. NOTE: DIVISIBLE OR SEVERABLE CONTRACTS Divisible inquiry: Whether, had the parties thought of it, they would be willing to exchange the part performance irrespective of what transpired subsequently A party who has performed part of a divisible contract may recover the agreed equivalent in an action on the contract; the remedy is not off-the-contract restitution o The rule that a party who fails to perform cannot recover on the contract for part performance applies only to entire, indivisible contracts, not to severable contracts Under the doctrine of conditions, substantial performance of one part of a divisible contract has the same effect on the corresponding part as substantial performance of an indivisible duty has on the entire contract o But if the parties have made two contracts, a partys breach of one will not excuse the other party from the performance due under the second contract Unless performance under one K is conditioned expressly on performance under the other COMMENT: VENDORS REMEDIES FOR THE PRICE LAW AND EQUITY Affirmative Mutuality The inability to value land compels conclusion that damages cannot be a satisfactory remedy for the purchaser o Vendees are awarded specific performance The vendor is also allowed specific performance because of mutuality as opposed to inadequacy of damages o Since the vendee can sue in equity for SP, the vendor should be able to do the same o Affirmative doctrine of mutuality of remedy Recovery of the Price of Goods The seller can recover the agreed price if: o The property (legal title) in the goods had passed to the buyer; o The price was payable on a day certain; or o Though title had not passed, if the goods could not readily be resold for a reasonable price. UCC 2-709 o If the goods have not yet been effectively transferred to the buyer, they must be identified to the contract, and the seller must have been unable after reasonable effort to resell them at a reasonable price

Page 44 of 57

SECTION 2: INTERPRETING CONDITIONS

Condition = some operative fact subsequent to acceptance and prior to discharge, a fact upon which the rights and duties of the parties depend May be an act of one of the contracting parties May be an act of a third party May be any other fact of our physical world May be a performance that has been promised or a fact as to which there is no promise Whether a particular clause is a condition which, when not performed, allows a party to abandon the contract, or amounts only to a promise, the breach of which is recompensed by damages, must depend upon the intention of the parties, to be determined from the language of the entire agreement and the subject matter to which it relates. HOWARD v FDERAL CROP INS. CORP. General policy against forfeitures: Insurance policies are generally construed most strongly against the insurer o When it is doubtful whether words create a promise or a condition, they will be construed as creating a promise o The provisions of a contract will not be construed as conditions in the absence of language plainly requiring such construction Warranty and Condition Precedent are often used interchangeable to create a condition of the insureds promise, and manifestly the terms were intended to have the same meaning and effect RESTATEMENT 261: INTERPRETATION OF DOUBTFUL WORDS AS PROMISE OR CONDITION Where it is a doubtful whether words create a promise or an express condition, they are interpreted as creating a promise; but the same words may sometimes mean that one party promises a performance and that the other partys promise is conditional on that performance. Promise Illustration: A, an insurance company, issues to B a policy of insurance containing promises by A that are in terms conditional on the happening of certain events. The policy contains this clause: provided, in case differences shall arise touching any loss, the matter shall be submitted to impartial arbitrators, whose award shall be binding on the parties. This is a promise to arbitrate and does not make an award a condition precedent of the insurers duty to pay. Condition Illustration: A, an insurance company, issues to B an insurance policy in usual form containing this clause: In the vent of disagreement as to the amount of loss it shall be ascertained by two appraisers and an umpire. The loss shall not be payable until 60 days after the award of the appraisers when such an appraisal is required. This provision is not merely a promise to arbitrate but makes an award a condition of the insurers duty to pay in cases of disagreement. MERRITT HILL VINEYARDS, INC v WINDY HEIGHTS VINEYARD, INC

Page 45 of 57 A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due.

GRAY v GARDNER Burden is placed: o Condition precedent = Whom duty is owed o Condition subsequent = Whom owes a duty If fail to show that the event has happened or not, the promise remains good PARSONS v BRISTOL DEV CO. When payment of money is to be made from a specific fund, and not otherwise, the failure of such fund will defeat the right of recover Each party to a contract has a duty to do what the contract presupposes he will do to accomplish its purpose. o Thus, a party who prevents fulfillment of a condition of his own obligation cannot rely on such condition to defeat his liability Equitable Estoppel: Reasonable reliance resulting in a foreseeable prejudicial change in position o Therefore, is a compelling basis for preventing a party from invoking a condition that he represented as being satisfied In similar situation, injured party should have: o Sent letter to Defendant asking for confirmation that the loan was obtained, and inform Defendant that Plaintiff will not proceed until confirmation has been received SELDEEN v CANBY There is a clear connotation of activity, no passivity, on the part of a promisor who conditions his performance on somethings being available NOTE Doctrine of Conditions: One is not to benefit legally from an act aimed at defeating the others contractual rights Doctrine of Prevention: An express promise to perform on the happening of an event warrants implication of a promise to refrain from activity impeding its happening, and breach of the implied promise is legally as serious as the breach of the express RESTATEMENT 227: STANDARDS OF PREFERENCE WITH REGARD TO CONDITIONS (1) In resolving doubts as to whether an event is made a condition of an obligors duty, an interpretation is preferred that will reduce the obligees risk of forfeiture, unless the event is within the obligees control or the circumstances indicate that he has assumed the risk NOTE If no language to contrary, where payment is to occur on event, the event occurrence only fixes time of payment, it is not a condition of payment

Page 46 of 57 AMIES v WESNOFSKE The words when, after, and as soon as are just as effect as if to create an express condition o Result being that when the event referred to by such phrase does not occur no duty of performance arises ROYAL-GLOVE INS. CO. v CRAVEN In order to work an estoppel it must appear that one has been induced by the conduct of another to do something different from what otherwise would have been done and which has resulted to his harm No Estoppel where denial of liability is given after expiration of the notice period o Uninsured has not been induced to not prevent default Where there is an ambiguous provision in an insurance policy, the court must construe it strictly against the insurer GILBERT v GLOVE & RUTGERS FIRE INS. CO. A time limitation in which an action shall be brought is valid if the time is reasonable COMMENT: WAIVER OF CONDITIONS Waiver and estoppel are distinct but related doctrines o Despite distinguishable elements, they overlap in application and, at times, are discussed in words used interchangeably Conduct amounting to a waiver typically invites reliance, particularly when the conduct occurs before the time for occurrence of the condition If goods are involved, refer to UCC 2-209 TIMELINESS AS AN EXPRESS CONDITION PORTER v HARRINGTON Parties have a right to make a stated time for performance the essence of a contract o Such an agreement, when not waived either by words or conduct, is binding and will be given effect by courts of equity as well as of law Waiver may be manifested by acts as well as words o Ex: over a course of dealings, continuously accepting overdue payments will waive the timeliness requirement When a party without objection has accepted overdue payments not made in accordance with the strict terms of the contract, an order of business has been established inconsistent with rigid insistence upon a clause of the contract which in effect is a forfeiture or the enforcement of a penalty NOTE: WAIVER AND THE UCC Under the UCC, a buyers protracted delay in rejecting deliveries of goods, coupled with its delay in notifying the seller of alleged nonconformities, constituted a waiver of a timeis-of-the-essence clause relating to the sellers duties under the contract o The buyer is obligated to accept late deliveries

Page 47 of 57 One of the relevant factors in determining timeliness is the course of performance between the parties after the sale but before the formal rejection UCC 2-208 o Any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement o Where it is difficult to determine whether a particular act merely sheds light on the meaning of the agreement or represents a waiver of a term, the preference is in favor of waiver whenever such construction, plus the application of the provisions on the reinstatement of the rights waived (2-209), it is needed to preserve the flexible character of commercial contracts and to prevent other hardship

CLARK v WEST Doctrine of Waiver: o Waiver = The intentional relinquishment of a known right It is voluntary Implies an election to dispense with something of value; or Forego some advantage which the party waiving might at its option have demanded or insisted upon o Once a waiver is exists and is established, it can never be revoked Doctrine of Equitable Estoppel: o A party may be precluded by his acts and conduct from asserting a right to the detriment of another part who, entitled to rely on such conduct, has acted upon it AETNA CAS & SUR CO. v MURPHY Two competing principles: o The law of contracts supports the principle that contracts should be enforced as written, and that contracting parties are bound by the contractual provisions to which they have given their assent Parties may bargain for clauses that impose conditions upon contractual liability If the occurrence of a condition is required by the agreement, rather than as a matter of law, a rule of strict compliance traditionally applies o The occurrence of a condition, may, in appropriate circumstances, be excused in order to avoid a disproportionate forfeiture A contracting party may, despite his own departure from the specifications of the contract, enforce the obligations of the other party o Especially in the absence of conduct that is willful o Ex: a builders deviation from contract specifications will not totally defeat the right to recover in an action against the owner o Ex: in contracts for the sale of real property, the fact that a contract states a date for performance does not necessarily make time of the essence In appropriate circumstances, a contracting party, despite his own default, may be entitled to relief from the rigorous enforcement of contract provisions that would otherwise amount to a forfeiture

Page 48 of 57 In determining whether an insured is entitled to relief from disproportionate forfeiture, loss of coverage must be weighed against an insurers legitimate interest in protection from stale claims o Further, if the insurer is given the opportunity for a timely investigation, reasonable compromises and settlements may be made, thereby avoiding prolonged litigation o If this purpose can be protected by something short of automatic enforcement of the notice provisions, then their strict enforcement is unwarranted If it can be shown that the insurer suffered no material prejudice from the delay, the nonoccurrence of the condition of timely notice may be excused because it is not a material part of the agreed exchange o The burden of establishing lack of prejudice must be borne by the insured

RESTATEMENT 229: EXCUSE OF A CONDITION TO AVOID FORFEITURE To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange. Forfeiture refers to the denial of compensation that results when the oblige loses his right to the agreed exchange after he has relied substantially, as by preparation or performance on the expectation of that exchange In determining whether the forfeiture is disproportionate, a court must weigh: o the extent the forfeiture against the importance to the obligor of the risk from which he sought to be protected o the degree to which that protection will be lost if the non-occurrence of the condition is excused to the extent required to prevent forfeiture

SECTION 3: CONDITIONS OF SATISFACTION

Not always going to get perfect results, so party should not expect perfect GRENIER v COMPRATT CONSTR. CO. If you get what you really wanted, you cant complain If the promisee provides performance achieving desired result, must accept it o Ex: Builder promised to provide certificate of completion from city engineer, instead the building inspector issued certificate of occupancy Desired result of being able to occupy the building is achieved Must pay the builder NOLAN v WHITNEY General Rule: A party must perform his contract before he can claim the consideration due him upon performance o But, the performance need not always be literal and exact o Sufficient if the party bound to perform, acting in good faith, and intending and attempting to perform his K, does so substantially

Page 49 of 57 Then he may recover for his work, notwithstanding slight or trivial defects in performance, for which compensation may be reduced

VAN IDERSTINE CO. v BARNET LEATHER CO. In building contracts there may be recovery for substantial performance However, the Doctrine of Substantial performance is not applicable to excuse the nonoccurrence of an express condition o At least where plaintiff has conferred no benefit upon defendant FURSMIDT v HOTEL ABBEY HOLDING CORP. In contracts relating to operative fitness, utility or marketability the provision is construed as a matter of law as imposing only the requisite of satisfying a reasonable man. o Ex: Installation and/or repair of machinery o There is a positive, objective standard against which the performance may be measured A literal construction of the satisfaction provisions is made where the agreements provide for performance involving fancy, taste, sensibility, or judgment of the party for whose benefit it was made o Ex: Making of a garment, giving of instruction, services of an orchestra or painter o No standards of reasonableness can be established HAYMORE v LEVINSON Building Ks generally fall under the category of operative fitness, mechanical utility o Cannot withhold approval unless there is apparent some reasonable justification for doing so

SECTION 4: PROTECTING THE EXCHANGE ON BREACH

PLANTE v JACOBS Nobody does/should expect perfection Something less than perfection is the test unless all details are made the essence of the contract o There may be situations where features or details are of special or of great personal importance, which if not performed, would prevent a finding of substantial performance For substantial performance the plaintiff should recover the contract price less the damages caused the defendant by the incomplete performance Two options: Diminution in Value or Cost of Completion o Diminution in Value = (Value of the house as it stands) (Value of the house if constructed in strict accordance with the plans) o Cost of Completion/Repair = Cost to correct or finish small items of defect or omission which can be remedied without reconstruction of substantial part or great sacrifice of work or material already wrought in the building o Choose the lesser of the two options

Page 50 of 57 NOTE Substantial performance is not a complete discharge of duty o Not a defense in a suit against the contractor for damages o Will merely reduce the damages owed One who has rendered substantial performance, but less than full performance, and has already received the agreed price, has a defense in a suit by the owner for the restitution of that price o The contractor had a right to the payment when it was made and could have maintained suit for it JACOB & YOUNGS v KENT Substitution of equivalents may not have the same significance in fields of art on the one side and in those of mere utility on the other o However, change will not be tolerated if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract Court must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence Cost to Complete generally is the measure of damages UNLESS is grossly out of proportion, then use Diminution in Value o Replacement is only warranted when a defect is trivial NOTE: RESTITUTION FOR THE WILLFUL DEFAULTER A contractors failure to perform in full bars recovery on the contract One who both substantially performs and makes a good faith effort to perform fully may recover in quantum meruit WORCESTER HERITAGE SOCIETY, INC v TRUSSEL Rescission may be refused where there has been only a breach of contract rather than an utter failure of consideration or a repudiation by the party in breach o In the absence of fraud, nothing less than conduct that amounts to an abrogation of the contract, or that goes to the essence of it, or takes away its foundation, can be made a ground for rescission of it by the other party Equity will not set aside a K on sole ground of nonperformance where the breach is not material and substantial o Unless agreement provides for termination upon breach by non-performance HATHAWAY v SABIN Making of expense is forbidden after receiving notice of the repudiation of a contract A party who is stopped in the performance of a contract for service must do what he can to lessen the damages by seeking like employment elsewhere UCC 2-609 & RESTATEMENT 251: WHEN A FAILURE TO GIVE ASSURANCE MAY BE TREATED as a REPUDIATION (1) Where reasonable grounds arise to believe that the obligor will commit a breach by nonperformance that would of itself give the oblige a claim for damages for total breach, the oblige may demand adequate assurance of due performance and may, if reasonable,

Page 51 of 57 suspend any performance for which he has not already received the agreed exchange until he receives such assurance (2) The oblige may treat as a repudiation the obligors failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case PRESCOTT & CO v J.B. POWLES & CO. Delivery of goods must generally be of the exact quantity ordered, otherwise the buyer may refuse to receive them It is essential to a recovery that a full performance be shown, and no excuse not provided for in the contract will justify a recovery where the performance is partial only, save only an act of the buyer rendering performance impossible or a waiver by it UCC 2-601: PERFECT TENDER RULE Sellers are required to deliver goods that complied exactly with the sales agreement However, the harshness of the rule is mitigated and interests are balanced BECK & PAULI LITHOGRAPHING CO. v COLORADO MILLING & ELEVATOR CO. Cannot give custom goods back to the seller o Unable to resell them COMMENT: ANTICIPATORY BREACH OF UNILATERAL OBLIGATIONS Unilateral K exception to Anticipatory Breach: o Where the contract or obligation is purely executor on the part of one of the contractors, and entirely executed as to the other one, the rule of anticipatory breach does not apply

Page 52 of 57

CHAPTER 7: THE RIGHTS AND DUTIES OF NONPARTIES

UCC Sections: 2-601 2-611 2-712: Cover

SECTION 1: THIRD PARTY BENEFICIARIES

LAWRENCE v FOX Third Party Beneficiary Rule: o Where one person makes a promise to another for the benefit of a third person, that third person may maintain an action upon it If A promises B for a valuable consideration to pay C, the latter may maintain assumpsit for the money The duty of the trustee to pay the recipient, according to the terms of the trust, implies his promise to the latter to do so Novation = A new contract substituted for and displacing the old one SEAVER v RANSOM Where a legatee promises the testator the he will use property given him by the will for a particular purpose, a trust arises Equity compels the application of property thus obtained to the purpose of the testator, but equity cannot so impress a trust, except on property obtained by the promise General Rule: privity between an plaintiff and a defendant is necessary to the maintenance of an action on the contract o Consideration must be furnished by the party to whom the promise was made o Contract cannot be enforced against the third party, and therefore it cannot be enforced by him o However, the right of the beneficiary to sue on a contract made expressly for his benefit has been fully recognized NOTE: OVERLAPPING DUTIES If the promisee has an economic interest in the promised performance, as in the ordinary creditor-beneficiary case, presumably there will be a clear incentive for the promisee to enforce the contract in the event of the promisors breach RESTATEMENT 302: INTENDED AND INCIDENTAL BENEFICIARIES (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either a. The performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or b. The circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance

Page 53 of 57 (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary Other intended beneficiaries: If the beneficiary would be reasonable in relying on the promise as manifesting an intention to confer a right on him, he is an intended beneficiary THE ASSUMING GRANTEE Two options for the sale of land which includes a mortgage: o Buyer assumes the mortgage o Buyer takes land subject to the mortgage Assumption o Grantor (seller) and Grantee (buyer) are both liable to the Mortgagee (bank) o Seller wants assume option because allows the buyer to be liable for the mortgage Subject To o Only the Grantor (seller) is liable to the Mortgagee (bank) o Grantee (buyer) is personally liable to neither the grantors or mortgagees rights o Buyer wants subject to option because he is not liable to the bank for payments on the mortgage o Only Grantor is liable for deficiency in case of forfeiture Grantees max risk is that the land may be lost In either scenario, the grantee/buyer will still want to make the mortgage payments, otherwise the mortgagee will forfeit the mortgage and the property will be lost The Statute of Frauds does not prevent oral evidence of a grantees promise to assume an existing mortgage

ANDERSON v FOX HILL VILLAGE HOMEOWNERS CORP. In order to prevail under the theory of intended third-party beneficiary, plaintiff must show that the defendant and the lessor intended to give her the benefit of the promised performance o Look at the language and circumstances o Intent must be clear and definite General Rule: There is no duty by a landowner to remove a natural accumulation of snow or ice A landlord, who agrees in a lease to remove snow and ice and negligently fails to perform that duty, may be liable to his tenant One who assumes a duty under contract is liable to third persons not parties to the contract who are foreseeably exposed to danger and injured as a result of its negligent failure to carry out that obligation o However, failure to perform a contractual obligation is not a tort in the absence of a duty to act apart from the promise made H.R. MOCH CO. v RENSSELAER WATER CO. No legal duty rests upon a city to supply its inhabitants with protection against fire o Thus, a member of the public may not maintain an action under Lawrence v Fox against one contracting with the city to furnish water at the hydrants

Page 54 of 57 Unless an intention appears that the promisor is to be answerable to individual members of the public as well as to the city for any loss caused by failure to perform The benefit must be one that is not merely incidental and secondary. It must be primary and immediate in such a sense and to such a degree as to bespeak the assumption of a duty to make reparation directly to the individual members of the public if the benefit is lost o Field of obligation would be expanded beyond reason if otherwise

RESTATEMENT 313: GOVERNMENT CONTRACTS (1) The rules on contract beneficiaries apply to contracts with a govt or govt agency EXCEPT to the extent that application would contravene the policy of the law authorizing the contract or prescribing remedies for its breach (2) In particular, a promisor who contracts with a govt or govt agency to do an act for or render a service to the public is not subject to contractual liability to a member of the public for consequential damages resulting from performance or failure to perform UNLESS a. The terms of the promise provide for such liability b. The promisee is subject to liability to the member of the public for the damages and a direct action against the promisor is consistent with the terms of the contract and with the policy of the law authorizing he contract and prescribing remedies for its breach (Govt unit typically does not take on risk of loss) HEYER v FLAIG The limitations period starts from the date that the cause of action accrues (date of incident) An attorney who erred in drafting a will could be held liable to a person named in the instrument who suffered deprivation of benefits as a result of the mistake o The harmed party could recover as an intended third-party beneficiary of the attorney-client agreement o The third party could also recover on a theory of tort liability for a breach of duty owed directly to him The determination of whether Defendant will be liable to a third party is a matter of policy and requires balancing various factors, including: o The extent to which the transaction was intended to affect the plaintiff o The foreseeability of harm to the plaintiff o The degree of certainty that the plaintiff suffered injury o The closeness of the connection between Defendants conduct and the injury o The moral blame attached to the Defendants conduct o The policy of preventing future harm Attorneys incur a duty in favor of certain third persons, namely, intended beneficiaries o However, there can be no recovery without negligence

Page 55 of 57 When an attorney undertakes to fulfill the testamentary instructions of his client, he realistically and in fact assumes a relationship not only with the client but also with the clients intended beneficiaries o Foreseeable to thwart testators wishes o Foreseeable to injure intended beneficiary Duty to protect client extends to the intended beneficiary o The scope of the duty is determined by reference to the attorney-client context o The actual circumstances under which the attorney undertakes to perform his legal services will bear on a judicial assessment of the care with which he performs his services

RESTATEMENT 311: VARIATION OF A DUTY TO A BENEFICIARY (1) Discharge or modification of a duty to an intended beneficiary by conduct of the promisee or by a subsequent agreement between promisor and promisee is ineffective if a term of the promise creating the duty so provides (2) In the absence of such a term, the promisor and promisee retain power to discharge or modify the duty by subsequent agreement (3) Such power terminates when the beneficiary, before he receives notification of the discharge or modification, materially changes his position in justifiable reliance on the promise or brings suit on it or manifests assent to it at the request of the promisor or promisee (4) If the promisee receives consideration for an attempted discharge or modification of the promisors duty which is ineffective against the beneficiary, the beneficiary can assert a right to the consideration so received. The promisors duty is discharged to the extent of the amount received by the beneficiary

SECTION 2: ASSIGNMENT AND DELEGATION

LANGEL v BETZ The mere assignment of a bilateral contract may not be interpreted as a promise by the assignee to the assignor to assume the performance of the assignors duties, so as to create a new liability on the part of the assignee to the third party The assignee of the vendee is under no personal engagement to the vendor where there is no privity between them o The assignee may, however, expressly or impliedly bind himself to perform o Where the assignee of the vendee invokes the aid of a court of equity in an action for specific performance, he impliedly binds himself to perform No promise of the assignee to assume the assignors duties is to be inferred from the acceptance of an assignment of a bilateral contract, in the absence of circumstances surrounding the assignment itself which indicate a contrary intention o Must turn from the assignment to the dealings between the plaintiff and defendant to discovery whether the defendant entered into relations with the plaintiff whereby he assumed the duty of performance If the substance of the transaction between vendor and assignee of the vendee could be regarded as a request on the part of the assignee for a postponement of the closing day

Page 56 of 57 and a promise on his part to assume the obligations of the vendee if the request were granted, a contractual relation arising from an expression of mutual assent might be spelled out of it Advice: Receive express assumption of obligation/duty by assignee o If does so and then fails to perform, able to sue them and original grantor

RESTATEMENT 328: INTERPRETATION OF WORDS OF ASSIGNMENT (1) Unless the language or circumstances indicate the contrary, an assignment of the contract or of all my rights under the contract or an assignment in similar general terms is an assignment of the assignors rights and a delegation of his unperformed duties (2) Unless the language or circumstances indicate the contrary, the acceptance by an assignee of such an assignment operates as a promise to the assignor to perform the assignors unperformed duties, and the obligor of the assigned rights is an intended beneficiary of the promise (follows UCC 2-210(4)) HERZOG v IRACE An assignment is an act or manifestation by the owner of a right indicating his intent to transfer that right to another person o Assignor must make clear his intent to relinquish the right to the assignee and must not retain any control over the right assigned or any power of revocation o Assignment takes effect through actions of the assignor and assignee, and the obligor need not accept the assignment to render it valid o Once obligor has notice of the assignemtn, the fund is from that time forward impressed with a trust Impounded in obligors hands, must be held by him for the assignee, not the assignor o After receiving notice of the assignment, the obligor cannot pay the amount assigned to the assignor and if the obligor does do so, the assignee may enforce his rights against the obligor directly Ordinary rights are free assignable unless the assignment would: o Materially change the duty of the obligor o Materially increase the burden or risk imposed upon the obligor o Impair the obligors chance of obtaining return performance o Materially reduce the value of the return performance to the obligor o The law restricts the assignability of the specific right involved NOTE One attribute of ownership is power to dispose o If the asset to be transferred is a K right, generally the question will be whether the lack of formality renders the transfer ineffective o It may be gratuitous or for value No particular phraseology is required to effect an assignment, and it may either be oral or written

Page 57 of 57 o But the intent to vest in the assignee a present right in the thing assigned must be manifested by some oral or written word or by some conduct signifying a relinquishment of control by the assignor and appropriation to the assignee Yet, a gratuitous assignment remains revocable unless the formal requisites of a valid gift are met A statue or a contract may alter the requirements for an effective assignment

RESTATEMENT 332: REVOCABILITY OF GRATUITOUS ASSIGNMENTS (1) Unless a contrary intention is manifested, a gratuitous assignemtn is irrevocable if: a. The assignment is in a writing either signed or under seal that is delivered by the assignor; or b. The assignment is accompanied by delivery of a writing of a type customarily accepted as a symbol or as evidence of the right assigned (2) Except as stated in this Section, a gratuitous assignment is revocable and the right of the assignee is terminated by the assignors death or incapacity, by a subsequent assignment by the assignor, or by notification from the assignor received by the assignee or obligor (3) A gratuitous assignment ceases to be revocable to the extent that before the assignees right is terminated he obtains a. Payment or satisfaction of the obligation, or b. Judgment against the obligor, or c. A new contract of the obligor by novation (4) A gratuitous assignment is irrevocable to the extent necessary to avoid injustice where the assignor should reasonably expect the assignment to induce action or forbearance by the assignee and the assignment does induce such action or forbearance MACKE CO. v PIZZA OF GAITHERSBURG, INC. In the absence of a contrary provision, rights and duties under a bilateral contract may be assigned and delegated, subject to the exception that duties under a contract to provide personal services may never be delegated, nor rights be assigned under a contract where delectus personae was an ingredient of the bargain o UCC makes ineffective a term in any contract prohibiting the assignee of a K right Rare genius and extraordinary skill are not transferable o Contracts for such are personal, and cannot be assigned o Ex: Shakespeare writing a poem vs Joe digging a ditch Absent provision to the contrary, a duty may be delegated, as distinguished from a right which can be assigned, and the promisee cannot rescind, if the quality of the performance remains materially the same UCC 2-210(5) permits a promisee to demand assurances from the party to whom duties have been delegated UCC 2-210: