CONTRACTS OUTLINEEisenberg Spring 2010

OFFER & ACCEPTANCEChapter 10 –Offer and Revocation………………………………………………………………………………….…3Chapter 9 – Intro to Interpretation …………………………………………………………………………………….7Chapter 11 –Transacting at a Distance ……………………………………………………………………………….11Chapter 12 –Modes of Acceptance…………………………………………………………………………………...12Chapter 13 – Implied-in-Law and Implied-in-Fact Contracts; Unilateral Contracts Revisited………………………16Chapter 14 – Preliminary Negotiations, Indefiniteness, and the Duty to Bargain in Good Faith ……………………18

WHAT PROMISES SHOULD THE LAW ENFORCE? – CONSIDERATION & BARGAINChapter 2 – Bargain Principle and its Limits ………………………………………………………………………...19Chapter 3 – Past Consideration ………………………………………………………………………………………28Chapter 1 – Donative Promises, Form, & Reliance …..……………………………………………………………...29Chapter 4 – Ks we don’t want to enforce …………………………………………………………………………….32

INTERPRETING TERMS OF THE KChapter 15 – Parol Evidence Rule & Interpretation of Written Ks………………………………………………….34Chapter 16 – Contract Formulation in a Form-Contract Setting……………………………………………………..38Chapter 17 – Interpretation and Unconscionability in a Form-Contract Setting …………………………………….40

PROBLEMS INVOLVING PERSONS OTHER THAN PARTIES TO ORIGINAL CONTRACTChapter 20 – Third-Party Beneficiaries ……………………………………………………………………………...41

MISTAKE AND UNEXPECTED CIRCUMSTANCESChapter 18 – Mistakes ……………………………………………………………………………………………….44Chapter 19 – Effect of Unexpected Circumstances ……………………………………………………………….....50

PROBLEMS OF PERFORMANCEChapter 24 – Conditions……………………………………………………………………………………………...54Chapter 23 – Substantial Performance………………………………………………………………………………..57Chapter 25 – Breach & Response; Order of Performance; Ability to Perform; Material Breach. ………….……….59Chapter 26 – Anticipatory Breach

REMEDIES FOR BREACH OF CONTRACTChapter 5 – Intro to Damages ………………………………………………………………………………………..63Chapter 6 – Expectation Measure ……………………………………………………………………………………64Chapter 7 – Specific Performance …………………………………………………………………………………...70Chapter 8 – Reliance and Restitution Measures ……………………………………………………………………..72

STATUTE OF FRAUDSAppendix – SoF & When Ks Must Be in Writing……………………………………………………………………74

Elements of a K:1. Offer Overview Questions:2. Acceptance What makes a K valid? Consideration / Offer & Acceptance3. Consideration Did you fulfill the K? Performance / Breach4. Performance Was there good reason to breach a K? Defenses5. Capacity What do I get if the K is breached? Remedies / Damages

6. Enforceability

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7. Damages

WHAT MAKES A PROMISE ENFORCEABLE? : - Bargain principle (makes promise enforceable based on contemporaneous exchange-consideration)- Reliance principle (makes promise enforceable based on what happens after the promise)- § 86 / unjust enrichment (makes promise enforceable based on what happens before the promise)

WHAT IS A CONTRACT?: a promise or set of promises, the breach of which the law gives a remedy, or the performance of which the law recognizes in some way as a duty (RS § 1). Important POLICY REMINDERS:

Not all moral obligations are legally binding Promises made w/o legal consideration cannot be enforceable Services given that are not asked for (gifts/officious intermeddler) cannot bind the receiver. Must have mutual inducement to enforce promises. There should be some exchange/bargain.

DOES A CASE FALL UNDER THE UCC?: UCC APPLIES TO GOODS. Oil, not electricity!Predominant Factor Test (Majority Rule): if K is a hybrid sale of goods and services, test of inclusion or exclusion under UCC is whether the predominant factor is

i. Rendition of services, with goods incidentally involved (NO UCC)ii. Transaction of Sale with labor incidentally involved (UCC coverage)

iii. Examples: Pittsley v Houser (p74): K for purchase and installation of carpet for a home; carpter was $4000; installation $700; Result: predominant factor test, K fell under UCC b/c installation secondary

Minority Approach: allows K to be severed into different parts and applies UCC to parts involving sale of goods

HAS A VALID CONTRACT BEEN FORMED?: Was there an effective offer?

Was it definite? (subject matter, price, quantity) Was there effective acceptance?

Did offeree’s intent to accept show thru words & conduct? Look out for silence or accepting thru diff manner.Was the acceptance effective prior to termination of the offer? Was the acceptance unconditional?

Was there consideration?Was there a bargain? Is consideration more than nominal? Was there an illusory promise?Or: was there reliance, or moral or past consideration?

INTERPRETING THE CONTRACT – WHAT ARE THE TERMS OF THE CONTRACT? Are there any reasons not to enforce the k?

IndefinitenessMistakeMisrepresentation, nondisclosure, duress, undue influenceUnconscionabilityLack of a writing (if required by Statute of Frauds)

Do any Third Parties have enforceable rights or obligations?Third party beneficiary? Defenses against them?

Is there a duty to perform?Is it a condition (express or implied?) or a promise? Was the condition met or waived?Is there a present duty to perform: Have all conditions precedent been met or does impossibility,

impracticability, or frustration or purpose excuse performance? Has the K been discharged? What remedies are available to innocent party? (to effectuate reasonable expectations under the K)

Damages more common than specific performance, but what measure?Or: restitution for unjust enrichment of benefit conferred.

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OFFER & ACCEPTANCE

Chapter 10 – Offer & RevocationI. What Constitutes an Offer

a. Exam tip from Mel: *if there’s been a series of back & forth communication between the parties, figure out the legal significance of each statement – look at everything for offer & acceptance.

b. Rule: 2 Essential Elements: to be an offer, the terms must be sufficiently definite & there must be a intent to enter into a bargain. (Lefkowitz)

i. Re: definiteness, usually that means they’ve specified price, subject matter & quantity.c. Rule: (RS 2 § 24) offer is manifestation of willingness to enter into a bargain, so made as to

justify another person in understanding that his assent to the bargain is invited & will conclude it.i. Offers are revocable until accepted

ii. An offer, once accepted, makes agreement binding on both parties.iii. An invitation to bid is not an offer.iv. An ad is not an offer.

d. Legal effect: an offer creates power of acceptance in the offerree; once extended and accepted, it becomes binding on both parties.

i. Lonergan v Scolnick (p414) D placed newspaper ad to sell property; P inquired in writing; D responded saying where it was and said it was a form letter response; P said he wanted more details; D told him he had found it correctly, and if he wanted it, “act fast” because there were other buyers.

(1) Issue: if an offer was ever given to the buyer such that his acceptance bound them

(2) Result: Not binding, because it was just an invitation to bid / solicitation to offer—not an actual offer.

(3) Rule: a good test to see if something is an offer is to ask if a reasonable person believe that he could conclude the deal merely by saying yes

(4) Rule: an invitation to deal can be significant in interpreting the terms of the deal, especially where those terms have been left out of the final agreement

ii. Exception: Lefkowitz v Great Minneapolis Surplus Store (p417) store advertised sale of fur coats: “marked $100” for $1 each; 2 minks “selling for $89.50” for $1 each; lapin worth “$139.50” for $1; P went to buy, but refused to sell; house rule: no sale to women;

(1) Issue: was the ad an offer such that P’s request to buy was binding acceptance?(2) Result: There was only an offer for the lapin, because it was clear and explicit

and damages were certain, unlike the other furs.(3) General Expression Rule: an advertisement is generally not an offer (though

it can be.) (This case’s rule is an exception. Other exceptions: ads for rewards.)(4) Other Rule: terms must be clear, definite & explicit (that’s why only 1 of

those three counted as an offer)(5) Policy for this rule: courts concern with over-acceptance (since anyone who

accepts has binding k). Solution? Infer that seller only has reasonable quantityiii. Fisher v Bell (p421): statute made it illegal to offer for sale a switchblade knife; D

prosecuted for attempted sale of switchblade, which was in store window with price tag(1) Issue: was the exhibition of the knife with the price tag an offer for sale?(2) Result: No, despite common-sense understanding that it would be

e. Auctions:i. Rules: (Also: UCC § 2-328 most of these rules come from there.)

(1) Auctioneer putting an item up for sale is not an offer, but an invitation to bid. (2) Auction of an item is with reserve (minimum price) unless declared otherwise.(3) Each bid discharges previous bid unless the auctioneer already accepted a bid.(4) Bidder can withdraw bid until its accepted; offers are recovable until accepted.(5) Lots of discretion to auctioneer

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ii. Auction rings: when people likely to be the highest bidders are professionals in the trade; they know one of them is likely to be the highest bidder, so they agree not to bid against each other, which keeps the price down; then they re-sell and split the profit.

iii. Winner’s curse: whoever buys at an auction pays too much, since he’s the only sucker who thought it was worth that much

II. Termination of Offeree’s Power of Acceptance: Lapse, Rejection, and Counter-Offer a. Rule: an offeree can conclude a bargain by giving assent only if his power of acceptance has

not been terminated. Issue here is how or when power has been terminated, and there are 5 ways: i. Expiration / lapse of offer

ii. Rejectioniii. Counter-offer / conditional acceptanceiv. Operation of law (i.e., offeror’s death or incapacity)v. Valid revocation

b. Open Offer Rule: if you say “I’ll keep your offer under advisement,” after offeror says “I’ll keep this offer open for x days,” then if you make an inquiry after that it’s not a counter-offer.

i. Policy : is this a good rule? Since parties who know that they’re doing will always say “I’m keeping your offer under consideration,” thus keeping the offer open, this rule only hurts ppl who aren’t experienced with k law, so maybe we don’t want that.

ii. Policy : bc liability for expectation damages attaches a minute a K is formed, courts might not want to make it too easy to make offer & acceptance, bc once a K is formed dmgs.

c. Offers made in conversation: an offer made in conversation is interpreted to terminate at the end of the conversation if not accepted before then; in written contracts, if duration is not stated, assume offer will stand for a reasonable durationRS 2 § 40: if, when the first reply is not an acceptance, the offeror turns away in silence, the proper inference is that the offer is no longer open to acceptance.

i. Akers v J.R. Sedberry (p424): D hired engineers to work in Texas office; they told her new manager had problems and company was about to fail; to show her good faith, they offered to resign; she rejected that offer; they went back to Texas and kept working; she then tried to “accept” their resignation months later.

(1) Issue: was their offer still open after the conversation ended?(2) Result: no, offer was no longer open because she rejected it by her silence and

conduct.d. Rejection under RS 2 § 38: Rejection: an offeree’s power of acceptance is terminated by rejection

unless offeror has manifested contrary intention. Based on reasonableness according to comments.i. In Akers she rejected it and her conduct did nothing to manifest a contrary intention.

ii. Categorical rules for what kinds of expression could be reasonably interpreted to believe off the table. Comment goes to probability of reliance.

e. Lapse of time under RS 2 § 41: power of acceptance terminates at time specified in the offer, or, if no time is specified, at a reasonable time; what is reasonable is a question of fact

f. Termination Rule: a counteroffer, including a conditional acceptance, terminates acceptance.i. Ardente v Horan (p430) in property sale negotiations, buyer made offer and seller wrote

back with note agreeing to purchase, but adding conditions to keep furniture. (1) Issue: was buyer’s letter acceptance or a counter-offer?(2) Result: it was a counteroffer, so it terminates acceptance.(3) Additional Rule: mere mental intent to accept is insufficient; acceptance must be

transmitted overtly.g. Classical Mirror image Rule (a/k/a ribbon-matching rule): any deviation in acceptance, no

matter how minor, is a counteroffer or conditional acceptance; i.e., an acceptance must be identical to the offer i.e., a counter-offer terminates acceptance.

h. Modern Rule: carving out exceptions to the mirror image rule, softening it. Making a change that helps the offeror is still considered acceptance.

i. Sale of goods : UCC § 2-207: UCC has much more flexible standard than modern rule in general; UCC has been very influential outside of the sale of goods in general. Primarily designed to deal with form offers, but is not limited to that. Point is that a definite & seasonal expression of acceptance operates as such even if the terms are different or additional to the offer. (i.e., directly counter to mirror image rule).

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ii. RS 2 § 59: A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms add’l or diff from those offered is not an acceptance but is a counteroffer.

iii. Exception: making a change that helps the offerorRhode Island Dept of Transp v P&W RR (p433): co agreed to sell land for $100k plus tracks removal; state exercised its option to buy at same price, but without track removal.

(1) Issue: Was the state’s request that the tracks not be removed a counter-offer?(2) Result: No, it was acceptance so P was bound.(3) Rule: when an offeree, in its acceptance of an offer, absolves the offeror of a

material obligation, the rules preclude construing that absolution as an add’l term that invalidates the acceptance—i.e., a change that makes the offer better for the offeror does not invalidate acceptance.

iv. Exception: Mere inquiry does not have the same effect as a counter-offer. (Culton v Gilchrist, p436) A makes offer to B for $500. B replies, “won’t you take less?” A says no. That’s an inquiry, not a counter-offer.

v. Exception: Options – if offeror agrees to hold the offer open for a number of days and the offer pays by some sort of consideration, it’s still enforceable.

vi. Exception: Implication – if the conditional acceptance or counter-offer merely makes explicit what is implied in the offer, then it’s still enforceable.

vii. Exception: Purported Acceptance (comment a) (MAYBE this is an exception) Comment a Exception:– definite seasonal expression of acceptance is operative  despite statement of additional or different terms if not need to depend on assent to additional or different terms--- leaves open to court to determine whether acceptance is or is not made to depend on assent (Matches UCC § 2-207)

viii. Mel’s preferred rule : there is NO automatic counter-offer; examine each on case-by-case basis to determine whether the reasonable offeror would think the offeree’s response terminated the power of acceptance.

ix. Policy: Figure out parties’ intent. Do they mean to negotiate or do they mean to accept? i. Effect of Offeror’s Death or Incapacity Before Acceptance:

i. Traditional, Majority Rule: death or incapacity of offeror terminates offeree’s power of acceptance if the offer is revocable when the death or incapacity occurs.

(1) Application: cases where offer made by an individual and if k was formed, individual’s estate would not be excused by her death or incapacity

(2) Critique : out of harmony with modern k law’s focus on manifestations of intent (already made before death) instead of internal mental assent / meeting of the minds; also, sometimes your estate would want to enforce the K.

ii. Minority Rule: allowed power of acceptance to continue after offeror was declared incompetent (Swift & Co. v. Smigel, p437)

iii. RS 2 § 37: power of acceptance under option contract not terminated by rejection or counter-offer, by revocation, or by death or incapacity of offeror unless the requirements are met for the discharge of a contractual duty.

iv. RS 2 § 48: death of either party can terminate the k (i.e., III. Termination of the Offerree’s Power of Acceptance: Revocation (final way to terminate a K)

a. General Rule: offer is revocable any time before accepted, unless made irrevocable. i. Timing matters: Maj Rule: revocation accepted at time received. Min Rule: effective on

dispatch (CA!) (Beware, that doesn’t necessarily match with the information in Cpt 11.)b. Revocation by Direct Communication - RS 2 § 42: offeree’s power of acceptance is terminated

when the offeree receives from the offeror a manifestation of intention not to enter into the proposed contract.

c. Indirect Communication of Revocation- RS 2 § 43: offeree’s power of acceptance is terminated when offeror takes definite action inconsistent with an intention to enter into the prposed contract and the offeree acquires reliable information to that effect.

i. Practical effect: power of acceptance is terminated when offeree merely learns that the offeror has changed his mind.

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ii. Dickinson v Dodds (p438) seller and buyer contract for property sale; P was given until Friday morning to accept; when heard D was negotiating with other seller, tried to give formal acceptance in two different ways to D, but D had already sold the land.

(1) Issue: Did P’s acceptance of D’s offer make their agreement binding?(2) Result: No. P knew that D had changed his mind, so no power of acceptance.

d. What Constitutes Receipt of a Written Acceptance - RS 2 § 68: a written revocation, rejection, or acceptance is received when the writing comes into the possession of the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some place which he has authorized as the place for this or similar communicatons to be deposited for him.

i. UCC § 1-201: notice is effective from the time when offeror knew or should have knowne. Option k created by Part Performance of Tender: (only unilateral Ks!)

i. Traditional, classical Rule: an offer for unilateral k could be revoked at any time before the designated act had been completed, even if performance had already begun.

(1) Critique: doesn’t conform enough with reasonable expectationsii. Modern Rule: if you start to perform a K, it’s irrevocable. – RS 2 § 45 – difference

between part performance and mere prep: (1) where an offer invites offeree to accept by rendering performance instead of promissory acceptance, an option contract is created when offeree tenders or begins the invited performance; (2) offeror’s duty of performance under option contract is conditional on completion or tender of invited performance.

(1) Note: Mel thinks this is a bad rule and preparation should be rewarded based on reliance damages

(2) Meaning: exception to the principle that offers are revocable until accepted – since in a unilateral k there’s an implied promise not to revoke.

(3) Mel’s Ideal Rule: offer for a unilateral k should be deemed open for a reasonable amount of time once relied upon.

iii. Ex) Mere preparation: Ragosta v Wilder (p442): P buyer sought to purchase The Fork Shop from D; attempt with $2k check as down payment rejected; seller refused but said would sell for $88k in cash through certain date if hadn’t already sold. P got money, but D refused to sell. In reliance of offer to sell, P incurred costs to obtain financing.

(1) Issue: was there a binding k?(2) Result: no bidning k, because no acceptance by part performance.(3) Rule: mere preparation for performance is not enough to make an enf’able k

iv. But: Modern example: Reliance may make Preparation Recoverable at least for Reliance Damages: Drennan v Star Paving (1958)(p448) project for school district building where P is GC and D is SC. GC uses SC’s bid in its offer, which is accepted. Turns out SC made mistake in calculating its bid. P sues to cover diff between SC they ended up hiring and offer price.

(1) Issue: Did P’s reliance make D’s offer irrevocable?(2) Result: Yes, because it was reasonably expected that P would rely on it. Give

cover damages which are usually expectation damages.. but they’re the same as reliance damages here.

(3) Rule: reliance will make a firm offer enforceable.(4) Rule: SC bound to GC, but GC not bound to SC(5) Rule adopted in RS 2 § 87 (i.e., § 90 / reliance for options Ks): an offer which

the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice. Reliance must be substantial & foreseeable.

2. Not all jurisdictions accept this rule, though – some say Reliance is not Enough: Pavel Enterprises v AS Johnson (p452) but that’s the minority.

v. Note on Damages : under these rules1. Where an offeree has actually begun to perform pursuant to an offer for a

unilateral k, he is entitled to expectation damages2. Where an offeree has not begun to perform but has taken other steps in

preparation, he may be able to get reliance damages

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f. Common Law Rule on Firm Offers: an offer held open for a certain period was unenforceable unless there was consideration (and then it was an option, and then it’s enforceable) or if there was foreseeable reliance & such reliance actually occurs; but once accepted before the offer terminates, the k becomes enforceable anyway. Modern Rule on Firm Offers: now nominal consideration is usually enough to hold it open.UCC § 2-205 – Firm Offers: offer to hold an offer open—“firm offer”—without need for consideration as long as (broader bc not even nominal consid req’d)

i. Offeror is a merchantii. Offer is a signed writing

iii. Contains assurance that it’s held openiv. Period of irrevocability not greater than three months

CISG Art 16 – Lesser Restrictions for Firm Offers – only requires that offer ‘indicate that it is irrevocable’ and makes it clear that an offer may do this ‘by stating a fixed time for acceptance.’

Chapter 9 – Intro to InterpretationI. General rule: expressions should be given an objective interpretation—one that a reasonable

person standing in addressee’s shoes would put upon it, rather than the interpretation that the addressor subjectively intends. Exceptions:a. Peerless Rule (2 reasonable interps. No K formed).b. If both parties have subjective interp, even if it’s unreasonable, it will hold.c. If one party knows that the other party has a different meaning but doesn’t say anything, then he’s

at fault so the other person’s holds.II. Subjective & Objective Elements in Principles of Interpretation of K Law

a. General view: intent is a formalized thing; does not usually refer to actual inner intent of parties (b. Subjective intent: what the parties actually intended to do.c. Objective intent: what, on the face of the K, or by their actions, the court determined the parties

intended to do.d. Major purpose: carry out the intentions of the parties.e. Key issues:

i. Where effective communication fails bc 1 party misinterprets others’ intentionii. Whether expression of intention may be affected by state of mind that accomplished it

iii. Tension btn subjective intent & objective intentf. Old Rule: RS 1 § 227: A standard of interpretation is a test applied by law to words & other

manifestations of intent in order to determine the meaning to be given to them. RS 1 lists 6 standards:

i. Standard of general usage ii. Standard of limited usage (attach meaning of particular locality, or occupation)

iii. Mutual standard (allow only such meanings as conform to the intention common to all parties & attach this meaning although it violates usage of all other persons)

iv. Individual standard (attach to words or other manifestations of intention whatever meaning person employing them intended them to express or person receiving communication understood from it)

v. Standard of reasonable expectation (attach to words or other manifestations of intention meaning–party employing them should reasonably have apprehended that they’d convey)

vi. Standard of reasonable understanding (attach meaning which person to whom manifestations are addressed might reasonably give them)

g. Newer Rules: Effect of Misunderstanding (RS 2 § 20): DID THEY INTEND TO FORM K? there is no manifestation of mutual assent if parties attach materially different meanings to their manifestations and (a) neither party knows or has reason to know the meaning attached by the other; or (b) each party knows or has reason to know meaning attached by the other. Manifestations of parties are operative in accordance w/meaning attached to them by one of the parties if (a) that party does not know of any different meaning attached by the other and other knows meaning attached by the first party; or (b) that party has no reason to know of any diff meaning attached by the other and other has reason to know meaning attached by first party.

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h. RS 2 § 201: Whose Meaning Prevails: ASSUMING K BEEN FORMED, WHICH TERMS GOVERN? where parties have attached same meaning to a promise or agreement or term thereof, it is interpreted in accordance w/ that meaning.

i. Where parties have attached different meanings to promise or agreement or term thereof, is interpreted in accordance w/ meaning attached by ONE of them if at the time the agreement is made: that party did not know of any different meaning attached by other & other knew meaning attached by first party, or that party had no reason to know of any diff meaning attached by other & other had reason to know meaning attached by 1st party.

ii. Except as stated, neither party is bound by meaning attached by other, even though result may be a failure of mutual assent.

i. Mel’s view: the test is whether (1) objectively reasonably for words & actions to give particular meaning; (2) lead party to ACTUALLY, subjectively, believe it was for real. When 2 parties attach different meanings to expression and 1 meaning is reasonable or more reasonable than the other, the reasonable position prevails. (Why? The less reasonable party is more at fault). If neither meaning is reasonable, then there there is no K.

i. Damages not pro-rated based on am’t of reasonableness. In real world, either K or no K.III. K law: theory of interpretation that was purely (or almost purely) objective.

a. Woburn Nat’l Bank v Woods: standard by which conduct is judged & rights limited is not internal, but external. In absence of fraud or incapacity, question is: what did party say & do? “Making of K does NOT depend on parties’ minds, but on their overt acts.”

b. Strict objectivism: (Williston / LH) if written K is entered into, meaning & effect of K depend on construction given written language by court; give language natural & appropriate meaning; if it is ambiguous, do not admit evidence of what parties may have thought meaning was.

c. LH: K has, strictly speaking, nothing to do with personal/individ intent. But, if either party can prove that they intended something other than the usual meaning law imposes, they’re still held to the usual meaning unless there’s a mutual mistake. Whatever was, in fact, the understanding, does not matter UNLESS it took form in some actions or words which, being reasonably interpreted, have such meaning to an ordinary man.

d. Embry v Hargadine McKittrick Dry Goods: P employed D for 1-yr K; P went to D & asked to re-sign K twice. After it expired, went to P again – said “hire me for another year or I quit” – D asked P how was getting along & said he was v busy; D said “go ahead, you’re all right. Get your men out and don’t let that worry you,” which P took as meaning that K was renewed for another year. Terminated few months later.

i. Result : that D may not have intended to employ P, but if what D said would have been taken by a reasonable man to mean renewed empoyement & P so understood it, valid K.

ii. Rule (old rule!) inner intentions of parties don’t matter – what makes a K is what is outwardly indicated by parties’ words or actions. If party ocnudcts himself such that reasonable man would believe he was assenting to terms proposed, & the other party upon that belief enters into K, man is equally bound as if he intended to agree.

iii. Note : Mel says this could also be decided on RS 2 basis under Principle 4 below bc D probably knew P thought it was a k.

IV. Modern K law: K law is a functional instrument, purpose is to effectuate objectives of parties to promissory transaction provided appropriate conditions are met. Principles of interpretation should be responsive not only to subjective elements, but, where appropriate, to party’s subjective intent. Under modern K law, there are Four Modern Principles of Intepretation. a. Principle 1: if parties subjectively attach different meanings to expression, neither party knows

that other attaches different meaning, & two meanings are not equally reasonable, more reasonable meaning prevails. Adopted by RS 2 § 201(2)(b). (INTERPRETING THE K)

i. Primarily objective, but has subjective element, too: more reasonable meaning prevails only if 1 party has actually attached that meaning.

ii. Party with less reasonable meaning is considered to be “at fault” – A should realize that another party (B) would attach the reasonable meaning.

iii. Policy : based on concept of liability for fault. iv. Lucy v Zehmer: D was drinking, asked P about farm, offered 50k. P told him to sign

piece of paper saying “farm sold if P has 50k.” D wrote on back “I” then “we” – had wife sign it. D told wife didn’t intend to sell it, so she agreed. P got paper & offered $5 as

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deposit, D rejected & indicated that it was a joke. P sued for specific perf. Held that facts give persuasive evidence that execution of the K was a serious business transaction not a casual joke—bc objectively appeared to be good faith offer & acceptance.

1. Rule : follows old classical K law rule – look to outward expression of person as manifestation of intention. Law imputes to person intention corresponding to the reasonable meaning of his words & acts.

2. Note : Mel says today this would prob be unconscionable. Also brings up question of whether “quick breach” should be treated differently.

v. Keller v Holderman (1863): check for $300 given in return for old watch worth $15. Result: that whole transaction was reasonably interpreted as frolic & banter—objectively showed that neither party actually intended to sell. No K. No suit.

vi. Mahol (can be under 1 or 4)1. Note : buyer’s interp was more reasonable, and seller had no reason to believe

that buyer would use that interp.b. Principle 2: if parties subjectively attached the same meanings to diff expression, neither party

knows the other attaches a diff meaning, & the two meanings are equally reasonable, Neither meaning prevails. Adopted by RS 2 § 20(1). (i.e., NO K BEING FORMED AT ALL)

i. Policy : Either both parties are equally fault free, or equally at fault—no reason why one meaning should prevail over the other.

ii. Peerless case (Raffels v Wichelhaus): K for cotton delivery by ship called Peerless from Bombay to Liverpool; P thought it would land in December; D in October. Nothing on face of K showed that any particular ship and departure date was ID’ed- there were many.

1. Result : both parties belief in particular Peerless was reasonable so no binding K.2. Mel : notes that seller suffers all losses here, but maybe loss should be shared.

iii. Oswald v Allen: P shown coins from 2 of D’s collections; D agreed to sell for $50k Swiss Collection coins; P thought was buying all Swiss coins, incl ones in rarity collection. Held both parties’ belief was reasonable so no binding K. (Peerless rule).

iv. Falck v Williams: P & D used code for business transaction. D said it was ambiguous. They both interpreted it differently. P sued for brief saying his was the true one. Held for D, bc both interpretations were reasonable therefore neither prevailed, so no K.

v. Role of blame: where neither party is blameable for the mistake, there’s no non-arbitrary way for deciding which party’s meaning should prevail, so both parties can abandon K w/o liability.

c. Principle 3: if parties subjectively attached same meaning & expression, that meaning prevails even if it’s unreasonable. Adopted in RS 2 § 201(1). Reverse strict objectivism of classical K law.

i. Policy : both parties at fault under use of language, but fault caused no injury. What is objectively reasonable becomes relevant ONLY where there is not mutually held subjective meaning – giving primacy to mutually held subjective interpretation & resorting to objective / regional meaning only in its absence.

d. Principle 4: if parties A & B attach different meanings to an expression and A knows B attaches meaning Beta, but B does not know that A attaches meaning Alpha, meaning Beta prevails even if it is less reasonable than meaning Alpha. Adopted in RS 2 § 201(2). (INTERPRETING THE K)

i. Policy : B may have been at fault in attached meaning Beta, but A was more at fault in allowing B to proceed on basis of interpretation he knew B held w/o correcting him. Largely a subjective principle.

ii. Establishing subjective intent: MCC-Marble Ceramic Center v Ceramica Nuova D’Agostino: P relied on affidavits of former agents of D, who were involved in K negotiations, which showed that both parties arrived at oral K before memorializing written agreement, and they subjectively intended not to apply terms of reverse of K to their agreements. [Note: CISG governs this case!]

1. Result : affidavits are conclusory & unsupported by facts that objectively establish MCC’s intent not to be bought. Remand to consider parties’ subjective intent bc CISG requires court to consider evidence of party’s subjective intent when the other party was aware of it.

iii. Mahol case (insert here!)

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e. Mel : as a practical matter, it’s hard to show subjective intent of other party, so maybe this is all more theoretical than real. Most cases actually decided on basis of objective reasonability.

f. Modern Rule for determining reasonability is usually a jury question: Mayol v Weiner Companies: Interpretation of parties’ K to purchase real estate re: phrase “subject to tenant’s rights.” Result: TC’s finding that both parties intended phrase to mean “subject to all tenant’s rights, incl. option to purchase” was against the evidence. Buyer had no reason to know that was the meaning, and Seller had no reason to believe buyer thought so.

i. Rule : Presume everything is in the K on purpose, gather parties’ intentions by viewing each part of the K in light of the whole. If parties’ intent does not coincide on a material term, no K unless one of the parties is more at fault for the difference in attached meaning.

ii. Primary object of K construction : give effect to intention of parties, which is more important. Consider previous agreements, negotiations & circumstances.

V. Problems of Interpreting Purposive Language:a. Rule: in absence of an express term in a K, the court can inquire into the intent of the parites &

supply the missing term. (Combo of RS 2 & Haynes).b. RS 2 § 204: Supplying an Omitted Essential Term: when parties to a bargain sufficiently

defined to be a K have no agreed w/respect to a term which is essential to determination to rights & duties, a term which is reasonable in the circumstances is supplied by the court.

i. Comment d – Supplying term – sometimes said that supplying a term is using the term the parties would have agreed to if they had thought about it.

ii. Where there is no agreement – court should supply term which comports w/community standards of fairness & policy, rather than analyzing hypo model of bargaining process.

c. Changed Circumstance: Haynes v NY: NYC Ks w/towns for sewage system. K obligated town to pay cost of construction, operation, maintenance & growth. New development contemplated, but city denied obgliation to pay for sewage line. No duration for obligation stated in K. Result: changed circumstance made continued obligation unreasonable; instead of making forever K, court read in “reasonable duration.” Rule: in absence of duration, reas duration will be read in.

d. Reasonable Implication: Spaulding v Morse: K btn divorced parents; husband to pay x am’t per month to support kid while he’s in mom’s care and when in college. Dad stops paying when son goes to military, mom sues. Result: Dad doesn’t have to pay for son while he’s in military, since purpose of K was to provide for maintenance & security, and military does that. Rule: read in the implication & underlying intent of parties.

e. Reasonableness is a continuum: Lawson v Martin Timber: K that in event of high water, D to have access to land for extra year for timber clearing; there was high water but timber still could have been cut / cleared. Result: K should be interpreted to not have access for extra year, since parties’ intent was to just give D chance to cut lumber. (Note: funny to say there’s 1 reasonable meaning when the judges in the cases had diff meanings)

VI. Course of Perf, Course of Dealing, Trade Usage.)a. General Rule: 3 types of objective evidence that can be used to interpret the K unless otherwise

specifically agree otherwise.b. Hierarchy: (RS § 203) All are given less weight than express terms in the K. then the order goes:

i. Course of performance [conduct after engaging in agreement ] (parties perform one way with each other on the K for a while, and then one party says no and the other claims breach)

ii. Course of dealing [previous performances] (parties had comparable K for practically the same thing – and performance on that earlier K was a certain way, so this K will be interpreted similarly.)

iii. Trade usage iv. UCC (§2-208) says you can use them all (but course of dealing/trade are equal here)v. Trade usage (UCC § 1-205): any practice or method of dealing that is regularly

observed in a place, vocation, or trade as to justify an expectation that it will be observed in a transaction.

a. Existence & scope of trade usage is a question of fact.b. If the trade usage is in a written trade code, interpretation of it is for the

judge.

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vi. Course of dealing (UCC § 1-205): sequence of previous conduct btn parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions & other conduct.

vii. Course of performance: (UCC § 2-208): if there was repeated occasions for performance by either party with knowledge of the nature of the performance & opportunity for objection, any course of performance accepted or acquiesced to shall be relevant to interpreting the meaning of the terms of the agreement, as long as performace is pertinent to meaning of contested clause.

a. Whenever possible, express K terms should be construed as consistent with course of performance; but when unreasonable, express terms trump course of perf & course of perf trumps both course of dealing & trade usage.

b. One instance does not constitute a course of performance, but two can be enough (Nanakuli)

viii. Nanakuli v Shell (p626): D to provide asphalt to P, with K price of “posted price at time of delivery.” Common trade usage in the area showed price protection. D’s course of performance (past dealing with P) before & after the K also showed price protection.

a. Result : In light of evidence of trade usage and course of performance, “posted price” in K could reasonably be read to include price protection.

c. RS § 220: Usage Relevant to Interpretation: (1) agreement is interpreted in accordance w/relevant usage if each party knew or had reason to know usage or party.

i. Note: any usage can be valid; but a trade usage is given particular weight. For both, if the person knew or had reason to know of the usage, they’re held to it.

d. Fox Co v Fabric World: P to sell “first quality” goods to buyer, who refused to pay for goods considered defective, but then signed 2nd K w/o complinaing. Yarn prices fell & buyer tried to cancel order, then accepted but threated to return whol shipment if “single flaw,” maintaining that’s what “first quality” meant. Result: standards of manufacturers ass’n admissible even if D wasn’t a member. Rule: presumed incorporation of industries’ usage unless otherwise stated.

e. Exception to Trade usage Rule - Flower City (if a company is new to the industry, they might not be reasonably expected to know the trade usage; if that’s the case, then no K formed bc parites had 2 very diff interpretations of what the K said).

f. Policy: i. Nothing is EVER not in context. There’s always some set of assumptions brought to

interpretation. ii. Ks are always intended to do something & are always about the future; there’s always

some intent behind them. Point of K law is to effectuate intent of parties.

Chapter 11 – Transacting at a DistanceI. Overview: General Rule: communications are effective when received

a. Except for Acceptances: i. Face to face / telephone: effective when received (also true for other substantially

instantaneous communications)ii. Mail: effective when dispatched, unless offeror specifies otherwise (Mailbox Rule)

II. Application of Mailbox Rulea. Crossed revocation/acceptance (i.e., A sends offer; B receives it; B sends acceptance; before A

gets it, A sends recovation): acceptance is binding.b. Delay or failure of transmission: often when an acceptance never reaches the offeror, it is

binding; this is not a common sense rule, but an example of using rules categorically.c. Date on which contractual liability arises: liability arises when the acceptance is mailed; i.e.,

insurance politics: if fire burns down house while acceptance is in the mail, insurance co is on the hook.

d. Interpretation of the offer: if firm offer is made (and enforceable) then it is interpreted to mean that acceptance must be mailed (and received) within the time frame. Note: the time period for

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acceptance (if fixed) begins to run at the time the offer is received, not mailed (since offer only effective upon receipt)

e. Is BINDING as soon as sent; cannot retract once you’ve put it in the mail.III. Policy behind Mailbox Rule:

a. In interest of offeree bc then his acceptance is binding as soon as he sends it.b. In interest of offeror bc there is incentive for offeree to begin performance right away.

IV. Electronic Commerce:a. No majority rule yet, but two approaches:

i. Treat as instantaneous two-way communication and say effective when received.ii. Treat as similar to mail and say effective when sent.

V. Extra Restatement Rules re Mode & Manner of Acceptance: a. General rule: if a K doesn’t specify mode or manner of acceptance, you can use any

reasonable manner. Exception: you can even use something unreasonable if it gets there & is received w/in time.

b. Common Law Rule – (?) – it has to be what the offeror says.c. Effect of Delay in Communication of an Offer (RS 2 § 49): if delayed due to fault of offeror (or

the means of transmission he chose), then:i. If the offeree knows or has reason to know of the delay, the period for the acceptance is

not extended.ii. If the offeree has no reason to know of the delay, the period of acceptance IS extended.

d. RS 2 § 60 – Where Manner is Prescribed: Where the offer explicitly conditions mode & manner of acceptance, no K is formed if offer prescribes place, time, & manner of acceptance, and those terms are not followed. Exceptions: where terms are merely suggested, other modes are not prohibited. If acceptance is sent seasonably & is received w/in same time as specified manner would have, it’s effective.

e. Exception – Mailbox Rule (RS 2 § 63): acceptance is operative & creates binding K as soon as put out of offeree’s possession, w/o regard to whether it reaches offeror.

i. § 66: not operative upon dispatch IF not addressed correctly (and other ordinary precautions taken to ensure safe delivery, i.e., a stamp)

f. Exception – RS 2 § 67 – Means not As Invited by the Offer Are not Necessarily Improper: if the mode of acceptance was not as specified by the K, and proper precautions not taken, it is still binding upon dispatch IF it arrives within the time in which a properly dispatched acceptance would have arrived. (i.e., even if it’s wrong, if it’s works then it’s binding) (unless the K says otherwise)

i. IF you choose the wrong manner where the offeror has suggested a manner OR you are negligent in sending it, it will still be valid if it’s received.

ii. i.e., A makes offer to B requesting acceptance by telegram, B responds by letter & it gets there in time. (Where it’s a REQUEST & not a DEMAND.)

g. RS 2 § 68: communication is received when the writing comes into the possession of the person addressed, or into hands of a person authorized by him to receive it, or into place authorized as the place for this or similar communications.

VI. For Sale of Goods – UCC § 2-206: unless unambiguously indicated by language or circumstances, an offer may be accepted by any manner or mode reasonable under the circumstances. An offer to buy goods for prompt or current shipment invites acceptance bty (1) prompt promise of shipment, or (2) prompt/current shipment. (Includes shipment of non-conforming goods, unless seller lets buyer know they’re shipping the non-conforming goods as an accommodation.

VII. Records” In Contract Law – Records Have in Some Ways Supplanted WritingRecord = All means of communicating & storing information other than human memoryHas to be storableso doesn’t apply to oral communicationsElectronic Record: any record created or stored in any medium other than on paperRecords appear to suffice for Statute of Frauds

Chapter 12 – Modes of Acceptance:I. Two Difference Modes of Acceptance:

a. Acceptance by promise to perform (bilateral contract)b. Acceptance by act (unilateral contract)

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II. Rules:a. Old Law (RS 1, § 31): in case of doubt, presumption of bilateral contract b. Modern Law: when in doubt, acceptance can be in either mode

i. (RS 2, § 32): in case of doubt, offer is interpreted as inviting offeree to accept either by promising to perform or by rendering performance, as the offeree chooses.”

ii. (UCC § 2-206) unless unambiguously indicated by the language or circumstance, an offer shall be constued as invited acceptance by any manner…reasonable under the circumstances

III. Acceptance by Act :a. General rule: if an offer calls for acceptance by an act, it can only be accepted by

performance, and not by a promise. b. Prior Knowledge Rule: If the offeree doesn’t know of the reward, he cannot collect, but if he

does know of the reward, he can collect even if collecting was not his primary motivation.i. Klockner v Green (p462): woman promised to bequeath estate to Ps in exchange for their

caring for her; she tried unsuccessfully to draft a will stating as much, but neither was exceuted; when she died intestate, estate passed to heirs and Ps sued.

(1) Issue: did they have a contract and should it be enforced?(2) Result: Could be enforceable. (3) Rule:

Primary motivation for performance does not have to be compensation. If an act is requested by the offeror as consideration for a unilateral k, the act need only be given with intent of acceptance the offer (you have to want to accept, you don’t have to want the reward.)

Ordinary, k must be in writing; but if someone performs based on oral agreement and court finds that not enforcing the k would be unjust, it will enforce the k and take it out of SoF.

(4) Reasoning: unjust not to enforce k since P fully performed and decedent got benefits of performance

ii. Rule: We don’t know, and can’t know, how parties would have acted if the offer wasn’t there, so we cannot hold them to it. It’s sufficient that he had intent to accept the promise. (DiCicco)

iii. Criticism of the Rule (Stephens v Memphis) (p466): dissent says this rule turns it into moral consideration, which is bad because it is a disincentive for the public to act without promise of a reward.

c. Necessity of Notification to Offeror i. Rule: RS 2 § 54: SOMETIMES must notify of acceptance by act.

(1) if invited to accept by performance, no notification necessary to effect acceptance unless offer requests otherwise

(2) but if offeree has reason to know that offeror won’t find out about it, D not liable unless P uses reasonable effort to notify him, offeror learns within reasonable time, OR offer says notification not required. (i.e., subj acc)

ii. UCC § 2-206: ALWAYS must notify of an acceptance by act.iii. Bishop v Eaton (p469): D said if P serves as guarantee on guy’s promissory note, D will

cover P if the guy defaults. Guy defaulted, P said he mailed notice of default, but D said he never got it.

(1) Issue: Is notice required before an offer can be accepted?(2) Result: k was formed when P did the act

mailing notice was sufficient—actual notice does not have to be given because offeree knows or has reason to know that the act will come to the offeror’s attn

Remand for new trial, though, because when note became due, extended w/o D’s consent

(3) Rule: Notice does not make the contract; the act requested makes the contract; but, notice is a condition subsequent, and if no notice is given, D will be relieved of liability.

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iv. Mel: this is a questionable rule because P did act requested and conferred benefit but still doesn’t necessary get his end of the bargain back

IV. Subjective Acceptance : a. Rule: if the offer says or manifests subjective acceptance is enough, then that’s the only

situation in which it’s enough. offeror says “you can accept this subjectively by deciding to accept,” which means it’s not a promise, but also not an act, but stil forms bilaterak K.

b. RS 2 § 69 – (b) if offer gives reason to believe assent can be by silence, then silence can be acceptance. RS 2 § 56 – comment a: notification is not essential; acceptance by according with usual practice is acceptance, too.

c. Courts have to interpret what the parties said or wrote and whether it would constitute acceptance—case-by-case, fact-specific analysis.

i. Ex) insurance Ks. (don’t notify you of acceptance; accepted unless notified otherwise)ii. Internat’l Filter Co v Conroe (p471): seller produces ice-making metal filters, buyer

makes ice. Invtation to offer; offer; acceptance; notification. Result: President’s written ‘ok’ on the k constituted acceptance of the offer—the k said “don’t have to notify us.”

d. Policy: issue – how you know whether the offer has been accepted or rejected; risk is on offeree—if he rejects & is silent, he takes on the risk himself, since silence can be interpreted as acceptance.

V. Acceptance by Conduct :a. General Rule: bilateral Ks, can only accept w/promise; but, a promise may be implied in fact

from an offeree’s conduct (a/k/a, promise doesn’t have to be verbal). i. Subrule: that rule holds even if the offeror merely suggests a certain acceptance.

b. Rule: certain conduct can constitute acceptance even if is acceptance by an alternative form than the one specified; such conduct is an act, but also an implied promise.

i. Polaroid Corp v Rollins Environmental Services (p475): D waste-removal company had k with P that included indemnity clause; D said they rejected the indemnity provision by not including it in acknowledgement of purchase order.

(1) Issue: Did D accept the indemnity provision as part of the agreement?(2) Result: Yes—performance in compliance with the terms of the agreement

without objecting to the indemnity clause was acceptance.VI. Effect of Using a Subcontractor’s Bid :

a. Rule: Subcontractor is bound to the bid he gives to general contractor, but GC is not bound to the SC because mere use of the SC’s bid in the general bid is not acceptance.

i. Holman Erection Co v Orville (p478): GC used SC’s bid in general bid; general bid was accepted, but GC hired a different SC. Court found for GC under rule.

b. Policy Justifications for the Rule—mostly about equity:i. Limiting bargaining to pre-award stage puts GC and SC on equal footing for any

subsequent negotiation or modification to the initial agreementii. Provides certainty in the industry

iii. Avoids bid-shopping, bid-chopping.iv. Provides formality and allows commercial context to supply necessary fact-basisv. Allows for necessary negotiation on open terms, the only binding terms being price /

nature of the workc. Exceptions to the rule:

i. Where there is a bargain for the sub-bid (Electrical Construction v Maeda, p486)ii. Where custom of the industry dictates that GC should be bound (Industrial Electric –

Seattle v Basko, p487)iii. Some courts just have the opposite rule—GC bound (Loranger Construction Corp v

Hauserman, p487)iv. Where statute dictates otherwise (CA statute after So. Cal. Acoustics, p485, said that

listed SC has right not to be substituted unless statutory grounds for valid substitution existed)

VII. Effect of Failing to Notify an Offeree that his Acceptance is Too Late : a. Rule: To be binding, an offer must be accepted within a reasonable time. But if party to whom

offer is made makes known his acceptance to the party making it, within any period which he could fairly have supposed to be reasonable, good faith requires the maker, if he intends to retract

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on account of the delay, to make known that intention promptly. If he does not, he must be regarded as waiving any objection to the acceptance as being too late.

i. How you get there : i.e., late acceptances can be treated as a NEW offer under § 70. Then original offeror turns into offeree, and his silence can be considered acceptance. One of the silence as acceptance rules is if there’s previous dealings that would make the offeror (original offeree) make him be notified.

ii. Phillips v Moor (p488): k for sale of hay formed through written letters; acceptance given 6 days after receipt of offer; barn burns down.

(1) Issue: who owned the hay when the barn was destroyed?(2) Result: there was an offer, and acceptance, and buyer never said acceptance was

too late, so k was binding. Held for seller. Buyer liable. (Note: could also have been found liable under subjective acceptance.)

iii. UCC §2-509: Risk of Loss when neither party is in breach: risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise, the risk passes to the buyer on tender of delivery”

VIII. Silence as Acceptance a. RS 2 § 69: Ordinarily, silence or inaction does not constitute acceptance, unless:

i. offeree takes the benefit of offered services w/reasonable opportunity to reject them and reason to know they were offered w/expectation of compensation

ii. understanding and intent: offeror has stated or given offeree reason to understand that assent may be manifested by silence or inaction, and offeree in remaining silent intends to accept the offer

iii. previous dealings between the parties makes it reasonable that offeree should notify offeror if he does not intend to accept

b. Vogt v Madden (p491): sharecropper agreement; disputed facts: P says he told D he intended to continue farming, and D was silent; D says he said no.

i. Issue: whether D’s silence during that conversation constituted acceptanceii. Result: none of the § 69 exceptions apply, so found for D, no k.

c. Paradigm case: A sends letter says “A will give B $2000 for your 1990 car. If B does not reject this offer within the next three days, A will deem it to be accepted.” B gets letter and throws it away. 3 Days pass. IF B means to accept, then there’s a binding K. If B doesn’t mean to accept, then there’s no binding K. (subjective standard.)

i. Note: issue becomes trickier as step away from paradigm caseii. What if there is subjective intent?

iii. Fact-specific analysisd. Policy justifications:

i. Moral grounds: fairnessii. Common law reluctant to adopt rules that force people to take action

iii. Reasonable person would not believe silence is acceptancee. Cases fallings into the § 69 Exceptions:

i. Laurel Race Courses v Regal Construction (p495): agreement to construct race track, dispute arose over quality; D’s proposal for absorbing costs was met with silence; D went on to do the job and P never objected, so P must have believed that D thought there was a k and never said no.

ii. Cole-McIntyre-Norfleet v Holloway (p495): seller had obligation to tell buyer that the offer was rejected in a timely manner, and buyer here cannot have waited to tell seller that he rejects offer at the time he usually goes to pick up the meal.

(1) Why different from paradigm? Seller solicited buyer’s offer, set terms of offer(2) Result: silence is acceptance

iii. Kukuska v Home Mutual Hail-Tornado Ins (p498): P applied for hail insurance; silence until day he was told denied; that same afternoon, hail ruined crops; had application been denied, could have sought insurance elsewhere. Held: silence was acceptance.

iv. Louisville Tin & Stove v Lay (p499): when D assumed control over the goods, her acts constituted acceptance.

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v. Austin v Burge (p499): D kept receiving newspaper subscription; twice said “stop sending,” but he kept receiving them, and kept reading them. Benefit conferred knowing that publisher expected compensation, so acceptance.

f. Negative-option plans: “we have a deal unless you say no” – like newspapers, magazines.i. Heavily legislated against because of policy concerns: do not want to force people into a

contract.IX. Acceptance by Electronic Agent:

a. Rule: can have a contract without two humans ever agreeing (although usually humans designed the program); the action of any electronic agent is legally attributable to the preson to be bound.

b. Types of electronic agents:i. Automated transaction – lack of human actor on one or both sides

ii. Electronic agent – computer program or tool of that person; employer of tool is responsible for the results

Chapter 13 – Implied KsI. Implied-in-fact & Implied-in-law Ks

a. Express Ks: where mutual assent is explicitly manifested in oral or written words/agreementsb. Implied-in-fact Ks: where promises of the parties are inferred from their acts or conduct, or

from words that are not explicitly words of agreement. i. Are true Ks (thru acceptance by silence, conduct, etc.)

ii. Mutual assent is inferred, but real.iii. Ex) Winning bidder at auction; raising hand implies assent to pay price offered.

c. Implied-in-law / Quasi-Ks: where one party is required to compensate another for a benefit conferred in order to avoid unjust enrichment, rather than bc there has been an actual or implied-in-fact promise to pay. Are not really Ks

i. Basis for compensation is unjust enrichment, not assent.ii. Term “K” is only used for technical reasons (common law)

iii. Ex) Doctor finds person lying in street unconscious, renders medical services. Person is liable for services under implied-in-law K.

d. Connections btn in-fact & in-law:i. In practice, not always easy to distinguish.

ii. Even when true K fails (i.e., under SoF) a party who has received benefits under the K is liable in unjust enrichment for value of those benefits.

e. Other terminology to know:i. Unjust enrichment: one should not be unjustly enriched at another’s expense; i.e., can’t

keep getting the benefit of another’s services without having to pay at all.ii. Restitution (2 meanings):

(1) Substantive term to describe body of specific rules that give effect to unjust enrichment principle

(2) Remedial term to describe remedies based on right to recover on ground of unjust enrichment

iii. Quasi-K: name given to describe actions at law based on unjust enrichmentf. Damages used :

i. Implied-in-fact Ks: expectation damages based on reasonable value of services rendered (K price)

ii. Implied-in-law K: restitution based on price of benefit acquirediii. Note: in theory, these are different; in practice, often the same.

II. Officious Intermeddler Doctrine – Manifestation of Implied Ks a. Rule: if person performs labor w/o request or implied consent from other party, cannot recover.

i. Exception: performing emergency aid; if you perform labor to save someone, you are entitled to restitution.

b. Nursing Care Services v Dobos (p504): D sick, doctor ordered round-the-clock nursing. P provided 2 weeks in-hosp care, 2 weeks at-home. D claims she never signed K or gave written assent to pay for the care.

i. Holding : implied-in-law and implied-in-fact K exists; P entitled to full recover.

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ii. Rule : liability imposed to pay for services rendered only when person requested or knowingly/voluntarily accepted the benefits, but emergency aid exception applies.

iii. Reasoning : first 2 weeks fall under emergency aid exception, so P entitled to recover; at-home care was voluntarily accepted so D liable to pay.

c. Day v Caton (p511): P built wall on his & D’s property and claims D promised to pay him ½ the cost. D says there was no express agreement.

i. Holding : aff’d finding for P – jury properly considered implied-in-fact K.ii. Rule : if party voluntarily accepts valuable services rendered for his benefit, when he has

the option to accept or reject, implied promise to pay for them may be inferred; silence can be interpreted as assent.

iii. Note: court used K theory to analyze, but could have found under unjust enrichment.III. At-Will Employment Ks

a. General Rule: At-Will Employment: where no time limit is provided, employment Ks are terminable at pleasure of either party or at most upon reasonable notice.

i. 3 General Exceptions: (1) Public policy: employee ecovers if employer’s conduct undermines public pol’y(2) Implied-in-fact promise of employment for specific duration (based on all the

circumstances, incl statements made in company’s personnel manuals / memos)(3) Implied-in-fact covenant of good faith & fair dealing

iv. Other Recognized Exceptions: (1) Employer cannot dismiss at-will employee for reason prohibited by statute (i.e.,

whistle-blowers, discrimination)(2) At-will employment protected against improper interference by 3rd persons.

b. Employee Handbooks: i. General Rule: under theory of implied-in-fact Ks, provisions of employee handbooks

can be found to become part of employment K in some circumstances (provisions of handbook can modify the employment K)

ii. Modification: cases differ on employer’s right to modify provisions of handbook that has contractual force:

(1) Asmus v Pac Bell: allowed D to modify handbook and said fact that employees continued to work after modification constituted acceptance of the new terms

(2) Demasse v ITT: implied-in-fact K becomes part of bilateral employment K, so cannot be unilaterally modified; separate consideration beyond continuing to work is necessary to show acceptance.

iii. Effect of Disclaimers: Cases differ on legal effect of disclaimer in handbook that would otherwise give rise to contractual liability (i.e., “this handbook is not a contract’)

(1) Some cases quick to give effect to disclaimers (2) Other held disclaimer only effective if satisfies conditions of clarity and notice.

Sanchez v Life Care Centers: disclaimer said “this handbook is not a K” was ruled ineffective.

iv. Note on Unilateral Ks: manuals are less & less a theory of defense for an employer to say “I terminated this person as part of a unilateral k.” instead, it’s more a plaintiff’s tool to use the handbook.

c. Case with it all: Wagonseller v Scottsdale Memorial Hospital (p516): P employee at D hospital was fired after tension arose btn her & supervisor on camping trip.

i. Claim : Files suit for wrongful termination based on 3 theories:(1) Public pol’y exception to at-will rule(2) Implied-in-fact promise of emplnt for certain duration based on empl manual(3) Implied in law covenent of good faith & fair dealing

ii. Holding : (claim by claim)(1) P entitled to jury trial if can establish PFC that termination was basd on refusal

to perform an act contrary to public pol’y(2) Jury Q as to whether manual provisions were part of K(3) Recognized cov of good faith, but does not change terms of at-will nature of K

(SJ aff’d)iii. Rule : at-will rule & exceptions.

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Chapter 14 – Preliminary Negotiations, Indefiniteness, Duty to Bargain in Good FaithI. Overview :

a. Classical K law based on axiom that K is formed by offer & acceptance only.b. Modern law: departures from those rules bc more dynamic about the law.

i. UCC is super liberal on indefiniteness.ii. Courts beginning to apply UCC approach to non-UCC Ks.

iii. If parties intended to make K, courts more willing to supply reasonable terms to fill gaps than they used to be.

II. Classical K law Rules :a. Preliminary negotiations: NO legal effect. Used to be two kinds:

1. Prelim only in form (final w/o further document)2. Too indefinite with no implied promise (not enforceable)

b. Indefiniteness: an apparent bargain will NOT be enforced if found to be too indefinite.c. Further-document-to-follow provisions: enforceable if parties only intended further doc to be

evidence of terms of original agreement; unenforceable if parties did not intend to be bound until further agreement was executed.

d. Duty to negotiation in good faith NOT recognized; agreement to agree NOT enforceable.e. Example of Old Rule: Academy Chicago Publishers v Cheever: publisher made agreement

w/widow of author to create anthology; paid her small advance then found 60 unpub’d stories; widow tried to back out (prob bc it ended up being worth a lot more). P sued, D argued agreement wasn’t specific enough in terms of # stories. Result: no K formed bc agreement lacks depth in certain essential terms; subject matter too indefinite to imply reasonable term.

f. Also, Ridgway v Wharton is the classic old rule: “an agreement to enter into an agreement upon terms to be afterwards settled between parties is a contradiction in terms. It is absurd to say that a man enters into an agreement till the terms of that agreement are settled. Until those terms are settled he is perfectly at liberty to retire from the bargain.”

III. Modern Rules : are all more flexible!a. Indefiniteness/Certainty:

i. General Rule: an apparent bargain will not be enforced if found to be too indefinite. It’s too indefinite if: terms are so vague as to show that parties did not believe they had completed a K; OR, even if parties thought they had a K, terms are so vague that court cannot determine its material terms or find an appropriate remedy for breach.

1. Trend: general willingness to read in more provisions. Also, under UCC, indefiniteness can be cured by part performance (EVEN IF indefinite, once party starts performance the indefiniteness is overcome).

ii. RS 2 § 33: even though communication is intended to be an offer, cannot form basis of K unless terms of K are reasonably certain (i.e., provides basis for determining existence of a breach & for giving appropriate remedy). Uncertainty can be evidence that parties did not intend to be bound. Imply that those terms must be material, bc the cases say that.

iii. RS 2 § 34: terms may be reasonably certain even though empowers one of both parties to make a selection of terms in course of performance. Part perf under agreement may remove uncertainty & establish enforceable K. Action in reliance on agreement may make a contractual remedy appropriate even tho it’s indefinite/uncertain.

iv. Ex) Moolenaar v Co-Build: right to renew at reasonable price.b. UCC Gap Fillers: default rules read into K in absence of parties’ actual agreement. They’re all

supposed to be interpreted in a reasonable way, which could be subjectively or objectively reasonable (Mel’s preferred term) or subjectively reasonable (either what the parties would have come up themselves at the time the K was formed). General Rule (§ 2-204): even if terms are left open, K for sale does not fail for indefiniteness if parties intended to make K & there’s a reasonably certain basis for giving appropriate remedy.

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i. Price (§ 2-305): can conclude K even if price isn’t settled; if terms left open, read in a price that is a reasonable price at the time of delivery. (Often use market price).

ii. Place for Delivery (§ 2-308): the place for delivery of goods is (a)the seller's place of business or if he has none his residence; or (b)whatever specified in a contract for sale(c) documents of title may be delivered through customary banking channels.

iii. Time Provisions; Notice of Termination (§ 2-309): if left open, read in a reasonable time. Termination requires reasonable notice unless otherwise stated.

§ 2-304. Price Payable in Money, Goods, Realty, or Otherwise. § 2-305. Open Price Term. § 2-306. Output, Requirements and Exclusive Dealings. § 2-307. Delivery in Single Lot or Several Lots. § 2-308. Absence of Specified Place for Delivery. § 2-309. Absence of Specific Time Provisions; Notice of Termination.

c. Policy Reasons for Filling Gaps : saves time, saves $. It’s impossibly to specific every contingency that may occur throughout the course of a K, and what will happen if it were to occur.

d. Preliminary Negotiations / Duty to Negotiate in Good Faith: General Rule: NO legal effect, but: trend is to allow some “agreements to agree” provided that parties intended to conclude K. Two types of preliminary agreements:

i. agreements contemplating formalization : parties reach agreement on all material terms, but want to formalize it for evidentiary purposes; binding as K at the moment it’s made.

ii. agreements contemplating further good faith negotiations : expresses mutual commitment to a K on agreed major terms & agreement to negotiate open terms in good faith in the future—trend is to ALLOW acceptance in last 15 years.

1. Express preliminary agreements to negotiate in good faith are enforceable.2. Implied agreement to negotiate in good faith is enforceable only procedurally

(this is the approach taken in Teachers).iii. Duty to negotiate in good faith means no renouncing agreed-upon terms, no abandoning

negotiations, no insisting upon terms that are inconsistent w/agreed-upon terms.iv. Note: if prelim agreement is too indefinite, no K formed.v. Damages for breach of duty to negotiate in good faith:

1. If negotiations would have broken down w/o any bad faith: reliance dmgs2. If you can show negotiations would not have broken down w/o bad faith –

consequential dmgs (lost profits)e. Middle ground showing move to Modern Rule: Channel Homes v Grossman: D mall owner

trying to K w/P to lease commercial space. Need letter of intent to get financing from bank. Get letter from P stating commitment & in return agree to take space off the market and negotiate w/P to completion. P, relying on that, starts to move fwd. Another buyer then offers better lease for more money than P, who sues. Defense: agreement was just “agreement to agree,” not enf’able.

i. Result : sufficient evidence to show parties intended to enter into binding agreement to negotiate in good faith. Enforceable.

ii. Rule : REJECTS old rule. Agreement to agree is enforceable if: parties manifested intent to be bound; terms are sufficiently definite; & there was consideration.

f. Modern Rule: Teachers Insurance & Annuity v Tribune Co: D desperate to sell bldg bc of accounting; P agrees. Complex deal to go thru LaSalle using promissory notes. Proposed terms covered all basic economic terms of deal and is binding subject to preparation. D wants to back out. P says no & sues.

i. Result : the documents were binding prelim commitment & implied promise to neg in g.f.ii. Rule : parties can bind themselves to concededly incomplete agreement, i.e., to give

assent to negotiate in good faith to reach final agreement. Creates tripartite division of preliminary agreements; demonstrates that courts will imply a promise to negotiate in good faith.

iii. Three types of preliminary negotiations : 1. Prelim only in form (final w/o further document)

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2. Too indefinite with no implied promise (not enforceable)3. Implied promise to negotiate in good faith. (enforceable)

CONSIDERATION / BARGAIN PRINCIPLE

Chapter 2: The Bargain Principle and its Limits:I. Background:

a. Consideration doctrine in state of flux, bc it’s an older rule, so courts have adopted lots of legal fictions to make exceptions / get around the rule.

b. Often, when court uses language of consideration, they’re really concerned with the legitimacy of transaction and parties’ intent.

c. Note: sometimes promise that is not enforceable for lack of consideration, may be enforceable under alternative theory (promissory estoppel).Two meanings of consideration:

i. Narrow/RS 2 version: bargained-for exchange of promises ii. Mel: anything that makes a K enforceable

II. Bargain Theory of Considerationa. Bilateral contract: exchange of promises deliberately carried out via offer and acceptance

w/intention of creating a binding agreement.b. Unilateral contract: a promise in exchange for an act (i.e., reward cases). Characterized by an

offer that can only be accepted via performance, and is often made to general public.c. Bargains (RS 2 §§ 71, 72)

i. General Rule: bargains not only enforced, but enforced according to terms of the K.ii. Definition of a bargain: promise/performance sought by the promisor in exchange for his

promise & given by promisee in exchange for that promise.(1) Has a bargain occurred? Objective test: whether the acts and words externally

manifest intent to induce the other party’s response & the other party so response (comment to RS 2 § 71)

(2) Note: the test is not what is subjectively held in each party’s mind.iii. Narrow Rule: Any performance which is bargained for is consideration. (RS 2 § 72)

(1) Exception: Nominal Consideration & Pretextual Bargains: i. Where the bargaining is just pretext or the consideration given is

norminal, there is no consideration.ii. There must be actual, meaningful bargaining

iv. Policy: social utility – enforcement of promises enhances stability of contract, which elads to more contracts and greater utility.

d. Consideration as Detriment (RS § 71)i. Definition of consideration: performance or promise which is bargained for.

ii. Consideration as a detriment to one’s legal rights, which constrains freedom to act.(1) Irrelevant whether it materially benefits the promisor(2) Under RS 2 § 71, consideration includes: An affirmative act other than a

promise. Forbearance from doing an act. Creation, modification, or destruction of a legal relationship.

iii. Hamer v Sidway (p ): nephew gives up smoking in exchange for money.(1) Result: because nephew gives up something he was legally entitled to do, and

because uncle got the benefit of the bargain, there is consideration and nephew should get payment.

(2) Rule : forebearance can serve as consideration.iv. Davies v Martel (p ): executive at company pursues MBA with company’s support in

order to get promotion and extra benefits.(1) Result: because purusing MBA restricts freedom of action, it’s consideration

even though it’s in an employment-at-will context(2) Rule : anything that restricts freedom from action can serve as consideration-

producing forbearance

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e. Adequacy of Consideration is irrelevant according to RS 2 § 79 i. Rule: in the absence of a specific K, courts will not judge the adequacy of consideration

—if the act of consideration is real, however stupid, the courts will not question its adequacy. Inadequacy of consideration does not void a K.

(1) Courts will not compare the two promises to see if they are equivalent.(2) Parties will not be relieved from bad bargains; that’s simply a risk they take.(3) Exception: gross inadequacy may be evidence of fraud or unconscionability,

which will relieve the parties.ii. Hancock v Shell (p ): bank leased property to a gas station; lessor was bound for 15

years with 15-year option to renew; while lessee only bound for 90 days.(1) Issue: Nullify k on grounds that it was so lacking in mutuality as to be against

public policy since bound parties so disproportionately?(2) Result: Both parties bound despite inequality.(3) Rule : just because you made a bad bargain doesn’t mean you aren’t bound.

iii. Batsakis v Demotsis (p ): D owned assets in U.S. but had no access during WWII in Greece; P gave D 500,000 drachmas (i.e., $25) and D agreed to sign note saying she agreed to pay back $2000 plus interest. P sues to recover money. Result: k was valid since there was consideration and a bargain.

(1) Rule : inadequacy of consideration will not void a K.(2) Policy : do not review the adequacy of the consideration because gets into too

many difficulties of determining market values. (objective value or the loan / subjective value of the loan.) Note: at the time this case was decided, there was no general concept of unconscionability.

iv. Policy for not reviewing adequacy of consideration: (1) Efficiency (k terms set by competitive forces; perceived imbalances may be fair;

might not be a bad bargain at the time it’s made.)(2) Individual Autonomy (hallmark of free enterprise)(3) Fairness (risk is inherent to business dealing; reviewing for fairness is unwieldy

and fact-specific, riddled w/ difficulties in determining objective value and complex ideas of subjective value)

III. Distress, Duress & Unconscionability:a. Overview: Whereas bargain transaction depends on the bargain only, unconscionability turns on

the circumstances of the transaction. Is always a matter of fact for the jury.i. Not a part of classical k law, but is now generally recognized in all states.

b. Distress: merely being in a bad position.i. Rule: k will be enforced even if promisor is under distress, so long as distress is not

caused by acts of the promisor.(1) Note: hard bargaining against one who is already in a difficult position will not

negate formation of a kc. Duress (RS 2 § 175, 176)

i. Definition: taking advantage of a bad situation in which you have improperly put the promissor (i.e., P must put D into that position, or cause it).

ii. Rule: if bad actions by promisee put promisor in distress and are used to compel the promisor’s assent, then k is unenforceable.

iii. RS 2 § 175: Duress by threat makes K voidable.iv. RS 2 § 176: Improper threats that result in duress include:

(1) crime or tort(2) threat of criminal prosecution(3) bad faith threat of civil suit(4) breaches duty of fair dealing & good faith under existing k(5) if resulting terms are unfair and (a) harm the recipient w/o helping the party

making the threat; (b) there is prior unfair dealing; or (c) threat is otherwise a use of power for illegitimate ends.

v. Chouinard v Chouinard (p ): P was forced to buy out Ds in their company at a high price. Argued that Ds took advantage of his economic duress. Court didn’t buy it—said P put himself in that position, Ds opted for the hard bargain. Result: k is enforceable; since

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D didn’t cause the harm or commit a wrongful act, there is no duress bc no improper threat. Note: today this would have been voided bc of unconscionability, but the doctrine wasn’t established yet.

vi. The Desperate Traveler paradigm: he’s rescued from the desert, and rescuer charges absurd price to drive out and rescue him even though its no extra cost to him.

(1) Result? What Mel thinks the rule should be that that’s voidable, but isn’t under the law because rescuer didn’t cause the situation.

(2) Fairness argument—fails: society demands some degree of concern for others.(3) Efficiency argument—fails: monopolistic situation. (4) Modern k law: recognizes that promises made under duress (like this) not

always binding.vii. Policy of distinction between distress and duress (and enforcing Ks bc of distress but not

duress):(1) Efficiency: under duress, wouldn’t be functioning market; under distress,

market would still be functioning(2) Administrability: good to have a list of explicitly what counts; if you didn’t,

you’d be able to invalidate all bargains bc all involve some version of risk and threat of nonperformance.

(3) But: inefficiency: there IS no market, sometimes; ex) desperate traveler cost of rescue would be zero, but charging high am’t, and that’s not an efficient allocation of resources; also—if someone can charge exorbitant am’ts, might overly prepare for the situation.

viii. Price Gouging: During any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety, welfare of consumers, no party within the chain of distribution of such consumer goods or services or both shall sell or offer to sell any such consumer goods or services or both for an am’t which represents an unconscionably excessive price. (NY Gen. Bus. Law. § 396-r).

(1) Rule: NOT allowed.(2) Abnormal disruption of the market: any change, whether actual or

imminently threatened.(3) Consumer goods or services: those used, bought, or rendered primarily for

personal family or household purposes.(4) “Unconscionably excessive”: question of law for courts. Based on 4 factors:

i. amount of the excess in price is unconscionably extremeii. exercise of unfair leverage of unconscionable means

iii. combo of amount charged being gross disparity or amount charged grossly exceeding price at which similar goods or services were readily obtainable by other consumers in the trade area.

d. Unconscionability: UCC § 2-302 & RS 2 § 208 i. Rule: when a k is so one-sided as to be unconscionable, it is not enforced in order to

prevent oppression & unfair surprise.ii. UCC § 2-302: if K or any clause of K is found to be unconscionable at the time it was

made, the court may refuse to enforce the K, or it may enforce the remainder of the K without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

iii. It is a matter of law to be decided by the judge, not a jury.iv. Burden of proof:

(1) Minority: only need to show one of the two types (substantive alone suffices.)(2) Maj: need to show both (presence of substantive may be indicative of proc).

v. Determination of unconscionability made at the time of k formation, rather than looking to see if it looks unfair now.

vi. Substantive unconsionability: terms of the k are unfair on their face bc one-sided; reasonableness/faireness of K determined based on whether the terms are “so extreme as to appear unconscionable according to the mores and business practices of the time and place.” (Corbin; Williams v W-T).RS 2 § 208. Williams v Walker-T factors to determine include:

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(1) K is so one-sided as to oppress or unfairly surprise (usually applies to form Ks which people do not read)

(2) Imbalance of obligations(3) Significant cost-price disparity(4) Courts consider typical practice in the industry, but just because whole industry

does it doesn’t necessarily mean it’s acceptable. (Williams v Walker-Thomas).(5) Williams v Walker Thomas Furniture (p ): lay-away furniture case where

customers make payments for multiple items; buy things in installments, but buy new item and incur debt on all items; repo’d all P’s goods even tho 90% paid.

i. Result: unconscionable both substantively (clause is unfair) and procedurally (P didn’t know about it)

(6) Pure substantive unconscionability: Maxwell v Fidelity (p ): P bought heater at high interest rate; sought to avoid new K for loan (to pay off heater) that encompassed the first bc the first was unconscionable. Bank said no, due to novation—that the 2nd K was new. P wound up paying $15k for $6k water heater, including lien on house.

i. Result: terms were substantively unconscionable, so not enforced.ii. Rule: under UCC, substantive unconscionability alone is enough.

iii. Novation doctrine: if you have a contractual relationship and want to change the terms, both parties must mutually agree to break the K. If you change the terms of a K and court decides it was unenforceable, the new K won’t be enforceable either.

vii. Procedural unconsionability: there is something wrong w/ process of how k was made.RS 2 § 208 comment d – factors to determine include:

(1) Competitive market (promotes or undermines efficiency; i.e., professional versus fortuitous rescue)

(2) Bargaining Power (difficult to determine)(3) Relative Capabilities of the Parties (form giver inserts provisions which he

reasonably knows taker will be ignorant of)(4) Social Norms (trade practices; commercial background)(5) Absence of meaningful choice.(6) Williams v Walker-Thomas was also procedurally unconscionable bc buyers

didn’t know about the clause.(7) Maxwell factors:

i. Real & voluntary meeting of the minds of contracting partyii. Who drafted the K

iii. Whether terms were explained to weaker partyiv. Whether alterations in printed terms were possiblev. Whether were alternative sources of supply for goods in question

vi. Unfair surpriseviii. Remedies for unconscionability:

(1) Do not enforce unconscionable provisions and submit what is left to the jury for factual findings

(2) Void entire kix. Kirby Vacuum Cleaners (p ): high pressure sales tactics to sell vacuum cleaners off-

market and exploit customers’ ignorance of true market prices.(1) Result : no k bc unconscionable bc high-pressure tactics temporarily changed

buyers’ preferences or put the buyer under duress.x. Adhesion Contract: Characteristics:

(1) K drawn up by powerful entity, presented to you for signature.(2) Law assumes nobody reads the adhesion K.(3) Rules tend to differ from unconscionability.

IV. The Problem of Mutuality:a. Mutuality of Consideration:

i. Rule: either both parties are bound by consideration or neither is bound—if it applies at all, only applies to bilateral Ks.

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(1) NO mutuality in illusory promises or donative promises.ii. Two types of contracts:

(1) Unilateral K – mutuality not required; ex) promisor A offers promise in exchange for an act by B. B, the promisee, can be bound before or after his own performance.

(2) Bilateral K – does require mutuality of obligation; ex) promise exchanged for a promise; Test: is performance of the return promise consideration?

iii. Scott v Moragues Lumber (p ): D buys ship on condition that lumber co will use it to ship lumber cargo. D (Scott) buys the ship but does not deliver it to P.

(1) Result: K was binding because there was consideration – D made a promise that limited his scope of action (if buy ship, then must give to P).

(2) Damages: should be based on diff btn K price and market price for shipping cargoed lumber at the time of breach.

b. Illusory Promises: (Part of Mutuality of Consideration)i. Definition: statement which appears to promise something, but does not actually commit

the promisor.ii. Rule: no K is formed if either of the promises are illusory, as there is no consideration

(1) Exception: the fact that a promise is unenforceable bc of a legal defense does not render it unenforceable as illusory promise. i.e., D made a K when underage, and sues P, adult, to enforce it. Adult cannot use defense of illusory promise.

(2) Note: Mel says this is a bad doctrine; has little effect because the rule is being whittled away; often courts will read implied promises into K (Wood v Lucy).

iii. RS 2 § 77: a promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless each of the alternative performances would have been consideration if it alone had been bargained for.

iv. Traditional View: (Still good law)(1) Buy “as much as I want” is an illusory promise: Wickham v Farmers

Lumber (p91): coal delivery K entitles D to buy “as much as it wants,” which could be zero. Result: illusory promise bc D not bound in any way, so no K.

(2) Right to cancel at any time is illusory promise: Miami Coca Cola v Orange Crush: D gave P right to distribute its product for 1 year. K was perpetual/at-will, but parties could cancel K at any time. Result: illusory promise bc D not bound in any way, so no K.

v. Modern View: Courts have a more expansive view of what constitutes consideration Looking to Carving away Exceptions in the Doctrine.

(1) Lindner v Midcontinent (p98): lessee can terminate at any time as long as there is 10 days’ notice. Result: 10 days’ notice is sufficient consideration. Not illusory promise. K enforced.

(2) Gurfein v Webelovsky (p99): glass shipment case. Provision to cancel before shipment is not illusory bc seller could have shipped immediately after signing K. Result: not illusory. K enforced.

(3) Harris v Time (p100): boy opens letter from magazine whose envelope says free watch for opening. Inside, says you have to buy a magazine subscription to win. Result: following directions & opening the envelope is consideration—Bargain for chance. K enforced.

(4) Helle v Landmark (p100): “mutuality doctrine has become a faltering rampart to which litigants retreat at his own peril.”

(5) Courts willing to read in an implied promise: Wood v Lucy, Lady Dugg-Gordon (p ): P and D agreed that both could endorse products w/her name and split profits; P got exclusive right; D withheld profits, claimed she wasn’t bound by K since P’s promise was illusory. Result: exclusivity agreement

vi. Exception: Satisfaction Clauses: where duty of performance by B is based on his “satisfaction” as to A’s performance, there IS consideration and the promise is NOT illusory. There are two types of satisfaction:

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(1) Objective criteria : commercial value; operative fitness; reasonable person standard applies

(2) Personal taste : good faith of the party in exercising his taste in consideration.vii. Policy behind illusory promises & mutuality:

(1) Fairness: where one party has not bound itself, it’s unfair to bind the other party; otherwise, A could sue B for breach even though A is not obligated to do naything for B

(2) Utility: even where there is no mutuality, parties have bargained for a chance, which facilitates exchange; the party that binds itself believes it is more likely that the deal will be done. Good for business.

viii. Requirements Ks: seller promises to supply all of buyer’s requirements of a defined commodity at a stated price (or at a price determined by a stated formula over a designated period of time), and buyer promises to purchase all that he needs of that commodity during that time from seller at the stated price.

(1) This is a classical bargain, even if buyer doesn’t really bind himself. It’s a unilateral K, offered by seller. But courts didn’t uphold them traditionally.

(2) Modern rule: upheld in general bc you are binding yourself—not saying “I’ll take whatever I want,” so much as “any needs I have I’ll take from you.”

ix. Output Ks: buyer promises to buy all of seller’s output of a given commodity at a stated price (or at a price determined by a stated formula) over a given period of time, and seller promises to sell al of her output of the commodity during that time to the buyer at the stated price. Implied that the amount will not be unreasonably disproportionate to am’t estimated.

(1) For both Requirement & Output Ks -- UCC § 2-306: output Ks are good, governed by good faith. Work things out between the parties if the market price of supplies changes, buyer shouldn’t back out entirely, though.

(2) Implied that the amount determined will be in good faith and not disproportionate to the amount estimated.

(3) In short UCC reads in:i. Duty of exclusive dealing

ii. Duty of good faith (subjective)iii. Duty of proportionality (if parties had estimate or past dealings, they

have expectation)x. RS 2 § 90: Illusory Promises & Promissory Estoppel: the promise may be enforced

even though the promise is illusory, if the promisor should reasonably expect that the promisee will rely on it.

(1) Exception: at-will employment, in which an employer can discharge an employee at will at any time w/o cause. On flip side, employee can leave, too.

(2) Grouse v Group Health Plan, Inc. (p ): D offered P Chief Pharmacist job, so he quit other job to take it, then D rescinded offer. Result: it was not a K, even though it meets the § 90 requirements. Offering a job at-will is not consideration. P had right to good faith opportunity to prove himself, so estoppel upheld.

(3) White v Roche (p ): similar set of facts, but court said estoppel not applicable.V. Performance of a Legal Duty as Consideration; Modification & Waiver of Contractual Duties:

a. Legal Duty Rule is an exception to standard doctrine of consideration.b. Traditional Legal Duty Rule: RS 2 § 73:

i. Performance of a legal duty already owed to a promisor is not consideration if (1) it is not in doubt; and (2) it is not subject to an honest dispute.

ii. The new return promise is unenforceable; but if return promise is performd, it cannot be undone (i.e., if promisor actually pays the new K am’t, promisee cannot use legal-duty rule to get money back) unless there is duress (Austin)

iii. Third Parties: RS 2 § 73(d): where the duty is to a 3rd party, courts may find the new K to be enforceable.

c. Example: Rewards Cases: not consideration because police already bound to capture criminals.

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i. Slattery v ______ (p ): state polygraph expert gets perp to admit to shooting and tried to collect on bank’s reward for info leading to shooting.

(1) Result: Not entitled to reward bc of legal duty rule—P was already under a duty as state police polygraph operator to turn in perp, so there was no consideration.

(2) Same legal duty prevents bank employees from collecting. (Denney v ) (p )d. Example: Modification of Waiver and Contractual Duties:

i. Ways to modify a term:(1) Substituted (new) K(2) Accord and satisfaction (substitute consideration)(3) Modification

ii. Substituted (new) K: to create a new K, traditionally parties would have to consent and terms would have to be varied on all sides. Can be tricky bc must prove intent—to show that all parties voluntarily consenting to the change.

(1) RS 2 § 279: substitutes K immediately discharges obligations of parties under original K; breach of substituted K does not give right to enforce original K – only new K.

iii. Two main types of Legal Duty Rule cases – both are unenforceable.(1) Where A agrees to pay more for doing only what B is already obliged to do

then refuses to pay extra: Lingenfelder v Wainwright Brewery (p ): brewery construction case where P hired to oversee bldg; D uses diff fridge co instead of one owned by P; P said he won’t fulfill duties unless they use his company. D agrees to give 5% more $. P finishes but D refuses to give extra $. Result: there was no new K bc violated legal duty rule (already obligated to perform) & D had no intent to create new K.Note: another example is Angel v Murray (taxpayer suit against garbage company, which held that the modification was approved under

(2) Where A agrees to take less than he is entitled to if B does something, and A sues for balance: Foakes v Beer (p ): k to pay pre-existing debt; agreement for P to pay D upfront, and remainder in installments but forgiving debt—i.e., A agrees to take less than he is entitled to under the original K and A then sues for the balance. Result: no consideration;

iv. Duress: Austin Instrument v Loral Corp (p ): SC threatens to withhold parts unless given new K; D was only available source of product; there are penalty clauses btn GC & gov’t, which GC wants to avoid; GC agrees to new K.

(1) Result: bc P agreed to new K only bc of duress, entitled to return of payment.v. Exception to Legal Duty Rule: Schwartzreich v Bauman-Busch (p126): P had

agreement to work as designer w/D; received offer elsewhere of higher salary; P asked for higher salary w/D; they tore up old agreement and made new one

(1) Result: they tore up the old K, so there was no prior legal duty, so new K enf’d.(2) Mel says legal duty rule is really stupid if all parties have to do is tear it up just

to get around it.vi. Accord & Satisfaction: Accord = A and B have a K requiring B to render performance P

to A. A and B then enter into agreement under which A agrees to accept some other performance, Q, as full satisfaction of B’s obligation under the original K. Until the accord is performed, it’s an executory accord. When B performs and A accepts performance, there is satisfaction.

(1) Note: Accord & satisfaction was the only way modification was allowed at common law. A party would offer something to replace earlier consideration, and it couldn’t be money, since they could not modify price. Now you can (thru modification).

(2) Rule: executory accords are unenforceable. (accord agreed to, but pending.) (Mel thinks this is a BAD rule.)

(3) Not being tested on this.e. Settling Disputes:

i. General Rule: where there is a good faith disagreement as to the duty owed, then performance cannot be consideration so there’s no enforceable K.

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ii. Settlement of Claims—Rule—RS 2 § 74: giving up right to sue or right o assert a defense is consideration if (a) the claim is valid; and (b) the claim or defense is in doubt.

(1) Example: A tells B he is father of unborn child and B promises A child support if there is no paternity suit; he later learns B is not the father; K is still enforceable, even though the claim given up by A was valueless.

iii. Settlement of Debts—Common Law Rule: if you cash the full check, there’s acceptance/satisfaction, bc could have given check back.

iv. Settlement of Debts—Modified Rule—UCC § 3-311: partial payment of past debt can be consideration where (a) a person tenders payment in good faith as “ full satisfaction ” ; (b) the claim was unliquidated/subject to bona fide dispute and (c) payment was accepted.

(1) Notification: the instrument or accompanying letter must explicitly state that it is for full satisfaction, or debtor can prove he explicitly informed claimant or agent of claimant that payment was for full satisfaction.

(2) Specified Location: claimant can specify that full satisfaction check be sent to specific person/places to prevent a person ignorant of dispute from inadvertently cashing the check (and thereby accepting it)

(3) Reversal: claimant has 90 days after accepting payment to return it and restate claim for full amount.

(4) Good Faith Requirement: dispute must be in good faith—cannot be fabricated; fair dealing means party cannot take advantage of distress of claimant by offering an unreasonably small sum and cannot simply print “full satisfaction” on every check.

v. McMahon Food Corp v Burger Dairy Co (p ): Milk cartons dispute. MFC says they paid back all debts and has voucher so stating. Burger says they never agreed. MFC gives check saying debts “paid in full,” Burger changes langugage to “w/o prejudice” and waits to cash it.

(1) Result: found for D bc language on check was not sufficiently conspicuous to make reasonable person notice it—(person who did it here has no responsibility for accord/satisfaction—her cashing it was irrelevant); no good faith tendering bc D misrepresented substance of prior negotiations.

f. Modification: conditions under which modification will be allowed.i. Most modifications result when one party is losing money on the K and the other party

agrees to pay more, either bc sympathetic to original K’s position or bc parties have an ongoing relationship.

ii. General Rule: modifications to Ks that are not fully performed and are made as a result of good faith bargaining are enforceable.

(1) Reliance: party may be entitlted to reliance damages, even if the modification is not enforceable as a K.

iii. Modifications for Sale of Goods—UCC § 2-209: (1) Rule: agreement modifying a K for sale of goods needs no consideration to be

binding(2) Exceptions: (a) if the terms of the new K are w/in the SoF, it must meet SoF

requirements. And (b) where original K says modifications only allowed thru writing, must follow that rule.

(3) Waiver: where modification fails to conform to above exceptions, it is a waiver, which is unilaterally retractable until relied upon.

(4) Reliance: if promisee materially changes position in reliance on a waiver, he is entitled to perforamcne based on the attempted modification.

iv. Modifications to Ks for Goods—RS 2 § 89: if modification is fair and equitable in view of circumstances not anticipated when K was made or to extent that justice requires enforcement in view of material change in position or reliance—i.e., the unexpected circumstances defense.

(1) Note: this is an exception to the legal duty rule.(2) Note: Mel thinks § 89 is good, but not good enough, and should only read “if

modification is fair and equitable,” i.e., it should be about fairness only.(3) Note: § 89 is in section of RS2 called “Contracts without Consideration,”

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v. Angel v Murray (p138): trash collection case where city’s growth went beyond normal growth pattern and created unexpectedly large burden for trash collector.

(1) Result: K modified to reflect increased volume of work.(2) Rule: followed § 89, unexpected circumstances.

vi. Sugarhouse v. Anderson (p142): agreement; creditor takes less than full am’t in exchange for debtor’s agreement to pay that lesser am’t; then creditor tries to insist on full payment.

(1) Result : modification upheld; there was consideration and reliance.g. Waiver of Conditions (RS § 84, UCC § 2-209(above))

i. Waiver Definition: voluntary, intentional relinquishment of a known right; implies an election to dispense with something of value, or forgo some advantage which the party waiving it might at its option have demanded or insisted upon.

ii. Rule: a promisor is bound to perform a conditional duty where he waives the condition. iii. Exceptions: promisor NOT bound to perform conditional duty where waived condition:

(1) Is a material part of the exchange originally bargained for (it cannot be the promise/consideration which supported the K).

(2) Uncertainty of the occurrence of the condition was an element of the risk assumed by the promisor. (i.e., fire insurance policy; waiver of requirement of fire by company is not binding)

iv. Retraction of Waiver is allowed if:(1) Waiver made before time for the condition has expired(2) Condition is within control of the other party(3) Notification given within reasonable time to allow condition to occur (or if there

is an explicit extension of the deadline)(4) There is no justified reliance by the other party.

v. Consideration v Mere Condition—what’s the dividing line between a material element of a bargain and what’s a mere condition predent?

(1) Clark v West (p ): Under K, P to write book for D, would get bonus if abstained from drinking. D knew P was drinking as he wrote, but said acceptable. P sued for higher wages after book completed. Result: sobriety was a waivable, non-essential term to K, so D under no obligation to pay bonus.

(2) Rule: do not need consideration for waiver of a condition.

Chapter 3: Past Consideration & Moral ObligationI. Overview

a. Plus a later promise creates grounds for enforcing that promiseb. Special form of donative promise because there is no present considerationc. Different than simple donative promise, which may give rise to a moral obligation but is not based

on one. d. Three ways to make a K enforceable—based on actions that happened:

i. at the time K was made (bargain/consideration); ii. after the K was made (reliance);

iii. before K was made (past consideration).II. Past Consideration Rule: a promise based on a past benefit is not enforceable bc it is not bargained for.III. Classical Approach: Moral Obligation Doctrine (Traditional Approach)

a. Rule: a promise based on a past benefit is not enforceable bc it is not bargained for; but recognizes 3 narrow exceptions to the past consideration rule—in these three situations, a promise based on a past benefit is enforceable:

i. A promise to pay a debt barred by the statute limitations.ii. A promise by an adult to pay a debt incurred when the adult was under age.

iii. A promise to pay a debt that has been discharged by bankruptcy.b. Explanation / Reasoning:

i. Moral : in each of these cases there is a moral obligation to pay that serves as consideration for the later promise

ii. Legal : in each of these cases, the promisor has incurred a legal duty that is, for a time, unenforceable but becomes enforceable when the later promise is made.

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iii. a subsequent promise to pay where the promisor has received a material benefit. c. RS 2 § 82: corresponds to first exception under Traditional Moral Obligation Doctrine

i. A promise to pay a debt from a past contract is enforceable if the indebtedness is still enforceable or would be except for the effect of a statute of limitations.

ii. Following facts constitute such a promise:(1) a voluntary acknowledgment to the promise of the existence of the debt(2) a voluntary transfer of money to the promisee as interest on or part payment of

the debt(3) a statement to the promisee that the statute of limitations would nto be used as a

defensed. RS § 83: corresponds to third exception under moral obligation rule: an express promise to pay a

debt, discharged or dischargeable in bankruptcy proceedings begun before the promise is made, is binding.

e. RS § 85: corresponds to the age exception under moral obligation rule.f. Mills v Wyman (1825) (p152): D’s son fell ill while traveling and P took care of him at own

expense; D promised by letter to pay expenses.i. Holding: D is not obligated to pay P bc there was no consideration, and it was a

gratuitous promise since P had already taken care of son, so D got no benefit; and doesn’t fit into any exceptions of past consideration rule.

ii. Traditional Rule : there must have been some pre-existing obligation, which has become inoperative by positive law, to form a basis for an effective promise.

iii. Note: would have come out the same way even if decided under modern doctrine, bc person who received the benefit still wasn’t the person who made the promise

g. Rule : a moral obligation is sufficient consideration forh. RS 2 § 86: Modern Approach/Majority Rule – Question for modern law: whether the doctrine

should be expanded to create a more general basis for enforcing promises motivated by prior benefits. By making the promise, you’ve gotten a benefit and we know how you value it.

i. Essentially adds a new type of enforceable past consideration agreement while keeping the old types

ii. A promise made in recognition of a benefit (to person or property) previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. Exceptions:

(1) If the benefit was conferred as a gift or the promisor has not been unjustly enriched.

(2) To the extent that its value is disproportionate to the benefitiii. Critique: Though RS2 calls it unjust enrichment, Mel says it’s really about moral

obligations—when there is a “moral obligation to make a benefit”iv. Webb v McGowin (1936) (p158): P prevented D from getting injured, but was crippled

for life. D promised to pay him weekly sum for rest of his life. When D dies, his son stops payments.

(1) Holding : D’s promise is enforceable.(2) Rule : a moral obligation is sufficient consideration where the promisor has

received a materal benefit.(3) Different from last case: doesn’t fit into exceptions

IV. Policy:a. Proportionality: payment should be limited to an amount proportional to the benefit received.b. Court discretion: broad discretion advocated in this area to determine the nature of the benefit

conferred and the quality of the subsequent promise, and, thus, what must be done to achieve justice.

c. Concern of officious intermeddlers: people hwo go around distributing benefits to people hwo do not ask for them or want them, only in order to sue for those benefits. Not enforced because:

i. Benefited party may not have wanted the benefit.ii. Even if he did want it, we don’t know hwo they would have valued it.

iii. But: once benefited party accepts the benefit and promises to pay (thus assigning a value to it), then he must pay and it’s enforced.

V. What measure of damages are appropriate for unjust enrichment:

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a. Restitutionary damages: where a promise is enforceable only because of the benefit conferred and the moral obligation that grew out of it, then damages measured by the benefit conferred by the promisee upon the promisor.

b. Reflected in RS2 § 86(2)(b)

Chapter 1: Donative Promises (promises to make a gift)I. Simple Donative Promises : Promises made for affect (love, friendship, etc)

a. Rule: No enforcement of simple donative promises because there is no considerationi. Nominal consideration: not enough to enforceable (i.e. payment of 1 cent)

ii. Gifts do not involve mutual consideration therefore not enforceable Ks, but a deed of gift that says “I give you…” is enforceable.

iii. A promise to make a gift is not enforceable. iv. Law enforces completed gifts.

b. Exception: can’t sue to take back a completed gift.c. R2: § 17 Requirement of a Bargain; § 71 Requirement of Exchange; Types of Exchange; § 79

Adequacy of Consideration; Mutuality of Obligationi. Consideration can be in many forms (act, promise, etc) and can be to a third person.

There is no requirement that it be equal, but cannot be nominal. Must be bargained for. ii. Mels’ words to describe a bargain: “person has to think they are paying the price of what

they are getting.”d. Note: distinction between Conditional Donative Promises and a Bargain (consideration)

i. The Tramp hypo: if you tell a homeless dude if he goes around the corner you’ll give him a new suit, is that an enforceable promise? Depends if suit is a gift or it was bargained and walking around the corner could be consideration for the suit.

ii. If it’s just a conditional donative promise is not enforced.iii. The bargain would be enforced.iv. Williston (classical K): objective testv. Corbin (modern K): subjective test

e. Consideration: consists either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss of responsibility given, suffered, or undertaken by the other party. K is enforceable if both parties get benefit of their bargain.

i. Broad definition: collective term for the whole set of elements that make promises legally enforceable

ii. Narrow definition: the single element of bargain(1) R2 § 71: “To constitute consideration, a performance or return promise must be

bargained for.”(2) Comment b: “a mere pretense of bargain does not suffice, as where there is a

false recital of consid or where the purported consideration is merely nominal.”iii. Both definitions are used widely; depends on the jurisdiction

Conditional Donative Promise Bargain PromiseConcept Promisor intends to give a gift, but

promisee needs to fulfill a condition to receive the gift.

Promisor & promisee make a bargained-for exchange in which each party give sup something to receive something.

Example I’ll give you a watch if you come to my store and pick it up.

I’ll give you a watch if you mind my store for an hour.

Consideration None not binding. Yes binding enforceable.

f. Policy concerns:i. Evidentiary (sometimes it’s hard to figure out what really happened)

ii. Channeling (has to be a point in time and a thing that both ppl agree will be CD)iii. Cautionary (protecting ppl from making stupid promises)iv. Deterrent (unwillingness to enforce transaction types considered suspect or of marginal

value)

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g. Dougherty v Salt (p6): Aunt promised boy $3,000; she didn’t follow through. Issue: Enforceable promise?

i. Result : No.ii. Rule : Simple donative promise; not enforceable because no consideration

II. Form of Contracts : a. Traditional K theory, using a form got around consideration (form said something like “given for

adequate consideration”). Modern K law, form doesn’t always work.b. Nominal consideration: exists when K has form, but not substance of a bargain; promisor falsely

casts her promise in the form with the promisee in an attempt to make the promise enforceable, butt eh transaction lacks the consideration bc neither party views each promised performance as the price of the other.

i. General rule: nominal consideration does not count as consideration. ii. Evidence must show that promisor did not view what she got as the price of her promise.

iii. R1 allowed the form of consideration to create enforceability; modern K law does not.iv. Two exceptions: options and guarantees

(1) For option contracts, you DO NOT NEED even nominal consideration.(2) Option: offer accompanied by an enforceable promise to hold the offer open (3) In these areas, nominal consideration can make the K enforceable where the

nominal consideration was actually paid (but not where it was ‘merely recited’)(4) Note: caselaw is mixed—some courts will bend over backwards to find

consideration to make the option enforceable. (p18)c. Seals:

i. Classical Law Rule: even simple donative promises were enforceable if under sealii. Modern Law Rule:

(1) 2/3 of states have rescinded binding effect of the seal(2) Most of the rest still do not use the classical rule, but will recognize some

difference between sealed and unsealed documents a. The ones that do recognize it now tend to recognize many versions of a

seal (printed word “seal” tends to be enough; don’t need wax)iii. Note: UCC § 2-203: seals never apply to the sale of goods.iv. Schnell v Nell (p14): D’s wife left $200 to each P in will; she didn’t have any property of

her own to devise. D agreed to pay anyway. Then he doesn’t pay; they sue.(1) Issue : any of the following count as consideration?(1 cent; Love/affection for

wife; Wife’s desire for them to receive it; Seal)(2) Result : No. 1 cent is nominal (form only) and not sufficient. Love/affection is

moral only (not legal). State had repealed the binding nature of the seal.(3) Rule : nominal consideration is not sufficient consideration to make K

enforceable. A k will be vitiated for lack of consideration where the consideration given by one party is only nominal and intended to be so.

v. Implication: No longer any mechanism to provide certainty that a document will be enforced. Response to this:

(1) Most states now have statutes saying a written K is presumptively enforceable; (2) Some have made ALL written Ks enforceable(3) Some states say that anything in writing constitutes consideration (so can be

unenforceable for other things, but not lack of consideration)III. Reliance

a. Definition: a significant injury to the promisee; in particular, a cost that the promisee incurs in reliance on the promise `x` – i.e., you can recover reliance damages for relying on a donative promise.

b. Types of Reliance:i. Implied Contract: requires

(1) Proof of benefit to D.(2) That P expected D to pay for benefit.(3) And that D expected, or reasonable person should have expected, that he or she

would have to pay for that benefit.ii. Promissory Estoppel: (R2 § 90) aka RELIANCE!

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(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

a. § 90 was codification of what was happening in courts; showed shift beginning from trad’l principles of k law to more modern principles.

b. R2 came out in 1932—before that, common law did not enforce promises as Ks.

(2) If K is only enforceable bc of promissory estoppel, you can only get reliance damages; but sometimes we use expectation damages as a proxy when it’s too hard to figure out reliance damages.

iii. Equitable Estoppel a/k/a Estoppel in pais(1) Evidentiary rule that says if you relied on something that someone said as fact,

they can’t then say, in litigation, that it wasn’t true.(2) If A makes a statement to B and B relies on it, A cannot later deny the truth of

that statement.iv. Differences between Promissory and Equitable Estoppel:

(1) Impact::Promissory estoppel based on a promise, while equitable estoppels based on fact

(2) Impact: in equitable estoppel, the remedy is that the statement maker cannot retract his statement. In promissory estoppel, the reliance is treated as consideration (or a substitute for it).

v. There is more to reliance than these two rules, though they are the bulk of it. General rationale is moral: someone who leads another to rely upon a particular belief should not be allowed to go back on it if that would be unjust.

c. Kirksey v Kirskey (p24): P is a widow with children; D offered to house her and give her land to cultivate if she would move to live with him. She did. After two years he made her move into a small house w/no land. She sued for damages.

i. Issue: is her having moved enough to be consideration?ii. Result : No, it was ‘mere gratuity.’

(1) Note: this is an old case now overturned by R2/modern K law; today likely it would be consideration via reliance (she moved her family in reliance.)

d. Feinberg v Pfeiffer Co. (p29): Company agreed to pay employee $200/month after she retired for the rest of her life. Owner of co. changed and he stopped paying.

i. Issue: enforceable? Or simple donative promise?ii. Result : Enforceable bc she relied on the promise in her decision to not seek other work.

iii. Rule : adopted § 90; consideration via reliance.e. Hayes v Plantation Co.: (p ): D company offered to pay P pension so long as A was president. A

paid pension for years, then new pres wouldn’t pay. i. Result : pension viewed as gift by all parties, no specific am’t, more of an at-will

relationship, so P lost.ii. Note : promise was made after decision to retire, so there was no reliance.

f. D&G Stout v Bacardi Imports (p40): P decides not to sell itself to larger business based on promise from D that it would continue to act as P’s liquor distributor locally. Immediately following the decision, D backs out as distributor. P then sells out, but at much lower price bc of lack of distributor. Sues for damages.

i. Result : Yes, in theory; P showed injury due to reliance upon promise. Remand.(1) Reliance damages should be awarded, but opportunity cost is likely to be used

as a proxy. Based on promissory estoppel.(2) Note: damages considered reliance, but calculation used was based on

expectation (difference in profit lost by losing their bargaining position w/Nat’l)ii. Rule (from Mel, not the book): If you have an otherwise enforceable K w/o duration, the

courts will imply a reasonable duration

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Chapter 4: Non-Enforceable Agreements – Limits on KsI. Overview: limits to what we want the courts to enforce as Ks; we don’t want the court involved in certain

aspects of life. Controversy comes to where you decide to draw the line. a. Balfour v. Balfour (p163): some agreements that are not Ks and should not be enforced in law

i. Ex) agreements made between husband & wifeii. may be consideration or mutual promise nevertheless not Ks & not Ks bc parties did not intent

they should be attended by legal consequences.b. Explicit v Implicit Agreements:

i. Personal agreements are mostly implicit – it becomes understood or implicitly agreed that each party has a duty.

ii. An implicit agreement is a real agreement, but NOT a K.c. Implied v Implicit Agreements:

i. Implied Kii. Implicit agreement

II. Parenthooda. Key Issue : can you have parenthood by contract? b. TF v BL (p ) P & D are lesbian couple, P became pregnant- P & D split up

i. Result: while P established existence of implied agreement, “parenthood by K” not law of MA & agreement is unenforceable as against public policy

1. D no obligation of child support -Court not create obligation bc of equity ii. no specific promise to provide child support separate & apart from implied agreement to create

child.--- Any implied promise D made respecting child support is inextricably linked to her unenforceable promise to coparent child & is similarly unenforceable

iii. decision to become or not parent is personal right of delicate & intimate character direct enforcement by any process of court should never be attempted- Public Policy supports protecting freedom of personal choice in matters of marriage & family life

iv. absence of express agreement implied K may be inferred from1. (1) conduct of parties & 2. (2) relationship of parties

v. Implied K requires proof was benefit to D - P expected D to pay for & D expected or reasonable person should have expected have to pay for benefit

1. Duty to rescue- failure to object2. subjective intent irrelevant - objective acts manifest existence of agreement

vi. Authority to enforce lawful portion of otherwise illegal K depends on whether portion is severable form larger agreement

1. Where portion of K is separable enforceable portion would ordinarily confer delineated benefits & obligations on both sides.

vii. Dissent: D cannot held be parent by contract, but agreement includes promise to support child she& P agreed to create & parent together- successful promissory estoppel claim- relied on implied promise

viii. ALI’s Principles on Family Law:1. Recommended imposing parental support obligation on person may not be child’s

parent under state law but whose prior course of affirmative conduct equitable estoppels person from denying parental support obligation

c. CA Case: Elais B & Emily B were living together as partners- chose to have child- they separated & Emily sued for child supporti. Result: for Emily- Elisa had received children into her home & held them out as hers:

ii. UPA provides parentage of child not depend upon marital status of parentsiii. UPA contains separate provisions defining who is mother & who is fatheriv. Section 7610 provides patent & child relationship may be established

1. (a) - given birth or several circumstances man presumed father i.e. if receives child into home- holds out child as natural child

v. Expressly provides - determine existence - mother & child relationship provisions applicable to

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father & child applyd. R.R. v. M.H. (p426): Child - surrogate in exchanged for 10k agreed father - custody of child-

mother changed mind & father suedi. Polices underlying our adoption legislation suggest surrogate parenting agreement should be

given no effect if mother’s agreement was obtained prior to reasonable time after child’s birth or if her agreement was induced by payment of money.

ii. Analogous law- adoption- requires 4 days post birth consentiii. Result: mother’s purported consent to custody by agreement is ineffective bc no such consent

recounted unless given on or after 4th day following child’s birth.iv. Further eliminating payments of money only way assure no economic pressure to act

e. Surrogate Parenting Legislation i. 17 states have adopted legislation concerning surrogacy- they vary widely from prohibiting to

allowing w/ no paymentIII. Prohibition of Organ Purchase

a. Pg 185IV. Policy Issues

a. Key Issue : Are some things market- inalienable? – non salability- only transfer by gift vs. saleb. We don’t want courts getting into personal issuesc. K might not be appropriate form of ordering in all casesd. Commodification: some things not approrpriately dealt with in the market; not appropriate to

transfer by sale i. Some things you can’t transfer at all (i.e., right to vote)

ii. Somethings you can transfer by gift but not sale (i.e., kidney)iii. Degrades social system to make certain kind of things objects of sale, like bodily organs

e. Certain things rich people don’t sell to poor people—don’t want to encourage violencef. Some things are partially commodified.

INTERPRETING TERMS OF THE K

Chapter 15 – Parol Evidence Rule & Interpretation of Written KsI. Attack:

a. Is this an integration?b. Is it complete or partial?

i. If complete: is the parol agreement within the scope? ii. If partial, is it inconsistent?

II. Summary: TREND: allowing more & more evidence.a. Parol evidence is not allowed if:

i. Fully integrated K.ii. Evidence of an earlier written or oral or contemporaneous oral agreement is w/in scope of

K, andiii. Evidence attempts to vary, add, or contradict terms of K

b. Parol evidence may be admissible if:i. Offered to show lack of consideration, fraud, duress or mistake

ii. Offered to show condition precedentiii. Offered to explain or interpret terms of Kiv. Concerns a naturally omitted termv. Separate consideration was given for parol agreement

vi. Concerns a modification to the K III. Parol Evidence Rule (PER) (Note: ONLY applies if the final K is in writing!)

a. Before dealing with PER: i. PER only applies if the final K is in writing

ii. CISG has no parol evidence rule—allows courts to consider everything. (Dodge, p595)b. Issue: though an agreement is in writing, one party claims there was also an earlier oral or written

agreement, or a contemporaneous oral agreement, that was not included in the writing but was intended to be part of the K. Admissibility of alleged additional agreement turns on PER.

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c. When deciding that evidence of parol agreement is admissible, the court doesn’t decide whether or not the parol agreement was actually made; only that the evidence can go to the fact-finder.

d. Rule (RS 2 § 379): Parol evidence is NOT ALLOWED to vary, add to, or contradict a written K that constitutes a fully integrated agreement.

e. Policy behind parol evidence rule:i. Need for certainty in K law

ii. Distrust of juries—fear they’ll simply side with the underdog or make wrong decision.iii. Functions as a screening mechanismiv. “Reveals the essential imperfection of language, whether spoken or written” (Thayer)

IV. What constitutes an integration ? a. “Core of the ‘PER’” & is made by the court, not the jury. (Braucher, p593)b. Rule: If parties to the K intended the writing to be the final and complete expression of their

agreement—i.e., if the parties intended to integrate their agreement into the writing. Big dispute re: how to determine that intent.

c. Formal intent test: Traditional view associated with Williston/classical K law; but now the minority. Based on “form”— treats writing as integration if taken as a whole and on its face it appears to completely express parties’ agreement. Leads to broad application of PER, aka frequent exclusion of evidence.

d. Actual intent test: (RS 2 § 209)i. Modern view associated with Corbin/modern K law; tendency to follow this

ii. Based on “parties’ intent” – writing deemed to be integration only if the parties actually intended it to be an integration. Court will consider any relevant evidence to determine parties’ intent.

iii. Leads to narrow application of PER, thus more frequent admission of evidenceiv. Masterson v Sine (p595): Ps agreed to convey ranch to Ps, but reserved option to

purchase at K price plus depreciation value (i.e., for less money); D bankrupt, trustee sought to exercise option; P wanted to admit parol evidence of agreement to keep ranch in the Masterson family & not assign option to anyone else. Result: parol evidence admitted bc pertained to parties’ intent.

e. Note: court is more likely to find integration where parties have business experience & representation of counsel. (Hatley v Stafford, p593)

f. Merger clauses: provisions that state that the written K is an integration, or is the final, complete, and exclusive statement of all terms the parties agreed upon aka all prior agreements btn parties merge into one writing.

i. Maj Rule: Traditional view (Williston): presence of a merger clause means the writing is an integration, unless result of fraud, mistake, etc.

ii. Min Rule: Modern view: presence of a merger clause is not determinative; instead, it’s just one more piece of evidence of an integration.

(1) RS § 216: muddy law, unclear how much weight to give it.(2) Merger clause another indication of parties’ intent. (ARB v E-Systems, p603)

iii. Merger clauses for sale of goods / UCC: Seibel v Layne & Bowler, (p603): Merger clause provides little or no ev or parties’ intent; can be unconscionable to give weight to an inconspiciuous merger clause to exclude evidence of an express oral warranty.

g. Partial Integration: even where writing is not a complete integration, it may be “partial” in that it is an integration of the subjects actually covered in the writing.

i. Rule: partial integration is controlling (i.e., parol ev excluded) on the subjects it covers, but does not bar parol ev on subjects it does not cover)

V. What constitutes parol evidence?a. Parol agreement: if there is a writing that is an integration, evidence of an alleged earlier oral or

written agreement that is w/in the scope of the writing, or evidence of an alleged contemporaneous oral agreement that is w/in scope of the writing.

b. Will be excluded if it would add to, vary, or contradict the written agreement.c. PER does not apply to a later oral agreement that modifies an integration, but that later

agreement may be unenforceable for different reason (i.e., legal-duty rule; or if should have been in writing under SoF)

VI. Exceptions to PER : even if there is an integration, evidence MAY BE ADMISSIBLE IF:

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a. There is separate consideration for the parol agreement.b. Parol evidence is always admissible to show lack of consideration.

i. Ex) Writing says “in exchange for $15k” when really none was given; donative promise.c. The integration is the result of fraud, duress, mistake.

i. Promissory fraud : where promisor makes parol promise w/ present intent not to perform.(1) Sabo v Delman (p604)(2) If courts find promissory fraud exception applies, they can either: Rescind the

K. Award tort damages. Award K damages based on value of the promise.ii. Merger clauses : courts have gone both ways as to whether a merger clause can negate

this exception (can negate a fraud claim).d. Non-contradictory evidence to explain or interpret the terms of written integration:

i. PER does not apply to extrinsic ev of what the parties meant by the integration.ii. Cannot be in the form of prior agreements, but can be a discussion.

iii. Two approaches:(1) Plain meaning rule: (below)(2) Modern rule (allow more ev in)

e. If the parol agreement is of a condition precedent to the effectiveness of final K.i. As per usual blurry line btn condition & promise, criticism to this exception:

(1) Turns on form, rather than on substance.(2) Not so great in practice.

f. If the alleged parol agreement is collateral to (related to the subject matter but not part of the primary promise) the written integration and does not conflict with the integrated writing.

i. But: not so helpful, bc deciding if it’s “collateral” is conclusoryg. If the parol agreement contains a term that would naturally be omitted from the written

agreement. (RS 1 § 240, RS 2 § 216). A term is naturally omitted if:i. does not conflict with written agreement and

ii. concerns subject that similar situated parties would not ordinarily be expected to include in the written agreement.

h. Course of performance, course of dealing & course of usage are always allowed.VII. What constitutes a naturally omitted term ?

a. Traditional objective view (Williston): would a reasonable person have naturally omitted the term in question from the final writing?

i. Leads to broad application of PER & exclusion.ii. Mitchill v Lath (p584): land transfer with ugly icehouse across from property; parol

agreement where P agrees to remove icehouse soon induces D to buy it;(1) Result : parol evidence excluded, bc though parties intended parol agreement to

be binding, a reasonable person would not have naturally omitted such an important issue from the final K.

(2) Dissent : K for land conveyance wouldn’t have to be so broad as to inclue a parol agreement for an act on other property. Would admit.

b. Modern subjective view (Corbin): takes into account all of the circumstances of the individual case in determining whether the actual parties might naturally have omitted the parol agreement from the writing.

i. Leads to narrow application of PER & admission.ii. Masterson v Sine again—parties had parol agreement that option was only passable to

Masterson family, but wasn’t in the deed. Result: although abstract reasonable person would probably have included this in the K, court looked to individ circs, especially considering framework of a form deed, to show why sim sit’d parties might not have included it—admits it.

c. Note: trend is towards modern/Corbin view, but it’s still the judge, not the jury, deciding what similarly situated or actual parties might naturally have made the parol agreement.

d. For Sale of Goods: Rule (UCC § 2-202): even more liberal than R2—admits parole evidence unless matter covered in alleged parol agreement “certainly would have been included” in written agreement.

VIII. PER & Sale of Goods in General :

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a. UCC § 2-202: terms which are also otherwise set forth in writing in integration w/respect to such terms as are included therein may not be contradicted by evidence of any prior agreement, but may be explained or supplemented (b) by evidence of consistent add’l terms unless the court finds the writing was intended as complete & final agreement

i. As long as terms don’t contradict/are not inconsistent, & certainly would have been included, they’re allowed in.

ii. Much more liberal than regular PERiii. UCC = Corbin view; focus on intention of parties (Interform v Mitchell, p599)

IX. Inconsistent terms : Rule: Not part of “naturally omitted” test, so if it’s an integration, inconsistent terms will be excluded.

a. But, what’s “inconsistent” is ambiguous term; two views of meaning: i. Logically inconsistent terms:

ii. Reasonably harmonious termsb. Logically inconsistent terms: treats parol ev as inconsistent only if it logically contradicts the

integrated written agreement. Test: would writing be internally inconsistent if oral agreement included?

i. Hunt Foods v Doliner (p599): K to buy D’s stock in Eastern Can Co; purchased price included in written K, but other terms not. Alleged parol agreement to make option to buy conditional. Result: parol agreement admissible bc not inconsistent with integration—didn’t explicitly contradict or negate a term of the writing.

c. Reasonably harmonious terms: treats parol ev as inconsistent w/integrated written agreement if parol ev is not reasonably harmonious w/ writing.

i. If written K gives party a right of final approval of price under K, and an oral agreement limits that right of approval, excluded.

ii. Alaska Northern Dev v Alyeska Pipeline Service (p601)X. Interpretation of Written Ks :

a. Rule: PER does not exclude extrinsic evidence to show what the parties meant by words in their integrated written agreement.

b. Two step analysis, always:i. Is it ambiguous? (Old rule: look only at text) (Modern rule: look at text and all chapter 9

terms like course of performance, dealing, trade usage, etc)(Judge Q)ii. If ambiguous, then goes to jury to decide. (Apply rules from Chapter 9)

c. Rationale : this extrinsic ev explains what the parties meant, rather than varying/adding to/contradicting the written K.

d. Plain meaning rule: if there is no ambiguity in a written K on its face, and no special meaning attached to the words of a written K by custom or usage, the terms of the K are to be interpreted according to their plain meaning, and extrinsic evidence cannot be used either to interpret the K or to establish that the K is ambiguous.

- Can admit evidence if contract is ambiguous to show what K means- If court says a K is unambiguous, you cannot admit any evidence, even evidence to say

K is ambiguous

i. It appears plain & unambiguous on its face, its meaning must be determined from the four corners of the instrument.

(1) Based entirely on what a reasonable party would have done.(2) Criticism: if reasonable alternative is suggested, even if alien to judge’s own

linguistic experience, ev should be allowed. (Mellon Bank v Aetna, p614)ii. Note (Williston): a court may interpret a K contrary to both parties’ intentions,

which Mel says is a terrible, horrible, no good rule and parties’ mutual subjective intent should trump any plain meaning.

iii. Policy behind plain meaning rule:(1) Certainty (that later meaning will not be used to misconstrue clear term)(2) Fraud prevention (don’t let parites dissatisfied w/ agreement from creating

“myth as to the true agreement” thru subsequently exposed extrinsic ev

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iv. Plain Meaning Rule versus PER : (1) Differences:

i. Plain-mng rule of interpretation; PER is not.ii. Plain-mng rule allows all extrinsic ev – including all circumstances;

broader than ev of parol agreement.iii. Plain-mng rule can exclude ev of circumstances, PER does not.

(2) Similar: Both attempt to preserve integrity of writings & operate to exclude ev.(3) Note: in practice, courts apply PER to non-parol agreements, i.e., to interpretive

evidence like circumstances. v. Steuart v McChesney (p608): Ps trying to sell farmland; Ds had right of first refusal to

buy land at “market value of premises acc to assessment rolls maintained by County,” but County was 20 years behind on their assessment, so ended up paying $8k when Ps got offer for $30k and mkt value was $50k as assessed.

(1) Result : no extrinsic evidence of parties’ intent or County’s subpar assessment practices allowed because K was unambiguous.

e. Modern approach: trend to allow more extrinsic ev to show what parties’ intended meaning to be, instead of focusing on plain meaning.

i. Maj – Context Rule (RS 2 § 212) “a trial court may, in interpreting K language, consider surrounding circumstances leading to execution of the agreement, including the subject matter of the K as well as the consequent conduct of the parites, not for the prupose of contradicting what is in the agreement, but for the purpose of determining the parties’ intent.” (Taken from Berg v Hudesman, p623).

(1) Comment (b) – “meaning can almost never be plain except in context.’(2) Limit : process of “interpretation” cannot be used to contradict terms of the

written K, or PER will apply.(3) Note: Context rule is supposedly majority, but not all courts follow it.

ii. Note (Corbin): no K should ever be interpreted and enforced w/ a meaning that neither party gave it.

iii. PG&E v GW Thomas Drayage & Rigging (p615): D agrees to indemnify P against “any injury to property” during machinery repair. Issue whether “property” meant injury to prop of 3rd persons or only to P’s own property. Result: extrinsic evidence is admissible

(1) Rule : “No plain meaning w/o resort to extrinsic ev.”(2) Rationale : can never know meaning of K w/o at least considering extrinsic ev.(3) Criticized in in Trident Center v CT General Life Ins (p619): K for D to

finance bldg complex for P with terms for repayment; P wanted to refinance and sought to repay the loan early. Extrinsic evidence allowed, but court didn’t like rule bc thought K was completely obvious. New rule is: too uncertain & undermines legal system

iv. Allowed to consider previous negotiations in order to give meaning to the integration (Garden State Plaza v SS Kresge, p618)

f. Sale of goods : UCC approach (§ 2-202): NO plain meaning rule exists.i. “There is no longer an assumption that the parties intended a writing to be the complete

expression of their agreement. In fact, the assumption is to the contrary unless the court expressly finds that the parties inteded the K to be completely integrated.” (Amoco Production v Western Slope Gas, p614)

g. Note: Whether Interpretation of Written Ks is a Judge or Jury Q? (RS 2 § 212): i. General Rule: Judge Q—interpretation of written Ks is a question of law, even though

it’s a factual, not legal, decision. ii. Exception: Jury Q— where the court deems the agreement ambiguous, meaning turns

on extrinsic ev, and credibility of that ev is at issue, it turns into a jury W. iii. Policy : Fairness

XI. Trade Usage, Course of Performance, & Course of Dealing as Part of a Written K a. General Rule: extrinsic evidence is admissible to show any special meanings attached to words

used in written agreement deriving from course of performance, course of dealing, usage.i. Trend is to allow such evidence more frequently, even if contradicts implications in

writing (and sometimes if contradicts writing itself).

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ii. SEE chapter 9.iii. UCC § 2-201(3): explicitly provides that trade usage, course of perf & course of dealing

are part of the parties “agreement,” and, so, are not parol evidence.(1) Such evidence is always admissible, not only where the K is ambiguous; even a

‘complete’ (unambiguous or integrated) K may be explained or supplemented by evidence of trade usages. C-Thru Container Corp v Midland, p636)

Chapter 16 – Interpreting Contract Formulation in a Commercial Form-Contract Setting

I. Battle of the Forms Overview : Issue: there’s no K when it’s a transaction between two commercial parties. Instead there is: a. (1) Purchase order w/conditions and request for acknowledgement sent by buyer; b. (2) Sales order w/other conditions sent by seller. c. (3) Shipment, sometimes w/seller’s conditions re-printed on invoice. d. Note : often, the various forms will say that in case the terms don’t match (which they never do),

their version will control.II. Common Law rules for Battle of the Forms : mirror image rule (no K ever formed by exchange of

different forms) & last shot rule (acceptance by conduct, so whichever form was sent last controlled)a. These rules still apply for non-UCC cases! (note: electricity is not a sale of b. Note : battle of the forms can happen in other areas besides sale of goods, but will be governed by

mirror image & last shot rules. RS 2 has an obscure comment that suggests that the last shot rule might be ending, but unclear.

III. Modern Rules for Battle of the Forms : UCC § 2-207: Additional Terms in Acceptance or Confirmation: REVERSES the last shot rule.a. § 2-207(1) Definite and seasonable expression of acceptance OR a written confirmation sent

within a reasonable time is acceptance, even if it states terms additional to or different from those agreed upon, UNLESS acceptance is expressly made conditional on assent to the additional or different terms. That’s a § 207-1 K, governed by § 207-2.

i. Note: this is about all acceptance, not about battle of the forms alone.b. § 2-207(2) The additional terms in 2nd form are to be construed as proposals for addition to the K.

Between merchants, they become part of the K UNLESS the offer expressly limits acceptance to the terms of the offer, OR they materially alter it OR notification of objection to them has already been given or is given within a reasonable time after notice is given.

i. Note: this applies outside battle of the forms, too.ii. If they’re not both merchants, the add’l terms are proposals that may be accepted or not.

iii. Applies to confirmations even after offer & acceptance.c. How to treat DIFFERENT (i.e., same topic) terms:

i. Knock Out Rule (Majority): § 207-2 only governs additional terms in the last form; if the form instead has different terms that conflict with the first form, the different terms are knocked out from BOTH forms & UCC gap fillers are used instead.

1. Note : court-created rule to made 207(2) do what it’s supposed to do.2. Note : in at least one case judge has found conflicting terms and applied

knockout rule even when “term” that conflicted was just implied in k.3. Note : this does apply to non-merchants.4. Gardner Zemke v Dunham Bush: buyer sends order including 1 yr warranty.

Seller sends acknowledgment w/warranty DISclaimers. No discussion of diffs. Delivery occurs & something breaks. Result: there IS a K under 2-207(1) bc the dickered terms match. Knockout rule strikes the differing terms as to the warranty, UCC warranty terms apply.

ii. Minority Rule 1: diff terms treated as additional rules (i.e., gov’d by § 207-2)iii. Minority Rule 2: diff terms in the acceptance always drop out. (both from Gardner)

d. When K is formed by conduct alone, § 207-1 does not apply. Then, terms of K will only be those that match plus UCC fillers. That’s a § 207-3 K. (so: ONLY go to 207-3 if 207-1 does not apply.)

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i. Diamond Fruit Growers v Krack Corp: sale of pipe to buyer who resells to final user. Pipe cracks. Final user sues buyer, who sues seller. Original doc included a conditional assent clause (“acceptance made conditional to purchaser’s acceptance of terms”).

1. Result : express conditional assent clause takes it out of 207(2) into 207(3). Conduct of the parties created a K under 207(3). K includes all dickered terms + UCC gap fillers.

e. What counts as definite & seasonable acceptance?i. IF forms involved: if dickered terms match, return form is definite/seasonable.

ii. IF no forms: even small difference in offer & acceptance can keep it from being def/seas, if parties were negotiating about that difference. (Koehring; Col. Hyundai)(p643)

f. Expressly conditional : i. Test 1: offeree shows unwillingness to proceed w/transaction unless he is assured of

offeror’s assent to add’l or diff term.ii. Test 2: not expressly conditional unless tracks almost exactly with the “expressly made

conditional on assent” language in the section. g. Materially alter : if added term would result in surprise or hardship. (Mel says bad rule.)

Examples: clause materially shortening time for complaints to be made. Clause negating warranty of merchantability or fitness for a particular purpose.

h. Policy :i. Offeror has more control bc any of his terms stay in unless they’re directly conflicted, so

it’s the 2nd forms that have to pass the ‘materially alter’ step.ii. Court is trying to let K stand, enforcing parties’ intentions.

IV. Rolling Contracts : (i.e., the SHRINKWRAP cases)a. Rolling K Definition: K in which some of the terms are set after the original purchase. Offer,

acceptance, & potential revocation might take place at three separate times (i.e., purchase something and the warranty terms are printed inside the box).

b. Issue: what constitutes offer & acceptance in these situations, and if K is formed, what are its terms / how much can be added after acceptance?

c. UCC § 2-204: Formation – K for goods forms in any manner sufficient to show agreement, including conduct. K may be found even though the moment of its making is undetermined. There’s no failure for indefiniteness as long as parties intended to make K & there’s a reasonably certain basis for giving a certain remedy.

d. UCC § 2-206: unless otherwise unambiguously indicated by language or circs: i. An offer to make a K shall be construed as inviting acceptance in any manner & by any

medium reasonable;ii. An order or other offer to buy goods shall be construed as an offer (inviting acceptance

either by prompt promise to ship or prompt shipment). iii. Where beginning of requested performance is a reasonable mode of acceptance, an

offeror who is not notified of acceptance w/in a reasonable time may treat the offer as having lapsed.

e. Exceptions: disclaimer of implied warranty of merchantibility (§ 2-316), promises to make firm offers to legal oral modifications must be separately signed §§ (2-205, 2-209).

f. ProCD v Zeidenberg: purchase of software is governed by the terms on the inside of the box and the terms pop up on your computer when you use the software—even tho those terms are never conveyed before purchase. (Mel says 2-207 still applies—offer = sale at store; acceptance = buying it; add’l terms = shrink-wrap license; use = acceptance of terms.)

i. Shrinkwrap or “end user” license: written license enclosed in box of software. Name comes from fact that retail software packages covered in plastic/cellophane shrinkwrap & terms become effective upon opening & are enforceable so long as buyer has opportunity to return (i.e., reject the terms). Same thing in Hill v Gateway.

g. Use of a product is agreement to terms after having opportunity to inspect. i. Register.com v Verio: buyer/user agreed to K by cont’d use of registration info after it

knew of terms offered by seller (despite fact that terms never given until after use)ii. But: Chatueau Des Charmes Win v Sabate: acceptance or delivery was not acceptance

of terms bc K had already been agreed upon (gov’d by CISG).

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h. Failure to read terms does not make them unenforceable, but terms must be reasonable conspicuous. In Specht v Netscape Comm’s: temrs that appeared below “Download” button on website and which did not pop up for every use were NOT enforceable.

Chapter 17 – Interpretation & Unconscionability in a Form-Contract SettingI. Overview: traces back to common law, but modern form of doctrine introduced by UCC § 2-302.

a. Rule: to reform a K of insurance or other written K in the absence of fraud on the part of the defendant, it must appear that the minds of the parties to said K have met, and that a mutual mistake of the k’ing parties has been made in writing out the K, so that the parties appear to have entered into a K which they have not entered into.

i. “Reform” a K: change the K to what it was “supposed to be,” which requires judgment by court that there was some mutual mistake.

ii. Sardo v Fidelity & Deposit Co: P tried to get policy to cover jewelry he sold at his store, but D only gave him policy for “$ & securities.” Result: P’s misunderstanding that this covered the jewelry was NOT a mutual mistake & therefore no reformation of K allowed.

II. Unconscionability: [in this context, often has to do with BOILERPLATE terms in insurance Ks.]a. Old Rule: duty to read. (none past 1926)b. New Rule: if adhesion K is involved, parties only bound by those provisions that are NOT

unfairly surprising. i. The more one-sided the provision in question, the more likely court will be to require that

weaker party had actual knowledge of it. ii. Burden shifts to the K-enforcer to prove that unusual or unconscionable clauses –

especially exculpatory & indemnity clauses – were signed willingly / knowingly.c. Llewellyn Approach: Assume that what has been assented to is dickered terms & reasonable

terms; but fine print should not change the meaning of those terms; basically treat them as 2 separate Ks (a dickered deal + supplementary boiler-plate deal) (Darner)

d. Procedural Uncons in form K setting: person didn’t read the K; nobody pointed out the clause to him; inequality of bargaining power. Told not to consult lawyer. K presented as “take it or leave it.” Clause written in fine print. – Unfair Surprise.

e. Weaver v American Oil Co: case where guy without HS or college degree leased a gas station. Lease had strict indemnity clause. Result: clause was unconscionable in both procedural (oppression) and in terms. Parol evidence rule overruled by inequity in the context of form Ks.

III. Reasonable Expectations Principle – a. Classical K law: attempt to realize “reasonable expectations” that have been induced by promise.b. Modern Rule – RS 2 § 211: except as stated in (3), if party signs a form K, he’s held to his terms

i. Knowledge or understanding of the terms are irrelevantii. Where the other party has reason to believe that the party assenting would NOT do

so if he knew that the writing contained a particular term, that term is not part of the agreement. (Looks a lot like principles of k interpretation.)

iii. Comment f: customers are NOT bound to terms which are beyond the range of reasonable expectation. Insurer has reason to belive customer would NOT have accepted K if: a term is bizarre or oppressive, eviscerates dickered terms, or eliminates dominant purpose of transaction.

c. Darner Motors v Universal Underwriters: P driver dealing with D insurance company. SJ for D inappropriate bc court can relieve customer from terms he did not negotiate, probably did not read, and probably would not have understood anyway.

d. Gordinier v Aetna Casualty: went even further – court would not enforce Unambiguous boilerplate terms in insurance Ks where terms would not be understood by a reasonably intelligent consumer, where insured did not receive full & adequate notice of unexpected term; conduct of insurer created objective impression & subjective belief of coverage.

DO ANY THIRD PARTIES HAVE RIGHTS?

Chapter 20 – Third Party Beneficiaries

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I. Context : a. If the K provides for performance to be rendered to someone or to benefit someone who is not a

party to the K (who did not give consideration), third party beneficiary. Questions to ask to decide if you can enforce the K:

i. Classify 3rd party as incidental or intended (or, under older terminology, as incidental, donee, or creditor beneficiary)

ii. Consider whether any defenses may be available to promisoriii. If the parties have attempted to modify k, determine whether the 3rd party still has rights

b. Original common law rule: promise unenforceable by third party beneficiary – in order to maintain an action on a k, person must have given consideration to and be party to the K. 3pb could not enforce a k or sue on it.

c. History of change: around time Lawrence v Fox was decided (1859), classical K law set in, which was against 3pb having enforceable rights since it was based on pure doctrine, not morals. After Lawrence, the only exceptions (i.e., cases were 3pbs could recover) were: creditor beneficiaries, when 3pb is in a close relationship with promisee so there’s an identity of interest, or those who have a moral connection to the beneficiary.

d. Modern law: 3pb can sue & recover in appropriate cases (see rules below)e. Note: allowing 3pbs to sue does not enlarge the promisor’s duty – he never has to pay twice; he

eihter pays promisee OR third party.II. Modern Test : third party must be donee beneficiary or creditor beneificiary (RS 1)

a. Under RS 1 § 133, 3 types of beneficiaries & only creditor & donee can sue (NOT incidentals):i. Creditor beneficiary can sue: if promisee’s primary intent was to discharge an

obligation he owed to a third party. (“performance of the promise will satisfy an actual or supposed or asserted duty of the promisee to the beneficiary”).

1. Lawrence v Fox (1859): Holly gives D 1-day loan; said D needed to pay P the next day; D didn’t; P sued D to recover it; could have sued Holly, too. Note: may have sued D bc Holly was outside of the jurisdiction. Dissent wanted to see NO enforceable rights for third party beneficiaries.

2. Policy : justified bc prevents unjust enrichment of the promisor & prevents excessive litigation (rather than 3pm suing promisee, who then sues promisor).

3. Note : the obligation does not have to be real – as long as the promisee believed she owed the obligation it is enough.

ii. True donee beneficiary can sue: two types, & either can enforce the K:1. Intent to confer a gift: Seaver v Ransom (1918): Ms. Beman dying, wants to

leave house to niece; husband didn’t write her a new will bc she was going to die, & current will didn’t provide for neice, so husband agreed to provide for niece. He didn’t. Niece sued. Result: she can enforce the k out of equity / fairness.

2. Policy : it’s unlikely that anyone else would be able to represent P’s interests. 3. Intent to confer a right to performance: (something other than a gift; example

is an insurance policy where dealer Ks w/ insurance company, and buyer is 3pb)iii. Incidental beneficiary cannot sue: all other third parties to a k cannot sue.

b. Under RS 2, there are two types of beneficiaries but it’s basically the same exact test because one of the categories captures two of RS 1’s categories:

i. Intended beneficiary (creditor & donee)ii. Incidental beneficiary

iii. What’s the difference between intended & incidental? In order to sue as 3pb, P must be a beneficiary whose interests were protected by the K.

1. Scarpitti v Weborg: P homeowner sued D architect, who had K w/developing company. P suing bc D enforced zoning procedures arbitrarily (didn’t allow P to have 3-car garage, but allows others.) Result was that P could sue—especially bc it would be the only way to allow suit on this. (Development co had no dmgs)

c. Other types of Recurring Cases:i. Would-Be Legatee: Where Client retains Atty to Draw a Will to Benefit a 3rd Party:

1. Majority Rule: third party has a right against atty as an intended 3pb of the K between the client (promisee) and the atty (promisor)

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2. Policy : makes sense bc otherwise there’s no one to sue / make sure K fulfilled.3. Hale v Groce (1987): D lawyer drafts client’s will; didn’t include clause that

decedent had asked, which would have given benefit to third party. Result: Third party is allowed to bring suit for policy reasons AND under K law as intended beneficiary AND can bring suit anyway under tort for negligence.

ii. Recurrent Case: Bringing suit as 3rd party to a gov’t K meant to benefit the public:1. General Rule: a member of the public who would benefit from a promise to

render performance to gov’t is not deemed an intended beneficiary & cannot bring suit, even if performance was to be rendered directly to that person. Exceptions:

a. RS 1: where the K manifests intent to have promisor compensate members of the public for any breach.

b. RS 2 § 313: where the K terms provide for liability to members of the public; where policy suggests they should be able to sue.

c. Note: Mel says this is a silly rule and we’d be better off with a straight case-by-case analysis rule. It’s often hard to see whether the K falls into the general rule or an exception, anyway.

2. Questions to ask:a. Would allowing enforcement result in limitless liability?b. Is there another way to enforce the K other than the third party?

3. Martinez v Socoma: D contracted w/gov’t to provide jobs; all Ds failed to perform under Ks—Ps were people in the community meant to receive jobs. Purpose of the K was an overriding public policy goal to deal with unemployment in certain underprivileged communities. Liquidated damages clause limited damages gov’t could recover. Result: Ps cannot sue as 3pbs bc they were NOT donee or creditor beneficiaries & allowing suit is NOT necessary means of enforcing K, since liq dmgs clause existed & there was a prescribed course of administrative procedure action for dispute.

4. Moch v Renssalaer: promisor agreed to provide service at fire hydrants, did not. As a result, P’s property was destroyed by fire bc insufficient water pressure. Result: P could not sue bc was not intended beneficiary & allowing this 1 P to sue could raise potential for limitless liability. (Note: had negligence claim).

5. Zigas v Superior Court: P tenants in build insured by HUD thru K w/landlord, which stipulated ceiling rent; landlord breached K by charging higher rent. Result: Ps can sue. Limited class; no other way to enforce (gov’t had no dmgs).

6. Policy in favor of allowing enforcement : these people ehave clearly been singled out as deserving or in need of the gov’t benefit.

7. Policy against enforcement : could result in limitless liability; no utility companies would ever enter Ks with gov’t.

iii. Singular cases decided on case-by-case basis (like Scarpitti, above).d. Mel’s Rule : Looking at the third party beneficiary doctrine as REMEDIAL: 3pb should have

power to enforce a K only if allowing him to enforce it is a necessary & important means of effectuating the contracting parties’ performance objectives as manifested in the K & circumstances; OR is supported by reasons of policy or morality independent of K law (i.e., fairness) & would not conflict with parties’ intent.

1. Aka, focus shouldn’t be on 3pb’s rights so much as the interests of the parties2. Note: “performance objectives” = objectives of the enterprise embodied in the K

read in light of surrounding circumstances, that the promisor either knew or should have known at time K was made.

ii. Against allowing Third Parties to Sue:1. Enforcing bargains is supposed to enhance wealth of parties by creating value

thru exchange & allowing parties to make reliable plans; allowing third parties to sue breaks the reliability & wealth-creation of a K.

iii. In favor of allowing Third Parties to Sue: 1. It’s not about giving third parties a benefit, but making sure the K is effectuated

according to parties’ intent. Looks at the doctrine as remedial, not substantive.

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III. Defenses that can be Asserted by Promisor Against Beneficiary : a. General Rule: Promisor can assert against 3pb any defense that:

i. The promisor could have asserted against the promisee. (Recognized, RS § 309)1. i.e.., that the initial promise was fraudulent / void.

ii. The promisee could have asserted against the beneficiary. (Okay for creditor cases)1. i.e., any defense the seller has against the credito. Rouse & § 309(3) reject it.

b. Note: this usually only arises in a creditor beneficiary context, bc only in that context would there be a claim against the promisee prior to the K at issue.

i. Problem of interpretation: if the promisor’s promise is interpreted as a promise to pay whatever liability that the promisee was under to the beneficiary, then the promisor could raise any defense the promisee could raise. If, however, the promisro’s promise is interpreted as a promise to pay a given amount of money to the beneficiary, promisor cannot raise defense. (Usually says they cannot raise the defense & allow suit.)

1. Rouse v U.S.: woman had promissory note w/monthly installment for heater; sold house to new guy and he agreed to assume payment obligation to heater of $850. She stopped paying bc she thought buyer paid.

a. Rule : Buyer makes promise to buy promisee’s debt. Creditor is 3pb. b. Rule : 2nd defense is that contractor installed the heater incorrectly. This

turns on how the K is written. Some jurisdictions say he could make that claim if he’d assumed the whole liability, but not here, bc here he only agreed to pay $850/mo – not to assume all liability.

2. RS 2 § 309(3) is even narrower: the right of the creditor is not subject to the promisee’s claims of defenses against the beneficiary.

3. Mel likes the Rule and wants him promisor to be able to assert claims against beneficiary.

IV. Termination or Modification of Third-Party Beneficiary’s Rights : a. General Rule: a modification between promisor & promisee is effective against third party

beneficiary UNLESS beneficiary brings suit or relies on it. i. RS 2 § 311 / Majority View: rights of any intended beneficiary vest only when

beneficiary (i) manifests assent to promise; (ii) brings suit to enforce the promise; or (iii) materially changes position in reliance on the promise.

1. Note: this § treats modification differently from other defenses.ii. Copeland v Beard: Beard sold property to T. T, in return, gave her promise to pay

(instead of just paying in cash). T sells property to Copeland, who agrees to discharge T’s debt by paying it himself. Copeland sells to another party, who agrees to release Copeland from the debt & pay the obligation. Beard suing Copeland even though Copeland says he was released from the debt by his subvendee.

1. Result : third party subject to defense of modification or rescission – aka Beard cannot sue Copeland unless she’s relied or already filed suit.

2. Rule : No duty to inform the third party that you modified the K, but if you don’t inform him and he relies on it, then he’s not going to be subject to the defense—so its in the party’s interest to inform him.

3. Court says can elect to sue either party, and by suing one you don’t release your right to sue the other. (Not all courts follow that rule).

b. Mel: this is an unnecessary wrinkle to the Rouse rule.

MISTAKE & UNEXPECTED CIRCUMSTANCES

Chapter 18 – MistakeI. Overview:

a. Before you go on: beware the Mel disagrees w/ RS 2’s treatment of mistake bc it tries to unify unilateral mistakes & mutual mistakes.

b. Mistake: a belief that is not in accord w/the facts; an erroneous belief. Does not have to be articulated; could be a presumption made by one party about a particular fact. The erroneous belief

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must relate to the facts as they exist at the time of the making of the K. An erroneous belief as to the contents or effect of a writing that expresses the agreement is a mistake, but a party’s mistaken prediction or judgment about what will happen in the future is not a mistake. (RS 2 § 151).

c. Options to deal with Mistakes: i. Rescission: a party's unilateral unmaking of a K for a legally sufficient reason, such as

the other party's material breach, or a judgment rescinding the contract; Rescission is generally available as a remedy or defense for a non-defaulting party and is accompanied by restitution of any partial performance, thus restoring the parties to their precontractual positions. — Also termed avoidance.

ii. Reformation—An equitable remedy by which a court will modify a written agreement to reflect the actual intent of the parties, usu. to correct fraud or mutual mistake in the writing, such as an incomplete property description in a deed.

d. Recognized types of Mistakes that Give Rise to Relief:i. Misunderstanding (Cpt 9)(diff beliefs as to an ambiguous term—Peerless)

ii. Unilateral Mistakes / Mechanical Errorsiii. Transcription Errorsiv. Mutual Mistake / Shared Mistaken Assumptionsv. Nondisclosure

e. General Rule: i. RS 2 § 153: Mistake of One Party Makes a K Voidable When:

1. Mistake is about a basic assumption on which the K is made.2. Mistake’s effect on enforcement would be unconscionable (even if at the time of

K formation it was entirely conscionable), or3. Other party had reason to know of mistake or his fault caused the mistake.

ii. RS 2 § 154: Party Bears the Risk of a Mistake when:1. Risk is allocated to him.2. He’s aware he has limited knowledge but goes ahead w/K anyway.3. Risk is allocated to him bc it’s reasonable to do.

f. Mistakes for which there is NO relief: Evaluative Mistakes, which include simply making a bad decision (had the info at the time, but hindsight shows it was a bad deal).

i. Can’t allow everyone to recover for these bc they are central to K formulation – 2 parties place diff values on their decisions. Likely that 1 is right and 1 is wrong. Can’t turn around every time and compensate the party that got a bad deal.

ii. Illustrations of RS 2 § 551 show there is a very thin line between evaluative mistake & mechanical mistake.

g. Mel’s view: Mel believes the Restatement really messes up these rules!h. Burden of proof always falls on party claiming mistake.

II. Who bears the risk of a mistake: court determines based on what is reasonable under the circumstances, drawing on any extrinsic source to see who should bear the risk of mistake:a. Note: this applies to unexpected circumstances, too.

i. General rule (RS 2 § 154): risk that the assumption is wrong is not on the adversely affected party, unless they’ve stated otherwise.

ii. Palpable Mistake / Patent defect: defect is obvious, so party seeking rescission was on notice, so rescission-seeker bears the risk of mistake.

iii. Latent defect: non-obvious defect, so either party should bear risk.iv. Express provisions of agreements can place the risk thru express provisions.v. Custom in trade or industry may dictate who usually bears the risk of mistake.

b. Mel’s Preferred Test to determine allocation of risk: i. See whether party is seeking the upside risk, too (i.e., option value). If he is, he also bears

the risk for the loss.ii. Test:

1. Is the price above market? If so, he’s paying for the upside risk.2. Does the adversely affected party know the other is motivated by the risk?

(Sherwood)III. Unilateral Mistakes (which Mel prefers to call Transient Mechanical Errors)

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a. Definition: transient errors unilaterally made & occurring before K formation. Mel says these are cases where party has a good reason not to perform. Example: writing 65 when you mean 56.

b. 3 types of unilateral mistakes, & enforcement (or not) has to do with fairness & fault principles:i. Palpable (enforced under old & emerging rule)

ii. Impalpable (enforced under old rule if mistake-maker at fault; not always enforced under emerging rule)

iii. Immaterial (no relief bc it don’t matta)c. Palpable Mistake (old terminology) aka RS 2 § 153b: where non-mistaken party knew or had

reason to know of mistake. i. Old & New Rule: palpable tangible mistake provided relief aka K not enforced.

1. Exception: unless there was reliance on the mistake such that it would be unfair not to enforce the K.

2. RS 2 § 153 b: Non-mistaken party bears of risk of mistake IF had actual knowledge of mistake or failed to inquire. Non-mistake party had duty to inquire bc the mistake was so egregious that he was on inquiry notice.

ii. Example: seller can rescind K where he misquotes price & buyer knows the price is misquoted.

iii. No Damages for the non-mistaken party because he should have figured it out.iv. Policy: shouldn’t be excused because that would be morally unfair to take advantage of a

mechanical mistake.d. Impalpable Mistake (old terminology) aka RS 2 § 153a: where non-mistaken party has NO

reason to know of mistake.i. Old Rule (RS 1): K enforced where mistake maker is at fault.

ii. Emerging Rule (RS 2): allow some or total relief (i.e., do NOT enforce K) if mistaken party can show:

1. Mistake as to a basic assumption of the K.2. Mistake had a material adverse effect.3. The risk was allocated to the non-mistaken party.4. Enforcement would be unconscionable.

iii. Determining who bears the risk of mistake: 1. If mistake results form neglect of legal duty, mistaken party bears risk. (must be

more than ordinary negligence; mathematical mistake is insufficient, mere failure to exercise due care is insufficient).

2. Mistaken party has burden to prove his own good faith & fair dealing.3. Ordinarily, consumer will bear risk of a good faith mistake, like a price quote.

iv. Damages: 1. Trad’l Rule: non-mistaken party entitled to expectation damages.2. Modern Rule: limit to reliance damages or even to allow rescission (non-

enforcement of K) if the mistaken party notifies the non-mistaken party before they change their position (that’s where starting performance becomes important).

v. Policy for allowing relief under New Rule: 1. Efficiency: trad’l rule would lead to too much checking for errors, which would

be an over-investment of parties’ resources.2. Problems in Valuing: people are risk averse and tend to overvalue a loss

compared to a gain; at the same time, the endowment effect causes people to value what they have higher than what others would be willing to pay.

3. Fairness: even though K might have been conscionable when made, if the effect of enforcement would result in unfairness / be unconscionable, should not be enforced.

e. Immaterial Mistake: mistake is immaterial, makes no difference, so provides NO basis for relief under RS 2 § 153 (and did not provide a basis for relief under the old rule, either).

f. Application of these rules shows that RS2’s division is somewhat spurious, but:i. Donovan v Rrl (p661): dealer places ad in newspaper for Jaguar; due to paper’s oversight

error, wrong price is listed. P sees ad & tries to buy at advertised price. Neither knew of the mistake.

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1. Result : although P’s acceptance of advertised (offered) price forms a K, dealer entitled to rescind due to mistake bc wasn’t his fault. P entitled to reliance dmgs (gas $). 32% price loss to dealer would have been unconscionable to enforce the K. Court found risk was not allocatd to dealer.

2. Reflects the New Rule: allowing rescission / relief for impalpable mistake when enforcement would be unconscionable.

3. Note: Mel says this could also be deemed a palpable mistake on P’s behalf, since he was a well-informed consumer of Jags and probably knew it was the wrong price.

ii. Speckel v Perkins (p725): during negotiations, D’s lawyer says “policy limit listed at $50k. I cannot agree to settle at that limit. I can offer you $50k.” Meant $15k. P accepts.

1. Result : This was an obvious mistake, so D had reason to know of mistake on P’s behalf, but did not inquire.

2. Rule : K not enforced for palpable mistake when non-mistaken party ignores duty to inquire.

iii. Nolan Ryan Baseball Card Case: mismarked price on baseball card; kid-collector asks temp sales clerk if it’s “$12” when marked “1200.” Case settled, but two ways to view it:

1. Palpable mistake – buyer should have known price wasn’t right; duty to inquire.2. Impalpable mistake – both parties not at fault but K rescinded anyway.

IV. Mistakes in Transcription; Reformation.a. Transcription Mistake : parties have reached an agreement, but when putting it in writing make a

mistake as to a term of the K.i. Different from unilateral mistake / mechanical error bc claiming party agrees there is a K,

but wants to enforce a different one.b. Reformation : equitable remedy; goes before a judge, not a jury; requires proof at least by clear &

convincing evidence, which is higher than the usual civil standard.c. Rule (RS 2 § 155): Where a writing that evidences or embodies a prior agreement in whole or in

part fails to express the agreement because of a mistake of both parties as to a material element of the writing, the court may at the request of a party reform the writing to express the agreement, except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected.

d. Burden of proof on party seeking reformation.e. Damages: non-mistaken party may be entitled to reliance dmgs where reliance is justified, but

justified reliance is hard to show bc that party was present at negotiations and probably should have realized the mistake.

f. Policy : i. Against reformation: conflicts w/SoR & PER, but neither can be used to bar evidence of

mistaken transcription (mistake exception to PER). Fear of false claims of people just trying to change the terms of the K after the fact when they get a bad deal.

ii. Pro reformation: appropriate limits to prevent false claims about K terms:1. Substantive limits (cannot ask for reformation when parties purposely Ked based

on uncertain or contingent events)2. Procedural (high burden of proof; presumption that written K is correct)

g. Travelers Ins. Co v Bailey (1964): Insurance co made mistake in writing, but neither party had the writing until 30 years after K formation. Both parties thought they had the policy initially bargained for, & D had been paying premiums according to oral agreement. P showed that they never offered the type of policy that was in the written document.

i. Result : Court granted reformation of written doc to reflect what the parties originally bargained for.

V. Mutual Mistakes (Shared Mistaken Assumptions):a. Definition: mistaken factual assumption about the present state of the world outside the mind of

the actor who holds the assumptionb. How to analyze: the important aspect of the mistake is its character, NOT the fact that it was

shared. Start by looking at shared assumptions explicit in the K:i. Language of intention, assumption, expectation, understanding.

ii. Then look to tacit assumptions.

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c. Rule (RS 2 § 152) – Mutual Mistake Voids the K: whenever it is a mistake of both parties at the time K was made to a basic assumption of the K which has material effect on exchanged performances.

i. K is voidable by the adversely affected party, unless he bears the risk of the mistake under RS 2 § 154.

ii. What is a material effect is a fact-specific inquiry.iii. What is a basic assumption:

1. Must be something that materially effects performance.2. May include tacit assumptions about outside world, but not market conditions,

financial situation of parties, evaluative mistakes.3. Mel’s test: if there appears to be an implied assumption, which had it been made

explicit, would have acted as a condition to avoid the obligation, then it’s a basic assumption.

iv. What does both parties mean: both must make mistake as to the same assumption, but they do not have to have the same exact view. But, if they made a mistake based on different assumption, RS 2 § 153 governs.

d. Mutual Mistake is only a remedy for an adversely affected party. Sometimes, there’s no real adverse effect (no out of pocket loss for P), though: just a windfall for the D.

i. Law treats windfall cases the same way bc of people’s loss aversion.ii. Possible Rules for Windfall Cases : (all of which Mel think blow)

1. Seller always wins (bad bc infinite regression problem with multiple sellers and chain of title)

2. Buyer always wins (seems unfair)3. Split the windfall (similar infinite regression issue)4. Windfall goes to whoever is in possession at time of discovery (normally

means buyer wins; probably best bc party in possession did something of value which result in discovery of the windfall)

iii. Consider role of windfall in cases below.e. Application:

i. Griffith v Brymer (p739): P rented room for viewing of coronation procession; cancelled. K was made after cancellation, but neither party was aware. P sues to get money back.

1. Result : no K bc of mutual mistake (mutual assumption that the coronation was on when it wasn’t; performance was materially altered).

2. Note: the K was based on the tacit assumption that the procession would be on.3. Note: they may also be entitled to relief under unexpected circumstances /

impracticability. P gets to choose which he wants to pursue. ii. Lenawee Co Bd of Health v Messerly (p743): Ds buy house w/defective septic system,

which they discovered after the purchase. County condemns the property. Cost of fixing means the property has negative value.

1. Result : NO rescission. There was a mutual mistake that the property could be used as a rental property, & normally with a latent defect P would have the right to rescind, but here there was an “as-is” clasue that expressly provided that the risk was allocated to buyer.

iii. Sherwood v Walker (p733): K for cow sale; buyer thought was getting a barren cow, but ended up buying a pregnant one (which would have been worth a lot more).

1. Result : mutual mistake in that both parties thought cow was barren. 2. Note : this case was abandoned the next year in Nester. 3. Reasons Mel thinks this case is wrong: all they Ked was that cow was probably

barren, so there was no mistake. Plus, risk of mistake was allocated to buyer, since he took upside risk of buying a cow (that she’d be w/calf). (Windfall!)

iv. Everett v Estate of Sumstad (p742): Mitchells bought lockbox at auction for $50; took safe to locksmith and found $32k inside.

1. Result : found for Mitchells – bc reasonable persons would have known K included contents of the safe. They paid for the risk, both upside ($ inside!) and downside (none). (Windfall!)

f. Mere Evaluative Mistakes (NOT shared mutuals):

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i. Wood v Boynton: small stone that turned out to be raw diamond. Seller cannot sue for mutual mistake to get it back.

ii. Firestone v Union League of Phila.: sale of painting that turned out not to be made by artist they both thought had made it. Result: no mistake of fact; people in the art world often make subjective determinations of artist.

VI. Duty to Disclosea. Traditional (Common Law) Rule: no duty to disclose a fact known to a party (caveat emptor

then warranty law)i. Different from mutual mistake bc only one party is mistaken

b. Modern Rule (RS 2 § 161): no requirement to disclose material facts, UNLESS exceptions apply:i. He knows disclosure is necessary to prevent a previous assertion from being a fraudulent

or material misrepresentation. Non disclosure = fraudulent representation, which makes the K voidable:

1. Negotiating party cannot state a half-truth.2. Cannot fraudulently conceal the truth. (Hill v Jones)3. Cannot make a misstatement in answering a direct question (Laidlaw)

ii. He knows disclosure would correct a mistake of the other party to a basic assumption of the K, where non-disclosure amounts to failure to act in good faith / fair dealing.

iii. He knows disclosure would correct mistake as to contents/effects of a writing.iv. Other party entitled to know bc of relation of trust or confidence. (fiduciary/spouse).v. When material fact is known to one party bc of his special position and mistake couldn’t

be known to other party with normal diligence. (NOT in § 161) 1. Trend: require duty to disclose in home transactions where fact materially

affects prop value. Note: Mel thinks this should apply to all sellers, not just homeowners.

vi. In these situations, non-disclosure equivalent to affirmative representation that the fact does not exist.

vii. (this one is iffy, but) Duty to disclose info that was improperly acquired. (Paradigm case – Illustration 11 to RS § 161).

1. Paradigm Case: mineral company wants to buy land from farmer. Does not disclose bc believes there are minerals under the land.

a. Result : no duty to disclose IF learned of possibility of minerals by fling over & using tech / investing $ to discover.

b. Result : duty to disclose if they trespassed on land to discover.c. Rule : wrongfully acquiring the information then you don’t get

protected by non-disclover.viii. Note: there is NO duty to disclose where:

1. The information is already in the hands of the other party.2. Cases where unknowing party was on notice more subtly, i.e., both parties know

a game is being played.ix. Damages: if violated duty to disclose, injured party may rescind the K – and can try to

get resitution or reliance.c. Mel’s words of wisdom: way to get around non-disclosure rule is to merely ask, during

negotiation, “do you know anything about this property I should know?” savvy response is “no comment.”

d. Usually a jury question.e. Possible Disclosure Rules: Academic arguments for exceptions that require disclosure (Note:

these are not the law):i. Process exception: require disclosure where a person finds out info adventitiously

(without investment – pure luck) because not inefficient; is moral.ii. Substance exception: require disclosure for information that will eventually be revealed

naturally (as opposed to that which takes investment) bc its less wasteful.1. Foreknowledge v Discovery Difference (Kronmann): duty to disclose for

knowledge that will come to everyone in due time; no duty to disclose for recognition of something new that requires human effort.

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iii. Situation exception: require disclosure bc in an economy of pure exchange information isn’t affecting anyone’s wealth.

f. Hill v Jones (p757) D selling home to Ps. Ps ask about termites. Ds do not mention previous termite infestation.

i. Result : seller under duty to disclose material facts like termite damage.g. Weintraub v Krobatsch (p762): seller didn’t disclose cockroach infestation.

i. Result : found for P! Seller should have told.ii. Rule : no duty to disclose every single fact, but duty to disclose facts that materially

affect property value.h. Policy re – Duty to Disclose:

i. Reasons for Non-Disclosure: 1. Efficiency: No incentive for parties to invest in informational discovery if they

have to turn it over for free.ii. Reasons for Disclosure:

1. Morality/Fairness: unfair & immoral to not turn in information, especially where you know you’re taking advantage of a less-than-fully-autonomous choice of the other party.

2. Efficiency: most efficient markets have full information. Disclosure avoids wasteful costs of over-investment of information & avoids litigation fees & other transaction costs of mistake.

Chapter 19 – Effect of Unexpected CircumstancesI. Background

a. Three categories of: impossibility, impracticability, frustration.b. How to approach these questions:

i. At K formation, was there allocation of risk?ii. After occurrence happened, did conditions make it impossible/impracticable to perform

or frustrate the purpose of the K?iii. Possible remedies: modification; accord & satisfaction; substitute K.

c. How compares to mutual mistake: both turn on presence of tacit shared assumption & risk; mutual mistake cases, the assumption is incorrect at the time the K is made. In these cases, it’s correct at time K is made, but becomes incorrect later, often once steps have been taken. These cases are harder bc wrong circumstances usually becomes salient only after performance has begun.

d. Balance these doctrines with idea that all Ks based on future activity, and things change; hard to predict outcomes, but often “that’s just life.”

e. General Idea: K enforced in the face of unexpected circumstances unless it really hurts a party.f. Same deal with the “who bears the risk” as mistake.

II. Rules for Sale of Services (Restatement / General)a. Duty to perform discharged due to unexpected circumstances (as long as the circumstance is no

fault of the party) if:i. § 261: After K made, if party’s performance is made impracticable by the occurrence of

an event nonoccurrence of which was a basic assumption on which the K was made; orii. § 265: After K made, if party’s principal purpose is substantially frustrated by the

occurrence of an event the nonoccurrence of which was a basic assumption on which K made; or

iii. § 266(1): At time K made, some fact existed, the non-existence of which was a basic assumption on which K was made, the party had no reason to know about, and it makes performance impracticable. (Note: relief given based on mistake will also be appropriate. Party gets to choose.)

iv. § 266(2): At time K made, some fact existed, non-occurrence of which was basic assumption of K, party had no reason to know about it, and substantially frustrates the principal purpose of the party’s performance.

b. Definitions / Examples for Impracticability : i. Foreseeability and/or basic assumption tests (closely related) – if occurrence was

foreseeable at time of K then not impracticable; but Mel says that’s usually not a determinative factor. (Some do not allow the defense if it’s foreseeable.)

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ii. Dramatic cost increases may be enough for impracticability (not under UCC, tho)—unless the cost increase was due to an anticipated condition.

1. Mineral Park Land v Howard (p770): K in which D would take all gravel needed for project from P’s land. D takes a lot, but breaches by taking it from elsewhere, since taking the rest from P would be 10-12x the usual cost. Result: D excused bc 10-12x cost increase was impracticable. Note: Mel says this is a questionable rule bc mere cost increase shouldn’t be enough.

2. Transatlantic v US: K btn US gov’t & shipping co; customary route via Suez Canal, which shut down bc of war. Adds 3000 miles to 10000 mile trip. Result: no recovery – not impracticable – P cannot get compensation. Rule: to justify relief, there must be more variation (than that) btn expected cost & cost of performance. Note: Mel looks at this case as showing risk was allocated & paid for in K by company bc govt probably paid for risk in K price since common knowledge.

3. American Trading & Prod Corp v Shell Marine: another Suez Canal case. Boat was warned canal might be closed, but set sail from Gibraltar anyway. After closure, turned around, 3 days late / 8000 extra miles. Result: not impracticable bc extra cost was only 1/3 of K price, and also, ship was on notice so took on the risk.

4. RS 2 § 261, Illustration 10: if the canal is closed while the ship is already IN the Canal, preventing completion, then it’s impracticable & duty is discharged.

iii. § 263: if existence of a specific thing necessary for performance of duty fails to come into existence, is destroyed or deteriorated & makes perf impracticable.

1. Taylor v Caldwell (p765): D rents music hall to P. Hall burns down. P sues. Rule: where from K appears that parties must have known K would not be fulfilled unless thing continued to exist, continued existence is a foundation of performance; w/o it, performance discharged. (Unless there is an express or implied warranty stating otherwise).

iv. § 262: if existence of a particular person necessary for performance and his death or incapacity makes performance impracticable.

v. § 264: if performance of duty is made impracticable by having to comply w/ domestic or foreign gov’t regulation / supervening change in the law— that reg was basic assumption on which K made.

c. Effect of Discharge of Duty on the Other Party’s Duties ?i. § 267: Despite the fact that party 1’s failure to perform is justified by one of the above

sections, party 2 will be relieved of his duties as well, unless:1. Party 2 assumed the risk that he would perform under such failure, or2. § 240 applies, where Party 2 might have duty to partial performance is Party 1

has already done something.ii. § 268 applies this same idea to prospective failures.

d. Temporary Impracticability or Frustration (§ 269) only suspends obligor’s duty to perform while impracticability exists. It does not discharge duty to perform unless performance after cessation of impracticability would be materially more burdensome than if there’d been no impracticability.

i. Note: usually, frustration of purpose requires the parties knowing what the purpose was.ii. Does the K seem worthless now? (RS 2 comments)

e. Partial Impracticability (§ 270): if only part of obligor’s (Party 1’s) performance is impracticable, he still has a duty to render the remaining part IF:

i. it’s still practicable to render substantial performance, taking account of any reasonable substitute performance he may be under a duty to render in light of impracticability;

ii. the obligee (party 2), within a reasonable time, agrees to hold up his end of the bargain and allow Party 1 to keep all prior received benefits.

f. Impact of Impracticability on Conditions (§ 271): impracticability excuses non-occurrence of condition if occurrence of condition is not a material part of agreed exchange and forfeiture (making someone give up something big) would otherwise result.

i. Policy: trying to avoid forfeiture (avoiding a large loss that would be unjust)

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g. Changing Meaning of Frustration of Purpose (which excuses performance under §§ 265, 266, and more) Used to be more strict; trend is going the way of the UCC, allowing more leeway:

i. Old Approach: Krell v Henry (1903): coronation case. K made before coronation cancelled. Renter claims impossibility defense. Result: seller wins; renting was not impossible; court did not allow frustration of purpose bc P could still rent room (without watching the coronation procession).

1. Test used for frustration: ascertain substance of K based on terms & circumstances; ask whether that substances requires existence of certain things; if so, K is impossible if the thing doesn’t exist.

ii. Newer Approach: 1. Lloyd v Murphy(1944): frustration determination depends on: Whether the

equities of the case require placing risk on D or P under circs; and whether unanticipated circ made performance vitally different from what was reasonably to be expected under the K.

2. Alfred Marks Realty v Hotel Hermitage (1915): K for publication of ad in flier about race; bulk of publication cancelled bc race was cancelled. Result: frustration of purpose applies, so buyer doesn’t have to pay.

3. La Cumbre Golf & Country Club v Santa Barbera Hotel: hotel’s existence and having guests is implied condition for K paying country club for guests’s use. Result: found for hotel – no point paying if there are no guests.

4. Chase Precast v John Paonessa: SC/GC K for concrete project; city cancels after public outcry. In anticipation, GC tells SC to stop work. SC no out-of-pocket loss, but still sued fo rexpectaiton dmgs. Result: bc risk was not allocated to GC, can rely on frustration to not be liable for dmgs.

h. Damages / Relief (§ 272): either party may have a claim for restitution; and, to avoid injustice, the court may grant [other] relief as justice requires (i.e., reliance damages)

i. Note: unexpected circumstances only protect D from being responsible for expectation damages and maybe reliance damages if justice doesn’t demand otherwise. D is NOT protected from duty to pay restitution or unjust enrichment damages. And if D is at fault, there’s simply no defense.

ii. Rule:reliance damages can be given if impracticable & D w/o fault. Suggests that if D is at fault, expectation damages might be allowed.

iii. Albre Marble v John Bowen: SC K to sell tile to GC for hospital project. SC does plans, then GC’s K declared invalid bc GC did something wrong. SC sues for exp dmgs & reimbursement for quantum meruit.

1. Result : reliance damages awarded under RS 2 § 272 “as justice requires.”2. Rule : Preparation does not justify restitution for unjust enrichment (bc SC’s

drawing of plans is not a big enough benefit conferred). D created impracticability so cannot use it as a defense against expectation damages, but D not blameworthy enough to owe full expectation.

i. Policy : i. Fairness: K enforced unless it really hurts; Concept of bounded rationality argues that

low probability events w/significant consequences (i.e., big, unexpected events) are not legally part of K.

ii. Certainty: you know that your K will be enforced. III. Rules for Sale of Goods (UCC)

a. Note: none of the defenses below apply if the adversely affected party takes on the risk of unexpected circumstances. This can occur by explicit allocation, by custom, by implication, etc.Just for sellers under UCC!

b. Definition of impracticability under the UCC: move away from old idea of impossibility alone. Recognizes Williston’s idea that it does not need to be scientifically/actually impossible. Rule: Only needs to be impracticable due to some extreme or unreasonable difficulty, expense, injury, or loss. (Mishara).

i. Comment to UCC says it means commercial impracticability; implies all about cost.ii. In general, seller must do everything he can to avoid the problem in order to claim the

unforeseen occurrence made performance impracticable. (Comment to 615; Alamance).

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iii. IF a single supplier of an input is identified expressly or implicitly in the K, then failure of said supplier could count as impracticability. (Alamance / § 613).

c. Impracticability Affecting Seller’s Duty : i. § 2-615(a): delay or non-delivery is not a breach if performance is made impracticable

by occurrence of a contingency, the non-occurrence of which was a basic assumption on which K was made, UNLESS seller assumed greater obligation and subject to substitute performance.

ii. § 2-615(c): sellers must notify buyers seasonably of delay / non-delivery.iii. Comment: Performance is not excused if seller has not employed all due measures to

assure himself that his source will not fail. About negligence. (Alamance).d. What Counts as Impracticability : Coal/Power Cases & Crops Cases:

i. Missouri Public Service: K for 10 yrs of coal at fixed price; Seller demands reneg of price when fluctuate; denied, threatened to stop providing. Result: no impracticability.

1. Rule : bad bargain alone is not enough for impracticability, esp since risks of new safety regs / oil embargo are foreseeable & long term Ks provide for more unexpectness than short term Ks, so it’s reasonably predicted.

ii. ALCOA v Essex Group: similar facts; stood to lose 75 Mill during final term of K; try to get out of it bc of impracticability claiming index used to adjust costs was flawed. Result: reformation of K warranted bc continued perf was impracticable. In fact, was a mutual mistake in error concerning the index, and would be impracticable to say P assumed limitlessly high improbably risk of the index they chose.

e. Partial Impracticability : i. § 2-615(b): when only part of seller’s capacity to perform is affected, he must allocate

his reduced capabilities among his buyers (including those regular buyers w/o current Ks & incl his own requirements) in any way that is fair & reasonable. (Cost-spreading!)

ii. § 2-615(c): seasonable notice of delay/non-delivery and am’t of allocation to each buyer.f. Casualty to Identified Goods (SUPPLY CASES) § 2-613: in one specific case of unexpected

circumstances, where specific goods are identified in K as inputs to seller’s product & seller “suffers casualty” (i.e., cannot get those goods for some reason), UCC provides specific rules:

i. If loss is total, K is avoided; andii. If loss is partial, or goods have so deteriorated that they no longer conform, buyer may

inspect goods and EITHER treat k as avoided or accept goods with “due” decrease in price. If accepted, no further right against seller.

iii. Alamance County Board of Ed v Bobby Murray Chevy: (Failure to Supply case): K to provide parts for school buses; then EPA regs on emissions standards changed & seller’s supplier had shortage of parts. School sues. Defense; EPA change & seller’s shortage of parts made performance impracticable.

1. Result : no impracticability bc D didn’t do everything it could have to ensure it got parts (i.e., have an agreement with supplier). D assumed risk for failure bc it was foreseeable that his supplier might not have e’thing, plus K didn’t provide for specific supplier.

2. Rule : if exclusive source of supply specified in K or implied, failure of source may excuse.

3. Rule : Generally gov’t regulations do NOT excuse performance where one party has assumed the risk of such regulation.

4. Rule : no excuse unless D did everything he could have to ensure delivery.iv. Contrast Selland Pontiac v King, specified supplier was basic assumption & supplier’s

price was quoted, so his failure to supply makes seller’s performance impracticable. g. Substitution Requirements : in two specific types of unexpected circumstances, UCC requires that

substitution be used instead of discharging duties altogether. These situations are both considered incidental to the K, so forfeiture to be avoided if possible:

i. § 2 -614(1): where loading/unloading/method of delivery agreed upon in K becomes commercially impracticable, if there is a commercially reasonable substitute available, it must be used instead of discharging delivery altogether.

ii. § 2-614(2): where manner of payment fails bc of gov’t regulations, seller must accept a means or manner of payment which is a commercially substantial equivalent if buyer

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provides a substitute (if buyer does not so provide, can stop/withhold delivery). Note: if delivery has already been taken, payment governed by new reg unless it is oppressive, discriminatory, or predatory (i..e. unconscionable).

h. Definition of “contingency the non-occurrence of which was a basic assumption on which the K was made”:

i. Objective standard : must mean that a reasonable person would not have anticipated it.1. Ex) severe shortage of raw materials or supplies due to war, embargo, local crop

failure, unforeseen shutdown of water supply…that causes a marked increase in price OR altogether prevents performance.

2. Ex) failure of production by a supplier agreed upon in the K (2-613)ii. NOT an exhaustive list. K should be read according to its underlying reasons &

purpose to determine what the basic assumptions of the K were. iii. Things that don’t count : increased cost alone; collapse in market; failure of conditions

seller is relying on but that only go to convenience / collateral values and not main performance; bc those are all reasons to have fixed K prices.

i. Policy : some risks are so harsh/severe that they must be beyond the scope of the assignment of risk inherent in the K; to require performance would be to grant the promisee an advantage he did not bargain for. (Mishara).

j. Damages : allows for reliance damages (comment to § 2-615).k. Effect on Other Party / Buyer : § 2-616: under these circumstances, buyer can, via written notice,

terminate any unexecuted portion of the K, or agree to take the rest via substitution. i. But: buyer must do either of the above within 30 days (or lesser reasonable time) of

receiving notice. If he does not, K lapses w/r/t any affected deliveries.l. Risk of Loss : (context of buyer and seller. If risk is allocated differently than UCC prescribes, may

be unconscionsable or may still work)i. § 2-509: if no breach, seller bears risk until delivered to carrier IF K requires shipmetn

and K does not require shipment to certain location (subject to exceptions).ii. § 2-510: breaching party bears loss.

m. Farm Cases: i. Power Engineering & Manufacturing v. Krug International: SC/GC K for parts to be

used in plane to be sold in Iraq – Gulf War; UN embargo against all shipments to Iraq; General breached & SC sued for rest of purchase price. GC claimed impracticability. Note: This is buyer claiming impracticability.

1. Result : No impracticability. 2-615 does not apply. Embargo prevents final sale, but not purchase from SC domestically—has no impact on the current K.

ii. US v. Wegematic: K btwn gov & D/seller to purchase computer. K w/ delivery date & clause saying that if D failed to comply buyer would procure services from someone else & hold seller responsible for any excess cost,& recover monetary penalties for every day late. Seller never performs. Sued. Claims impracticability/impossibility.

1. Result: No impracticability bc cost of developing new technology & engineering difficulties not that much – esp view of all poss future profits (Timely completion may be impracticable –could be defense to late penalty, didn’t address that) and it was a foreseeable risk that had been implicitly assigned to seller bc the product was not yet developed. This part of the bargain.

PROBLEMS OF PERFORMANCE

Chapter 24 – Express ConditionsI. Introduction

a. Express Condition: an explicit K provision that either i. A party to the K does not come under a duty to perform unless and until some designated

state of affairs occurs or fails to occur; ORii. If some designated state of affairs occurs or fails to occur, a party’s duty to perform is

suspended or terminated.

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b. Implied conditions (to perform, to perform in good faith, to cooperate, etc) can also be substantially performed.

c. Rationale : use conditions instead of promises bc neither party is willing to promise that the state of affairs in question will occur; and this helps avoid the doctrine of substantial performance (for the most part—bc usually conditions must entirely happen or not happen at all).

d. Issue : distinguishing btn conditions & promises.II. Promises versus Conditions

a. Difference btn whether a party is bound under k at all and whether a party who is definitely bound has come under a duty to perform.

b. No such thing as breach of a condition, so you cannot sue!i. Cannot sue for nonfulfillment of a condition; can sue for nonfulfillment of a promise.

ii. If A’s duty ot condition on an event happening and it doesn’t happen, duty is discharged.c. Right to terminate K (conditions) is more severe threat than right to sue for damages (promise).d. Impact on non-breaching party:

i. For promises: must go to court to get damages.ii. If condition not fulfilled: can simply walk away from the K.

e. There is NO substantial performance doctrine for express conditions: of condition must be fully performed to impose the subsequent duty. (Though implied conditions may be subject to s.p.)

f. Oppenheimer v Oppenheim (p935): sublease w/clause that unless P (renter) provided written notice of LL’s approval of D (sublessee)’s construction plans by certain date, k would become null/void. That date, P provided verbal notice. D backed out bc no written notice. P sues claiming substantial performance.

i. Result : no K was formed. ii. Rule : substantial performance doctrine does not apply to express conditions!

g. Merritt Hill Vineyards v Windy Heights Vineyard (p940): sale of land. Deposit given to seller. Condition was that seller would produce a title by time of closing. Didn’t do it. Buyer sues for return of deposit & consequential dmgs for failure to perform.

i. Result : buyer gets deposit back but no consequential damages.ii. Rule : can’t sue for non-fulfillment of a condition (so not entitled to any damages).

III. Conditions Precedent v Subsequenta. Condition Precedent: where some state of affairs must occur or fail to occur BEFORE a party to

a K comes under duty to perform; a duty to perform ARISES when condition precedent is satisfied.b. Condition Subsequent: where party has ALREADY come under a duty to perform, and will be

relieved from that duty by the occurrence or nonoccurrence of some designated state of affairs. Duty to perform is DISCHARGED when condition subsequent is triggered.

c. Differences Btn the Two: i. Supposedly, diff burdens of proof and pleading, but Mel says not really different.

ii. Theory behind difference: 1. Conditions precedent: natural to put burden on P to show condition occurred.2. Conditions subsequent: natural to put burden on D, since he’s the one trying to

get out of performance.iii. Doesn’t really matter because conditions can be precedent in fact but subsequent in form

or vice versa, so the distinction isn’t so big.IV. Problems of Interpretation in Distinguishing Btn Conditions & Promises

a. Rule (RS 2 § 227): in interpreting a potential condition (whether it exists and its nature) prefer an interpretation that reduces the obligee’s risk of forfeiture, unless the event is within the obligee’s control or circumstances indicate that he has assumed the risk.

i. Note from comment b: “forfeiture” = denial of compensation that results. ii. When not sure if a certain provision is a [promise] a [condition] or [both], the court

should call it a promise, so long as the event is within the obligee’s control, and so long as it is not the type of K under which only one party generally undertakes duties.

b. Howard Federal Crop Insurance Corp (p945): P farmer insured crops via D insurance co. Rain damaged crops. Filed claim. Turned the stalks under before insurance inspector came. K said farmer has to leave stalks in field until inspection. Issue: “leaving stalks in field” cond or prom?

i. Result : it was a promise, not a condition; K was valid; D must pay claim, but can offset claim with damages from P’s own breach, if there are any.

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ii. Rule : when in doubt, promise, as long as didn’t assume risk.iii. Rationale : follows with general principle of trying to avoid obligee’s forfeiture. Also, K

interpretation: there was no conditional language in this paragraph, but conditional language was used in another paragraph, so they knew how to make things conditions.

V. Conditions of Cooperation, Prevention, & Implication of a Promise from an Express Conditiona. Implied Conditions to Cooperate Rule: wherever cooperation of the promisee is necessary for

performance of the promise, there is a condition implied in fact that the party will cooperate.i. Vanadium v Fidelity & Deposit (p950): lease of land w/mines. Condition: transfer had to

be approve by Sec’y of Interior, otherwise P’s deposit would be returned. Sec’y didn’t approve, largely bc lessee indicates unwillingness to cooperate w/plans. Lessee (P) sues to get money back bc Sec’y didn’t approve (i.e., unfulfilled condition)

1. Result : P does not get money back bc he breached an implied condition precedent to try in good faith to get approval & therefore discharged duties of D.

2. Rule : if party doesn’t fulfill implied condition to operate in good faith, that can discharge the other party’s duty. NO dmgs could result.

b. Implications of a Promise from an Express Condition Rule: the condition in a K can imply a promise by one party to make reasonable efforts to assure the occurrence of that condition. (Same sort of good faith analysis as above, but this time it’s expressly written into the k). Becomes a jury question: were reasonable efforts performed?

i. i.e., provision that is a condition can also operate as a promise ii. Lach v Cahill (p953): K to purchase home; deposit paid; sale “contingent upon buyer

being able to obtain mortgage in the sum of $12k.” Buyer applied to 6 banks and was denied every time; sued for return of deposit.

1. Result : buyer gets deposit back. “Contingent” provision operated as promise.2. Rule : condition implied a promise by P to make reasonable efforts to secure a

mortgage; jury found he had done that.c. Implied Conditions of notice: can discharge a duty; may occur in situations like:

i. LL agrees to keep up premises but has no right to enter/inspect. Ceiling falls into disrepair & T does not notify LL. Does damage to T’s property. T can’t get damages bc he didn’t uphold implied condition of notice.

VI. Conditions of Satisfactiona. Issue : when condition is based on a person’s satisfaction, may the person escape liability based on

an honest but unreasonable dissatisfaction?b. Factors to consider when assessing whether satisfaction must live up to person’s own subjective

analysis or an objective analysis that requires the satisfaction be reasonable:i. Language used (“personally satisfied” v “satisfactory”)

ii. Degree of possibility of applying reasonable person standard (portrait v furnace installation)

iii. Degree to which A will be unjustly enriched at B’s expense if K interpreted to require A’s personal satisfaction.

iv. Degree of forfeiture imposed on B.c. Even when language seems to clearly point toward subjective intent, courts will enforce

reasonable person standard. d. Rule: RS 2 § 228: when it is a condition of an obligor’s duty that he be satisfied w/something,

reasonable person standard of satisfaction is preferred if practicable to determine what a reasonable person would prefer.

i. In questions of commercial quality/fitness, use objective standard; in questions of personal aesthetics or taste, use “good faith” standard (Morin).

ii. Subjective dissatisfaction must be honest & made in good faith or it will be excused.e. Illustration: K for repair. Payments made “on satisfaction of C, an architect, and C’s issuance of

his certificate.” i. C not satisfied, explains why, other experts disagree condition of satisfaction not met.

ii. C refuses to issue certificate despite admitting satisfaction condition met. iii. C does not inspect and gives no reason for dissatisfaction claim for payment valid, bc

there was an implied promise to inspect.

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iv. C inspects and makes gross mistake, leading to refusal to grant certificate or approve claim for payment.

f. Objective Standard: Morin Bldg Products Co v Baystone Construction (p955): GC hired SC to put up aluminum walls. K said all work to be approved by owner as to artistic effect of siding, but also specified type to be used. Owner dissatisfied after walls put up. GC refuses to pay SC, who sues.

i. Result : damages awarded bc GC was satisfied. It was breach not to pay.ii. Rule : use objective standard of satisfaction in conditions regarding commercial quality &

fitness for use. Use standard of good faith when K involves personal aesthetics or fancy. Avoid forfeiture, especially where party has performed entirely.

g. Good Faith Standard: Fursmidt v Hotel Abbey (p960): K for services to be met with approval of hotel. But what’s good enough for one hotel must not be for another. Rule: use subjective interpretation bc involved facny, taste, sensibility, judgment.

h. Subjective satisfaction is a real thing and not an illusory promise because of the good faith standard (Mattei v Hopper, p959)

VII. Conditions of Payment: (Pay when Paid clauses)a. Rule: in order to transfer the normal credit risk incurred by GC to SC, K must contain an express

condition clearly showing that to be the intention of the parties. (Koch). b. Context: “pay when paid” clauses common btn SCs & GCs. Courts like to strike them down to

avoid forfeiture either by interpretation (Koch) or by saying the violate statutes (mechanics lien laws).

c. Koch v Construction Technology (p962): pay when paid clause btn SC & GC. GC didn’t get fully paid by owner, so didn’t fully pay SC. SC sued. D’s defense: no obligation to pay bc it was a condition of payment that he get paid by owner.

i. Result : SC gets damages; clause was not a condition, but a clause about payment timing.ii. Rationale : intent to transfer risk to SC was not explicitly stated; these are sophisticated

parties who know how to use condition language – it was used elsewhere.VIII. Excuse – Rules: (if excused, could be treated as a promise and give damages)

a. RS 2 § 229: to the extent the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the nonoccurrence of that condition unless its occurrence was a material part of the agreed exchange.

i. Comment: this is about forfeiture that would actually result if condition enforced (compared to unconscionabilty – §208 –about unconscionabilty at time K is made)

b. RS 2 § 230: occurrence of a condition that is to terminate a duty of obligor under a K does not terminate that duty if: (i) it is the result of a breach by the obligor of his duty of good faith / fair dealing, or (ii) it could not have been prevented bc of impracticability and continuance of the duty does not subject obligor to a materially increased burden.

c. RS 2 § 271: impracticability excuses non-occurrence of a condition IF the occurrence is not a material part of the agreed exchange and forfeiture would result otherwise.

d. RS 2 § 84 (Waiver of condition)(despite the potential legal duty rule problem): If a condition does not occur, and the person whose duty depended on that condition promises to do the duty anyway resulting in a new K, then the new promise can be binding (if there’s CD, reliance, etc). It can also be reinstated for consideration or reliance.

e. Note : despite theory that there is NO substantial performance doctrine with conditions, here we see three situations where condition is not met but the courts provide excuses such that the other party doesn’t get to void the K.

f. Aetna Casualty & Surety Co v Murphy (p965): dentist causes damage while leaving office; condition in his insurance co required he provide timely notice. Doesn’t give notice for 2 years bc doesn’t think he’s liable. Then files claim. Insurance co argues no liability bc violated condition.

i. Result : D liable.ii. Rule : 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 bc it is not a material part of the agreed exchange.

iii. Rationale : balanced forfeiture loss against insurance purpose of ensuring ability to investigate claims.

g. RS 2 Illustrations:

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i. A K to build house for B. K on condition that use pipe of particular brand. A’s SC uses a different type of pipe (same quality) w/o A’s knowledge. Mistake discovered after completion of house. B refuses to pay balance of price. (Could also be subst. perf.)

1. Court may conclude this is not material element of the exchange and not worth forcing forfeiture of the remaining price

ii. Goods shipped. K says written notice for complaint required within 10 days; inspection and oral notice happen with 10 days. Further, both parties KNOW there is damage to goods. Written notice not til 25 days.

1. Court may excuse non occurrence to extent required to allow recovery

Chapter 23 – The Doctrine of Substantial Performance I. General Principal – K for Services

a. Definition: A renders performance, but performance isn’t perfect, i.e., there’s a difference between performance A promised & performance she rendered.

b. Policy: will be looked upon as fulfillment of the obligation, but offset by the money the non-breaching party will have to pay to bring it in line with full performance.

c. General Rule: where one party’s performance is an implied condition to the other party’s duty of counter-performance, the implied condition will normally be satisfied by substantial performance, though other party can deduct any damages suffered bc the first party’s performance was less than complete.

i. if there has been substantial performance of K at time of breach, damages will be awarded in terms of cost of completion OR diminution in value (NOT expectation damages)

ii. A party who sues under substantial performance is still in breach, but can sue under the K for the work already done.

iii. If a party has performed, but not substantially can only sue for restitution to recover the value of the benefit conferred.

d. Jacob & Youngs v Kent: (p915): P contractor built house for D and sued to recover unpaid balance. K called for specific brand of pipe (Reading) but due to oversight, was wrong brand. D became aware a few months after moving in and asked P to replace it, but could only be done at great price bc pipe was in inside walls—would require great destruction and replacement.

i. Result : found for P, since P had substantially performed because P used a brand of pipe that was basically of the same quality, as evidence.

ii. Rule employed – a Peevyhouse approach: homeowner entitled to cost of completion, unless cost of completion is grossly out of proportion to goods to be attained. (As here).

iii. Mel’s preferred rule : no cost of completion if owner unlikely to complete, as here.\e. What counts as substantial performance?

i. Rule: there is no bright line rule. “The line to be drawn cannot be settled by a formula. The question is one of degree.” It is a question of fact.

1. Test used: whether the performance meets the essential purpose of the K.ii. Willful & Intentional Breaches:

1. Old Rule: can never claim substantial performance.2. Modern Rule (RS 2 § 237): even willful breaches may sometimes still be okay

as long as the breaching party’s behavior comported with standards of good faith & fair dealing. (RS 2 § 237, Jardine Estates v Donna Brook)

iii. There is NO bright line distinction, but factors to consider include:1. Purpose to be served by K.2. Desire to be gratified.3. Excuse for deviation from the K.4. Cruelty of the enforced adherence. (from Kreyer v Driscoll)5. Extent of the contracted-for benefits that innocent party has received.6. Extent to which damages will be adequate compensation.7. Extent to which forfeiture will occur if doctrine is not applied.8. Extent to which breach was wrongful or in bad faith. 9. Likelihood that party failing to perform will cure. (RS 2 § 241)

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iv. Kreyer v Driscoll (p919): suit to recover K price to construct home for Ds. P began constructing home but didn’t complete plumbing/electrical work and Ds refused to pay the balance. Result: Court awarded restitution under quantum meruit, not cost of completion for substantial performance.

v. Homes & Home Decoration is tricky :1. Differences that are “trivial” or “mere whimsmy” in other areas, like taste &

preference, may bar substantial performance, while mere incompleteness might not matter as much. (O.W. Grun Roofing & Constr Co v Cope, p922)

f. DAMAGES: breaching party can sue for expectation damages, offset by the damages caused by their breach to the other party.

g. Policy behind Doctrine of Substantial Performance: i. In factor of the doctrine:

1. Flexible, so recognizes need to facilitate economic exchange. 2. Legally efficient bc eliminates trivial excuses for nonperformance & enforces

essential purposes of Ks.ii. Against the doctrine:

1. Uncertain and inconsistent bc no bright line rule. 2. Damages don’t always compensate for non-performance.

II. Contracts for Sale of Goodsa. NO Rule of substantial performance! b. Pre-UCC (19th C.): Perfect Tender Rule: buyer could reject goods for any deviation, no matter

how small—including deviations that would be been “substantial performance” if it had been a services case. Implication of the rule is that buyer always wins.

i. Justification : unlike performance, which is usually about a one-time thing that you can’t take back, goods can be easily resold on the market.

ii. Criticism : the rule was too harsh on sellers. Buyers in declining market would reject goods for minor non-conformity to get out of paying.

c. UCC § 2-601 nominally adopts the perfect tender rule, but there are a number of exceptions carved out.

d. Exceptions: Perfect Tender Rule Does Note Apply to…i. Revocation of acceptance . Instead of rejecting goods, where a buyer accepts goods then

discovers a defect and tries to revoke. Buyer may only revoke acceptance if the nonconformity substantially impairs the value of the goods to her. If she accepted knowing they were nonconforming, may only revoke if accepted on the reasonable assumption that they would be cured. & if her belief was induced by difficulty of discovering the defect of by seller’s assurances. (§ 2-608)

ii. Inapplicable to installment Ks (where Ks require or authorize delivery of goods in separate lots to be separately accepted. Buyer can reject nonconforming installment only if it substantially impairs value of the installment and cannot be cured. (§2-612).

1. Policy: installment K parties have ongoing relationship, so seller should be given opportunity to make up the deficiency.

iii. Cure . If tender of goods is rejected for nonconformity, and time for performance has not yet expired, seller may cure the defect by making a conforming delivery within the K time and giving notice. Seller gets extended time to cure if he reasonably believed it would be accepted. (§ 2-508).

1. Limit: Must offer a chattel within the agreement or contemplation of the parties (can’t try to cure with something different). (Zabriskie Chevrolet v Smith, p932).

2. Note: NCCSL & ALI amended 2-508 to not apply to consumer Ks and to allow seller extended time as long as he performs in good faith, but nobody adopted it.

iv. Good faith . Good faith means buyer cannot reject for a trivial reason like a minor defect. (§ 1-203).

e. T.W. Oil v Con Ed (p927) Seller Ked to provide oil at .5% sulfer content; sold to buyer with same am’t; when delivered, and Buyer did own testing, turned out sulfer concentration was .92% - much above K am’t. Seller offered to “cure” by taking it back and providing other shipment. Buyer refused. Seller resold to 3rd party at lower price. Seller sued for expectation damages. UCC.

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i. Result : Seller wins. Not substantial performance, but fits into “cure” exception of perfect tender rule, despite fact that the cure after the K time, bc he had reasonable grounds to believe it would be accepted under 2-508.

Chapter 25 – Breach & Response / Order of PerformanceI. Order of Performance: in what order do parties have to perform their promises?

a. Language used: party 1’s substantial performance as an implied condition to party 2’s duty to perform (important bc correctly suggests that burden of proof is on party 1 to prove performance)

b. If K specifies A’s performance is to precede B’s: i. Old Rule—Mutually Independent Conditions: A could default and nevertheless hold B

to his promise unless K expressly made B’s performance conditional.ii. Modern Rule—Mutual Dependency of Performance: B is not obliged to perform until

A has performed. c. If K does not specify who goes first, resort to rules to determine which performance must come

first. Possible Rules:i. Conditions Concurrent: if both performances can be rendered simultaneously and K

fixes same time for both, tender of performance by each party is implied condition concurrent to other party’s duty to perform; neither party is obliged to perform until the other does. Implication: in order to sue, party must first tender performance to put other party in default.

ii. Restatement Rules: 1. § 233: Performance at One Time or In Installments: where perfs are to be

exchanged and one party’s full perf can be made at one time, it is due at one time. If one party pays an installment, and other party can pay a comparable installment, comparable payment is due at that time. (If you can, do!)

2. § 234: Order of Performances: if perfs can be rendered simultaneously, they are due simultaneously. If one party’s performance requires a period of time, his is due earlier than the other’s, unless language indicates otherwise.

a. Comment b: Situations Where Performances are Concurrent i. where the same time is fixed in the K for performance of both

partiesii. where the same time period is fixed for performance 

iii. where no time is fixed for either partyiv. where a time is fixed for the performance of only one partyv. and no time is fixed for the other

b. In order to sue, party must first tender perf to put other party in default c. Non-Concurrent Performance: Where different time periods are

fixed for the performance of each party d. Comment f: usually applies to service Ks construction/employment.

iii. UCC Rules: 1. § 2-507: tender of delivery is a condition to buyer’s duty to accept & pay for

goods. Tender entitled seller to acceptance & payment. Buyer’s right to retain or dispose of goods is conditional upon making payment due.

2. § 2-511: tender of payment is a condition to seller’s duty to tender & complete any delivery. Tender of payment is sufficient when made by any means or manner current in the ordinary course of business, unless specified. Payment by check is conditional (on check not bouncing).

II. Ability to Perform: a. General Rule: when performance is concurrent, one party cannot put the other in default unless

he is ready, able, and wiling to perform and has manifested this by offering performance. b. Kanavos v Hancock Bank (p979): D promised P right to match price of sale for am’t of stock for

60-day period before sold to other party. Before 60 days were up, sold to 3rd party for $760k. Defense: P had to be ready to pay $760k w/in 60 days to put D in default – P didn’t show he was. Holding: burden of proof was on P to show he could pay; should’ve gone to jury.

III. Total breach: one party completely breaches. Other party’s duty entire discharged. Partial: not discharged.

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IV. Material Breach: Rule: only a material breach will excuse the other party’s duty of performance. Any breach can give rise to action for damages, but if breach is minor then performance is substantial, so other party must still perform. (as compared to MINOR breach.) party can get RESTITUTION.a. RS § 237: Effect on Other Party’s Duties of a Failure to Render Perf: except as stated in § 240,

each party’s remaining duties to perform are conditioned on there being no uncured material failure by the other party to render any performance due at an earlier time.

b. What is material ? No bright line between material and minor. Often determined economically of cost of breach compared to price of K as a whole. Requires case-by-case analysis. RS 2 § 241: Factors to Consider: extent to which…

i. Injured party will be deprived of benefit he reasonably expected;ii. Injured party can be adequately compensated for part of benefit he was deprived

iii. Party failing to perform or to offer to perform will suffer forefeitureiv. To which behavior of party failing to perf or to offer perf comports w/standards of good

faith and fair dealing,v. Likelihood that party failing to perf will cure, taking into account all circs including

reasonable assurances.vi. Walker & Co v Harrison (p988): D leased sign from P. K said P had duty to maintain it.

D complained of tomatoes, rust, cobwebs on sign but P didn’t come clean it. D withheld payment, P sued for entire balance of 36-mo K.

1. Holding : P’s breach wasn’t material so D not entitled to repudiate. Instead, HIS failure to pay was material breach entitling P to dmgs, but TC cut down to cash price of sign + value of services rendered. Tomato rust NOT material.

2. Shows how risky claiming material breach can be.vii. K&G Constr v Harris (p983): D, subK, doing excavation work on housing project for P,

general K. D’s employee negligently damaged house. K had provision saying D would perform in “workmanlike manner.” D and their insurance co. refused to pay for repairs, so P withheld one month’s payment, but after D had been working for another month. D then refused to finish work. P sued for completion. D countersued for work done already.

1. Holding : refusal to pay for repair was material breach of “workmanlike manner” provision so refusal to pay was justified and D wasn’t justified in abandoning work. But GC waived – treated it as partial breach, so duty not discharged. SC breached again. Liable for cost of completion.

2. Rule : mutually dependent perfs.c. If material, does it discharge duties ? RS 2 § 242 – Factors to Consider: those in § 241, plus

i. Extent to which reasonably appears to injured party that delay may prevent or hinder him in making reasonable substitute arrangements,

ii. Extent to which agreement provides for perf w/o delay (about timing)iii. Note: failure to perf on a stated day does not itself discharge other party’s duty unless the

circumstances indicate that perf by that day is important.d. Divisible Ks : if it is possible to apportion parties’ performance into matching & corresponding

parts. There is no set formula. RS 2 § 240 has 2 requirements: must be possible to apportion parties’ perfs into corresponding pairs; & must be proper to regard parts of each pair as agreed equivalents.

i. Rule: if K is divisible, party who has performed one or more parts is entitled to collect for those parts, even though he breaches on the other parts. (To benefit party in breach. Can’t discharge the entire K.)

e. Material Breach & Substantial Performance : often said they’re two sides of the same coin. (i.e., if party subst’lly perfed, her breach isn’t material; or if party committed material breach, perf can’t be substantial.) BUT not true in all cases.

i. Material breach answers Q: when can a party who has NOT breached (1) terminate K and (2) bring suit for dmgs for total breach?

ii. Sub perf answers Q: when can party ho has breached nevertheless bring suit under K?iii. Mat breach therefore applicable in some cases were substantial performance is

NOT, in particular, when breach is committed early in breaching party’s performance.f. General Rule for CURE: RS 2 § 237 leaves open possibility for breaching party to cure his

material failure. These rules are becoming more and more dynamic, like the UCC.

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i. Comment a: mat breach prevents perf of other party’s duties from becoming due, at least temporarily, and it discharges those duties if it has not be cured during the time in which performance can occur. (Note: even material breaches can be waived for cure.)

ii. Stanley Gudyka Sales v Lacy Forest Products (p995): P ind K for D; agreed to split profits. P failed to give $3000 to D, but at same time D owed P $46k. D term’d, P sued.

1. Holding : found for P bc breach was not material in light of circumstances and he had chance to cure. Policy: prefer options short of termination when poss.

Chapter 26 – Anticipatory BreachI. Policy / Overview: (All the facts you know show that breach’ll happen; so don’t wait to sue)

a. Renunciation: should give an immediate right of action even before time of performance has come? 2 possible theories: (Ballantine)

i. Renunciation is a present injuryii. Threatened injury may furnish a ground of action

b. We learned 2 things: prospective inability to perform & adequate assurance of performance. c. One thing parties bargain for is security. (UCC § 2-609, “Purposes” comment).

i. If either willingness or ability of a party to perform declines btn time of K and time for performance, the other party is threatened.

ii. When it comes to reasonable assurance, remember that (at least as far as UCC goes) good faith standards still apply.

II. Rules: a. Service Ks : RS 2 § 608: Failure to Give Assurance May Be Treated as a Repudiation:

i. Where reasonable grounds arise to believe that obligor will commit breach by non-performance that would of itself give obligee claim for damages for total breach under 243, obligee may demand adequate assurance of due performance &may, if reasonable, suspend any performance for which has not already received agreed exchange until receives such assurance.

ii. Obligee may treat as repudiation obligor's failure to provide w/in reasonable time such assurance of due performance as is adequate in circumstances of particular case.

b. Sale of Goods : UCC § 2-609: Right to Adequate Assurance of Performance: i. K for sale imposes obligation parties that other's expectation of receiving due

performance will not be impaired. When reasonable grounds for insecurity arise w/respect to performance - may in writing demand adequate assurance of due performance & until receives assurance may if commercially reasonable suspend any performance for which not already received agreed return.

1. Btw merchants reasonableness of grounds for insecurity & adequacy of any assurance offered shall be determined according to commercial standards.

ii. After receipt of justified demand-- failure to provide w/in reasonable time not exceeding 30 days such assurance as adequate under circumstances = repudiation of K.

iii. Acceptance of any improper delivery/payment does not lessen aggrieved party’s right to demand adequate assurance of future performance.

iv. Result of failing to bring up § 2-609: If one party does something that could be construed either as repudiation or NOT,

1. If properly construed as repudiation, other party should stop (duty to mitigate).2. Ambiguous intention of 1 party’s ability to perf can put other party in dilemma

c. Sale of Goods – when seller KNOWS his 2-609 fears are true: i. UCC § 2-702: Seller’s Remedies on Discovery of Buyer’s Insolvency: Where seller

discovers buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under K, & stop delivery.

ii. UCC § 2-705: Seller’s Stoppage of Delivery in Transit or Otherwise: Seller may stop delivery of goods in possession of a carrier or other bailee when discovers buyer is insolvent & may stop delivery of carload, truckload, planeload or larger shipments of express or freight when buyer repudiates or fails to make a payment due before delivery or if for any other reason seller has a right to withhold or reclaim goods.

III. Pittsburch-Des Moines v Brookhaven: P to build t tank for D for $175k. No payment tunder K until 30 days after completion. P learned D refused loan. P’s credit manager sent letter to D’s president demanding he guarantee payment due under agreement. Letter required money be put in escrow. D’s

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president responded by sending statement of personal worth. P then stopped making parts & tank was never built. P sued alleging D repudiated by failing to undertake actions req’d by letter sent by P.

a. Holding : No reasonable grounds for insecurity, so no reasonable grounds for beach; money was not required to be paid for some months and D’s president’s refusal to guarantee money was not unusual in a corporate setting. Hence, P wrongfully refused to perform K.

i. UCC § 2-609 does NOT permit party to alleviate insecurity by reforming K to add payment term not contemplated by original agreement w/o reasonable grounds.

ii. Brookhaven’s financial status was the same, so you can’t impose new requirements.IV. Norcon Power v Niagara Mohawk: 25-year K for D to purchase electricity from P at specified price.

D gave P w/ letter stating believed credits in its favor would accrue to over $610m. Anticipating P not able to satisfy escalating credits, D demanded P provide assurance that will perform repayment. P sued to declare D had no right to demand assurance Not a sale of a good – so court had to decide whether common law allows for what § 2-609 does. (didn’t decide the case.)

a. Holding : NY common law of Ks never expanded 2-609 to include non-UCC Ks except in cases where party believed to be repudiating was insolvent. Rule: Court says its similar to a sale of good, so UCC rule is equally applicable to common law Ks.

REMEDIES FOR BREACH OF CONTRACTChapter 5 – Intro to Damages

I. Overview: a. Three basic measures for damages reflected in RS 2 § 344, Purposes of Remedies:

i. Expectation damages (compensate victim; puts victim in position he would have been in if promise had been performed; limited to reasonably foreseeable damages based on terms of k) (note: expectation damages serve as cap for reliance damages)

ii. Reliance damages (used when promise is enforceable only because of reliance; gives victim costs so she is put back in position she would have been in if promise had never been made)

iii. Restitutionary damages (used when party has conferred a benefit on another under circs where other is not contractually liable for benefit)

iv. Disgorgement (innocent party gets profits gained from breaching party—response to theory of efficient breach, which encourages parties to breach where it’s efficient)

b. Specific Performance: equitable remedy available only when remedy at law (damages)II. Which types of damages should govern for breach of a bargain k ?

a. Often reliance and expectation damages will be equal, but sometimes very diff.b. Traditionally courts agreed expectation damages should be granted, but that’s changing now—

courts more willing to grant reliance.c. Mel: for reasons of fairness and efficiency, expectation is the right measure.

III. Diff btn K & Tort dmgs : Hawkins v McGee (p190): P’s hand burned; D solicited surgery, promised to fix it 100%, but made it worse.a. Result : P entitled to damages measured by the difference between the value to him of perfect hand

and value of his hand in its present condition (Expectation Damages)b. Rule: illustrates difference between contract and tort damages; limit contractual liability to cases

where it’s clear than an explicit promise was being made to induce—and that did induce—a procedure or course of action that patient would not have otherwise wanted to take.

IV. Theory of Efficient Breach:a. Definition: breach of k is efficient and therefore desireable if promisor’s gain from breach, after

payment of expectation damages, will exceed promisee’s loss from breachb. Response to theory: disgorgement (innocent party gets breaching party’s profits gained from

breach) which runs directly counter to the theory of efficient breach.i. Suggestion that disgorgement as proxy or, more likely, a substitute for expectation dmgs.

ii. About fairness, and easy to measure.

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c. Resale Paradigm: seller who has contracted to sell a good to a buyer breaches the k in order to sell the good to a third party who offers a higher price

i. Note : disgorgement says no, you cannot keep those profits. d. But: Mel argues that the theory is wrong in every way and undermines k law bc

i. predicates that it is based on are false(1) assumes victim is just as well off with expectation damages as with performance

(no way to know buyer’s subjective value)(2) assumes that breacher/seller can actually calculate innocent party’s loss at the

time of breach (no way to know objective value)ii. would decrease it bc would weaken k system as a whole by reducing rewards for

planning and investing and weakening moral aspect of promise-keepinge. Coppola Enterprises v Alfone (p207): D contracted with P to buy home. Sale delayed, then P only

gave D 10 days to get financing and when she couldn’t, she re-sold house.i. Result : P entitled to expectation damages measured by P’s profit on the re-sale

(disgorgement, which, in this case, is proxy for expectation damages)f. US Naval Institute v Charter Communications (p203): P gave D license to publish paperback

version of book, stipulating no sales until October. D released paperback early. i. Result : P’s damages limited to lost profits resulting from early publication; award of D’s

projits attributable to sales (disgorgement) is overturned. (Expectation damages)ii. Rule: purpose of damages is to compensate injured party for actual loss, not to make

them better off than they would have been before the contract.V. Punitive Damages:

a. RS 2 § 355: punitive damages not recoverable for breach of k unless conduct constituting breach is also a tort for which punitive damages are recoverable

i. But: in practice, punitive damages for breach of k are not uncommonii. Many jurisdictions use broader test than RS 2, like looking at whether the breach is

constituted morally reprehensible or willful and wanton conductChapter 6 – Expectation Measure

1. Expectation Damages in General a. Basic Principle: upon breach of a bargain K, injured party should be put into the position

she would have been in if the K had been performed.b. Damages for Breach of K to Perform Services

Breach by a person who has contracted to perform servicesi. Rule (RS 2 § 348): two types of damages, either is acceptable.

(1) Diminished value: difference in value of completed project and value of project in the state contractor left it; diff btn what owner got and what he was promised.

(2) Cost of completion: amount owner pays a new contractor to finish the jobWith perfect info, these two amounts would be the same.

(3) Note: there is a “third way” – measure actual subjective value lost by breach and award those damages (i.e., pool built at wrong depth; measure “loss of pleasure”) but this is not used in any U.S. courts.

iii. How to choose which measure of dmgs: judge’s discretion. Sometimes no matter bc amount is the same. Sometimes cost of completion irrelevant bc completion impossible.

iv. Proposed rules for choosing which measure of damages:(1) Cost of completion unless “unreasonable waste”(2) Cost of completion unless “disproportionate to the end to be obtained”(3) Cost of completion if judge thinks P will complete and $ won’t be wasted.

(Mel’s preferred rule, used in Advanced v Wilks (p235): if close, benefit of the doubt should tip towards cost of completion, bc it takes into account emotional attachment / subjective value of completion.

(4) Order specific performance (completion): but then P must enforce it, which may result in incentives to split damages btn P & D depending on bargaining position

v. Assymetrical Rule : the person who breaches can’t sue the injured party, even if the injured party is better off from the breach.

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vi. Louise Caroline Nursing Home v Dix Construction (p218) K to build nursing home stops halfway; P gets someone else to finish it for less money than they’d have paid Dix to finish it. P still sues D for leaving half a nursing home.

1. Result : court found for D and “awarded” cost of completion damages, which turns out to be $0 since it was completed at a cheaper price.

ii. Peevyhouse v Garland Coal & Mining (p220): mining co leases land, agrees to reconstruct after mining but does not, so landowner sues for breach.

1. Issue : what type of expectation damages appropriate? Cost of completion would be $5,000, diminished value is only $300 bc it’s not so valuable land.

2. Holding : court awards $300 diminished value bc cost of completion would give Ds money 9x the value of the land; & this part of K was incidental to purpose.

3. Rule : where cost of completion would be disproportionate to the end to be attained, diminished value should be used.

4. Dissent/ Mel’s Rule : cost of completion appropriate where breach is willful even if disproportionate to ends, especially considering subjective value.

Breach by a person who has contracted to have services performedi. Two (equivalent) measures of damages (first one tends to be used bc court doesn’t have

to calculate lost profits under it)1. [K price] – [cost of completion saved by builder] – [am’t paid by owner prior to

breach]2. [Expenditures incurred prior to breach] + [lost profits] – [am’t paid by owner

prior to breach]iii. Contractor’s overhead/fixed costs: if included in calculation of lost profit, seller’s lost

profit will be smaller (since profit = revenue – cost)1. Rule : do not include fixed costs in calculations (benefits contractor, which

makes sense since it was the owner who breached) (Vitex, p240)iv. If contractor “covers” by finding someone else to buy services:

1. Replacement Ks: if contractor can only K for a limited number of clientsMaj Rule: no decrease in damages unless it’s a service K (i.e., if employee sues for wrongful termination, he will have damages reduced if he has another job, since he can only hold one job at a time) (Mel disagrees & would reduce)

2. Non-replacement Ks: contractor can K w/ unlimited clientsRule: no reduction in damages (Wired Music, p240)

v. Aiello Construction v Nationwide Tractor Trailer (p237) P was going to haul/fill land & D was to pay in installments; D stopped paying, P stopped working & sued for breach.

1. Result : breach; P gets full reimbursement for his lost profits plus the costs incurred (court went with formula 2)

c. Damages for Breach of K to Sell Goodsi. UCC § 20711(1): breach of K by seller includes seller’s wrongful failure to deliver or to

perform a contractual obligation, making of a nonconforming tender of delivery or performance, and repudiation.

ii. Types of remedies: Specific relief (buyer awarded actual goods—See cpt. 7). Damages.iii. Damages where seller fails to deliver or buyer rightfully revokes acceptance

1. UCC § 2-712: Cover Damages: buyer allowed to cover, but not required to, by purchasing goods from another seller; buyer recovers difference between cost promise and cost paid to new seller; seller may challenge whether the alternative is an appropriate substitute.

2. UCC § 2-713: Market Price Damages for nondelivery/rightful repudiation: diff btn current mk’t price and K price + incidental/consequential damages (costs saved by breach).Market price: price at place of tender (where the goods are) if nondelivery; if place of arrival if revocation / rightful rejection.

3. UCC § 2-713: Market Price Damages for repudiation by seller: diff btn mk’t price after buyer learned of breach and K price + incidental consequential damages (minus costs saved by breach)

iv. General Rule: buyer who covers cannot sue for market price damages.

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v. Damages where buyer accepts the goods but they are defective:(1) UCC § 2-714(1): (No warranty): if notice of defect is given, can recover loss

occurring from the breach as measured in “any reasonable manner”(2) UCC § 2-714(2): (Warranty): damages more specific = diff at time and place of

acceptance in value as accepted and value as warranted (value measured in mkt at place of acceptance)

i. Note: special circumstances can bend this rule (Manoucheri, p243)ii. Note: damages can be calculated by cost of repair by diff btn mkt

price and value as delivered.(3) Incidental/consequential damages may also be recovered

vi. Incidental & Consequential Damages for Buyer: UCC § 2-715:(1) Incidental: expenses incurred in taking care of damages goods (inspection,

transportation storage, etc.); or in finding cover(2) Consequential: loss resulting from general/specific needs related to K that

could not be reasonably prevented by cover & that seller had no reason to know about (usually lost profits) – but buyer only gets lost profits if the loss is foreseeable; seller automatically gets lost profits if the breach is by buyer.

vii. Egerer v CSR West (p243): K to sell gravel; after making K, seller didn’t sell; buyer covers after some time when finds an okay deal, but sues for mkt price damages.

(1) Holding : Mkt price dmgs awarded (even tho usually can’t do that when cover)viii. Delchi Carrier v Rotorex Corp (p248): (CISG case): Seller Ks to provide parts; sends

wrong kind; buyer partially covers but can’t get enough of correct kind to fully cover.(1) Holding : damages = [lost profits] + [expenses incurred in trying to remedy

problem] + [cost of cover] + [cost of maintaining rejected parts]ix. Cover damages in a cost-plus K: KGM Harvesting v Fresh Network (p253): K for

9cents/lb lettuce sale. Buyer resold for cost plus some profit am’t. 2 years in, lettuce price went up dramatically, seller refused to supply it. Buyer covered to meet its burden to buyers. Sued for cover dmgs.

(1) Holding : cover damages awarded even where there’s a cost-plus K. No diminishing them despite fact that buyer could pass on some cost to its buyers.

(2) Note : courts are split on this issue (when buyer ends up being made better off bc he gets full cover damages)

x. Damages where buyer breaches: UCC § 2-703: what seller can do if buyer breaches; (1) Resale (§ 2-706): seller can resell goods intended for buyer under K; so long as

sale is made in good faith and in a commercially reasonable manner, damages are difference between resale price & K price, plus incidental/consequential damages (lost profits)(less expenses saved due to breach) i. What is commercially reasonable: (types of auctions / notice, etc) ii. Note: seller is not accountable to buyer for any profit made on resale

(2) Market Price (§ 2-708): diff btn market price at time/place of tender & K price, plus incidental/consequential dmgs (lost profit) (less expenses saved due to breach)Note: some difference in the time used to calculate market price based on whether breach was non-acceptance or repudiation.

i. Non-acceptance : rejection of the goods.ii. Repudiation : regular old breach—“we have no K” prior to tender.

(3) Cannot do both (§ 2-709): if sue for mkt price, must hold goods for buyer; if opportunity arises to resell, can, but must credit the resale price towards buyer’s debt. Note: But case law suggests otherwise

(4) Lost Profit for Lost Volume Seller Case (§ 2-708): used as a last resort where market price or resale price in adequate, seller can recover what actual profits would have been awarded had buyer not breached (lost volume seller case)

i. Note : Neri says this is really the dominant rule.xi. Incidental & Consequential Damages for Seller

(1) Incidental: reasonable expenses in stopping delivery, caring for goods after time of supposed delivery, resale costs, other costs resulting from breach

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(2) Consequential: loss resulting from specific/general requirements that buyer should have been aware of & that could not be prevented by resale (lost profits) Note: in consumer K, seller may not recover cons dmgs from consumer

xii. Resale in Lost Volume Cases: Neri v Retail Marine Corp (p260)(1) Facts : parties agree to sale of specified boat model. Buyer paid deposit then

rescinded K. Seller refused to refund deposit. Seller sold boat 4 mos later to diff buyer. Buyer sues for deposit return. Seller counter sues for damages stemming from buyer’s breach

(2) Holding : under § 708, seller entitled to market price damages despite having sold boat to another buyer, bc had capacity to sell to multiple buyers (i.e., would have sold 2d boat if not for buyer’s breach)

d. Calculating Market Pricei. Rule (UCC § 2-723) regardless of whether breach is by seller or buyer, if evidence of

price cannot be discovered for the exact market described by UCC, it is acceptable to use a substitute market that is nearby (geographically or temporally) and take into account expenses for transporting goods from that market)

ii. Rule (UCC § 2-723): can only do so with sufficient notice to other partyiii. Rule (UCC § 2-724): if prices of stocks/commodities are at issue, prices as published in

newspapers can be used as evidence of prevailing prices in the appropriate market.2. Limits on Expectation Damages

a. Mitigation / Employment Ks: i. General Rule: any costs incurred in a reasonable effort to mitigate are recoverable

as incidental damages. (I.e., you can recover the expenses of trying to cover.)ii. Services – Duty to Mitigate Rule (RS 2 § 350): an injured party is not permitted to

recover damages that could have been avoided by reasonable efforts.(1) What’s reasonable : Doesn’t have to be utmost effort. Injured party can choosing

among any reas options. Burden of proof on breaching party to show unreas.iii. Goods – Duty to Mitigate Rule (UCC § 2-715(2) & 2-704(2)):

(1) If seller fails to deliver, buyer has right/duty to cover. If buyer fails to cover, she is barred from damages that could have been prevented by cover.

(2) If buyer repudiates prior to delivery, seller cannot run up damages by incurring extra charges for continued manufacture, delivery, etc. Seller has a duty to resell and can then recover only diff btn resale price & K price.

(3) Madsen (p269): seller of pool tables had duty to mitigate in a commercially reasonable way—should have tried to resell the tables as tables, not as firewood.

iv. Employment Ks: (1) If an employer wrongfully terminates employment, employee is under duty to

mitigate by looking for comparable job.(2) Wages from new job will decrease damages owed by old employer, since the

person can only work one job at a time. (opposite of lost volume)(3) Two steps to employee mitigation:

i. Look for new job (standard: reasonable effort)ii. Take a new job (standard: good faith; cannot be opportunistic in saying

no to a comparable job just to make employer pay more, but do not have to take a job offer that is not comparable)

(4) Mr Eddie Inc v Ginsberg (p276): employee wrongfully terminated can recover for reasonable costs made in an effort to avoid or mitigate injury (i.e., cost of looking for new work).

i. But: if you could’ve found thru reasonable efforts comparable employment, but you don’t do that (get lower-paying job) you don’t get to recover the difference (i.e., pilot who takes a job at Macy’s but could have gotten a pilot job cannot recover the difference).

v. Damages for loss of reputation: (1) Rule: damages granted for loss of specific and identifiable job opportunities as a

result of breach of employment K, but NOT for lost reputation generally. (Redgrave v Boston Symphony Orchestra, p276)

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(2) Note : Mel says this doesn’t make sense bc injury to an employee’s reputation is reasonably foreseeable, and whether the damages are too uncertain should be decided on a case by case basis

vi. Damages for lost opportunity to practice employee’s profession: (1) General Rule: employer has no duty to provide work to employees(2) Exception (only recognized in some states): in Ks where a material part of the

benefit anticipated by employee stems from that particular employee doing the work, there is an implied promise by the employer to provide that work.

i. Ex) radio/tv announcers, actors, etc., given fewer public roles than they were hired for but maintained level of pay were still awarded damages for breach of K (p278-9)

(3) Picking a new job: MacLaine v Twentieth C Fox (p272): Employer backed out of employment K; offered actress gig in diff movie to be filmed in Australia instead of LA, in which she would not be star, as in original.

i. Holding : when employer wrongfully terminates, employee has duty to make reasonable efforts to locate a position only of the same rank and type of work in the same locale.

vii. Construction Ks: Rule: contractor under duty not to add to owners damages by continuing work after the owner breaches. Cannot recover for expenses incurred by continuing construction after owner backs out of K. (Rockingham)

(1) Contractors are not usually responsible for looking for a replacement jobi. Flipside of lost volume seller: can only be in 1 place at a time

ii. All contracting Ks involve own risk; they should be able to assess the risk of each individual K, so there’s no comparable job.

(2) Rockingham v Luten Bridge (p266): contractor had K to build bridge for county; county wrongfully backs out of K (breach). Contractor continued to build after being told of county’s intention to repudiate. What measure of dmgs?

i. Result : dmgs only for the work done prior to being told to stop.ii. Rule : after an absolute repudiation or refusal to perform by one party

to a K, the other party cannot continue to perform and recover damages based on full performance.

b. Foreseeability i. Services – Rule (RS 2 § 351; Hadley v Baxendale): consequential damages can be

recovered only if, at the time K was made, D had reason to foresee the damages as a probably result of the breach (judged at the time K was made).

(1) Foreseeable loss: probably result of breach bc it follows from the breach in the ordinary course or events or as a result of special circumstances that the party in breach objectively had reason to foresee.

i. What’s reasonably foreseeable in K law ? diff btn chance that a card is a spade and chance that a card is an ace of spades when picking out of a deck. ¼ = reasonably foreseeable. 1/52 = not reasonably foreseeable.

ii. Maj Rule: foresee type of loss, then any magnitude/am’t counts. (Worth: if you foresee type of loss, then you get all the consequential damages regardless of how disproportionate they are.)

iii. Min Rule: need to foresee both type & degree (Victoria Laundry)(2) Damages must actually be caused by the breach.(3) If multiple factors caused the damages, breach must be a substantial/chief factor.

(and can award partial consequential damages, but with burden on P to show proximate cause—SJ Groves, p291)

ii. Goods – Rule:(1) UCC § 713: if buyer covers, gets consequential damages(2) UCC § 715: consequential damages include any loss resulting from the breach

that seller had reason to know at time of making K and which could not be reasonably prevented; and injury to person or property proximately resulting from any breach of warranty.

iii. Policy: reflects a tension btn 2 views:

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(1) Ks damages should put injured party in as good a position as had full perf occurred (in which case D liable for all consequential dmgs); and

(2) Not always wise to make breaching party pay for all dmg that followsiv. Hadley v Baxendale: (p279) Mill owner (P) sent broken crank shaft to 3rd party via

messenger (D); K was for next-day delivery, but was late, P lost profits during that time.(1) Result : no recover for consequential dmgs (lost profits).(2) Rule : party injured by breach can only recover those damages that:

i. (objective) are reasonably considered as arising naturally from breach ii. or (subjective) might reasonably be supposed to have been in the

contemplation of both parties at time K was made as probably result of breach.

v. Victoria Laundry v Newman: (p283) K for repair of boiler used by P in laundry business; delivered 5 mos late, caused huge loss of profit.

(1) Result : consequential dmgs allowed—bc D knew purpose of boiler was for profit, and P told D of intention to put it to immediate use. Bc am’t of lost profits was not reasonably foreseeable, dmgs limited.

(2) Min Rule : adds 2 explanations to Hadley v Baxendale:i. To be liable, D doesn’t need to have actually asked himself what loss is

liable to result; it suffices that if he had considered it, a reasonable man would have realized.

ii. D doesn’t need to have foreseen a necessary loss, just a likely one.iii. Limits dmgs to the

c. Certainty i. Services – Rule (RS 2 § 352): damages can be recovered only if their amount is

reasonably certain of computation. (Otherwise referred to as speculative, and P can recover only nominal damages – usually token am’t of $1)

ii. Goods – Rule (UCC § 1-106): remedies shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damges may be had except as specifically provided in this act or by other rule of law.

(1) One purpose: reject any doctrine that damages must be calculable with mathematical accuracy; recognize that compensatory damages are, at best, approximate.

iii. New Business Rule:(1) Old rule: prohibited recovery of lost profits P claims would have been

generated by a new business (bc lack of proof that new business would generate profit)

(2) Modern trend: not to enforce; decide, instead, on case-by-case basis whether profits are too speculative

iv. Criticism of this “all or nothing” certainty rule:(1) sets arbitrary line that can be complete bar to recovery.(2) Mel’s preferred method : damages should be calculated based on expected value

(probability-based calculation of dmgs)(3) 2nd best alternative: courts should at least award the highest level of damages

that are more probably than notv. Kenford v Erie Co (p292) K to construct / operate domed stadium; fallback lease for

operation if mutually acceptable one could not be negotiated; no lease neg’d, construction did not start w/in time period it was supposed to according to K; contractor sues for consequential damages from future operation profits.

(1) Result : no consequential dmages bc evidence of lost profits is not very certain (based on profits of another similar domed stadium).

(2) Rule : loss of future profits allowed if:i. Demonstrate w/certainty that such dmgs have been caused by breach

ii. Alleged loss must be capable of proof w/reasonable certainty(3) Reasoning : it was likely foreseeable that there’d be 20 years lost profits, but not

certain, and don’t want to burden taxpayers.

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(4) Mel’s note : perhaps lost profits less certain in entertainment industryvi. (Modern view) Ashland (p295): absolute certainty is not required; must only be

measurable based on known reliable factors w/o undue speculation.vii. (Modern view) Rombola (p297) horse owner backed out of K to allow trainer to race

horse for specific period of time; cons dmgs allowed based on horse’s prior win rate.3. Special Kinds of Expectation Damages

a. Mental / Emotional Distress: i. Rule (RS 2 § 353): damages for ED not ordinarily allowed.

ii. Exceptions: dmgs for ED arising from breach may be awarded where:(1) ED accompanies bodily injury(2) Where K was of a type that involved personal interests, as opposed to strictly

commercial/financial, so that ED was likely result (i.e., innkeepers & guests, carriage & disposition of dead bodies, delivers of msgs concerning death) (kinda like a Hadleyish foreseeability case)

iii. Hawkins v McGee (doctor-hairy hand case)iv. Valentine v General American Credit (p302): P sought to recover ED dmgs arising from

breach by employer of a K entitling her to job security(1) Result/ Rule : no ED dmgs for breach of employment K(2) Mel says : this is dumb. Why isn’t it personal? Should be decided on case-by-

case basis whether there is ED.v. Jarvis v Swan Tours (p307): P paid for holiday vacation pkg thru D tour co. Holiday was

a flop—not at all as promised.(1) Result : ED awarded bc about enjoyment

b. Liquidated Damages:i. Definition: liquidated dmgs provision is clause in K that fixes amt of dmgs that will be

recoverable in event of breach. (often stips that deposit serves as liq dmgs)ii. Services – Rule (R2 § 356): enforceability depends on whether the court finds it to be

valid as liquidated damages (as opposed to a penalty, which is not enforceable). If it’s found to be a penalty, the injured party then must prove her damages.

(1) These are few # of cases where court doesn’t let text of K control.(2) Burden of proof on person challenging liq dmgs clause, but ambiguity will be

resolved against enforceability.(3) Rule I: To be enforceable, a liquidated damages clause must met 2 conditions:

i. Damages stemming from the breach were impracticable or extremely difficult to estimate at the time K was made, and

ii. Amt of damages fixed must be a reasonable forecast at the time K was made.

(4) Rule II: Also, looking at reasonableness at time of breach: if provision was valid when made, and subsequent events make actual damages unascertainable, or actual damages turn out to be very different than the clause provides for—

i. Traditional rule: still enforceableii. Emerging rule: liq dmgs clause may be rendered unenforceable (some

courts use unconscionability to get to this)(5) Note: ½ states use that analysis, but ½ only look at the time of breach (modern)(6) Lee Oldsmobile (p )if you can’t determine even at the time of breach what

damages are, then that’s the only circumstances in which you can use liq dmgs clause.

iii. Goods – UCC § 2-718(1): liquidated damages provision enforceable if the amount fixed is reasonable in light of ‘anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy.

(1) a term fixing unreasonably large liquidated damages is void as a penaltyiv. Rationale: particularly suspectible to defects in cognition bc

(1) People can’t determine every possible way K could go wrong, and wouldn’t be wise investment to try, since most Ks aren’t breached—so liquidated dmgs clauses not thought through enough.

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(2) People overvalue the present and undervalue the future, so concept of liq dmgs becoming relevant not very salient at time of K formation

v. Under-liquidated Damages Clause:(1) Limit damages in case of breach—can limit all, or exclude liability for

consequential dmgs, or limit damages to repair or replacement of goods(2) Rule: usually enforced(3) UCC § 2-279: explicitly validates clauses that exclude liability for

consequential dmgs or limit dmgs to repair or replacement of goodsvi. Wassermans v Middletown (p308): town leased land to general store owners, included

clause that if town cancelled, would pay lessee (1) reimbursements for improvement costs; (2) dmgs for 25% avg gross receipts for 1 year. Leased prop was subleased a few times. Town cancelled lease, tried to get out of duty to pay 25% annual profit.

(1) Result : town had to pay; liq dmgs including consequential dmgs upheld.(2) Rule : Stipulated clause must be reasonable forecast of provable injury. Burden

of prod/pers rests on party trying to get out of liq dmgs clasue; liq dmgs clause is presumed reasonable.

Chapter 7 – Specific Performance: an Equitable RemedyI. General Principle : injunction to compel other party to perform the terms of the K.

a. Specific performance is an equitable remedy, so up to court to decide whether to grantb. Historically, used to be in two separate courts (court of law / court of equity).c. Can be used: After party breaches, OR against party who threatens to breachd. Monetary damages are preferred unless justification for why monetary damages are inadequate

II. Rule: a. Services—RS 2 § 359: specific performance or injunction will NOT be ordered if damages

are adequate to protect the expectation interest. i. Adequacy of damages to pay for one part of the performance does not preclude specific

performance on the K as a whole.ii. Specific performance won’t be denied just bc there is a remedy other than damages.

iii. Test for Adequacy of Damages (RS 2 § 360): specific performance will be granted where there is:

(1) Difficulty proving damages with adequate certainty(2) Difficulty getting suitable substitute w/any damages awarded (i.e., virtual

specific performance)(3) The likelihood that an award of damages could not be collected

b. Goods – UCC § 2-716: specific performance may be decreed where: (1) goods are unique (2) or in other proper circumstances.

i. Flexible doctrine.ii. Court may modify terms as to payment of price & dmgs as court deems just.

iii. Buyer has right of replevin: right to seize goods if he is unable to cover.(1) inability to cover is indication of “proper circumstances” for decree of specific

performance.(2) Buyer must attempt to cover w/in a reasonable time of breach

III. Cases a. Construction Contracts: London Bucket v Stewart (p 236):

i. Facts : D did faulty job of installing heating system; P sued for specific perf.ii. Result : no specific performance decreed.

iii. Rule : in building Ks, tend not to order specific perf bc award of damages will allow P to hire someone else to complete the work, and court would rather not supervise.

b. SP more likely granted when public interests involved: Laclede Gas v Amoco Oil (p 335):i. Facts : long-term propane supply K—D stopped supplying for P residential distributor.

ii. Result : specific performance granted bc: point of K is to ensure long-term supply with guaranteed profit to supplier regardless of price; no assurance that P will be able to cover & serve public customer

c. Buyer must attempt to cover: Weathersby v Gore (cotton sales K)d. Sale of land: SP to force land transfer presumptively allowable

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i. Likewise, seller also has right to force buyer to take land (also form of SP)ii. Policy : uncertainty as to land values, thus uncertainty as to true measure of dmgs;

uniqueness of lande. SP not enforced in Employment Ks—even tho dmgs may not be an adequate remedy.

i. Exception: employer may get non-compete injunction.ii. Policy : autonomy—unwise to force employer to keep employee who he doesn’t want;

unwise to force employee to stay on job he hates (too much like involuntary servitude)IV. Policy re SP in general :

a. Fairness: Party may not have means to prove damages: (May only be able to show harm w/o an amount (resulting in nominal dmgs); May only be able to show part of what’s lost (partial dmgs) Some interests simple are not monetizable.

b. Administerability: difficulty in determinining duties of parties.c. Efficiency: is undermined bc disincentive to cover.d. Judicial Resources: specific performance costs more for the court to supervise than to simply

order damages, so must be choosy about it.e. Substitution: More efficient than specific performance & doesn’t waste court’s resources. Makes

it easier to prove damages—parties know how much substitutes cost.

Chapter 8 – Reliance and Restitution MeasuresI. Overview

a. Purpose of remedies (RS 2 § 344): judicial remedies serve to protect 1 or more of following interests of a promisee:

i. Expectation interest (interest in having benefit of bargain by being put in as good a position as he would have been in had the K been performed)

ii. Reliance interest (interest in being reimbursed for loss caused by reliance on K by being put in as good a position as he would have been in had K not been made)

iii. Restitution interest (int in having restored any benefit that he conferred on other party)b. Possible Remedies (RS 2 § 345): available remedies include:

i. Awarding sum of money due under K or as dmgsii. Requiring specific performance of K or enjoining non-performance

iii. Requiring restoration of specific thing to prevent unjust enrichmentiv. Awarding sum of money (restitution) to prevent unjust enrichmentv. Declaring rights of parties

vi. Enforcing an arbitration awardc. Reliance & Restitution as Alternatives to Expectation

i. Expectation dmgs are primary remedy for breach of K but can ONLY be used if P can prove she suffered an economic loss due to breach—has been deprived of economic gain.

ii. Sometimes, no economic loss can be shown, but P can show suffered another type of loss (i.e., seller of house breaches K, but buyer is able to buy an equivalent for same or less $)

d. Difference btn Reliance & Restitution:i. Reliance: (like exp dmg) viewed as an enforcement of K; returning P to pre-K condition;

based on costs incurredii. Restitution: treats breach of K as making K fall away; seeks to return to P value of any

benefit conferred.iii. In practice, not always easily distinguishable.

II. Reliance Damages as Remedy for Breach in Bargain Context a. Rule: in some cases, injured party pay recover expenses incurred in relying upon K

i. Reliance measure: gives victim of breach her costs, so that she is put back into position she would have been in had the promise not been made.

b. Limit: P may recover his costs in preparation of performance, subject to right of D to show how much P would have lost even if K had been performed (Albert v Armstrong; CCC Films v Impact Quadrant Films)

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c. Rationale: had K been performed, P would have made enough not just for expenses, but for profit.i. Determining profit can be nearly impossible while measuring expenses can be easier

ii. Thus: P’s costs often used as substitute for expectation measure.d. Recovering expenses you would have incurred without breach: Security Stove v American

Rys. Express (p341): P hired to D to transport furnace for exhibition; D failed to deliver on time knowing P’s purpose; P sued for cost of shipping plus costs of sending to convention

i. Holding : P entitled to reliance dmgsii. Rule : in some instances, injured party may recover expenses incurred in reliance even tho

would have been incurred had K not been breached. (Especially here bc can’t prove expectation dmgs bc too speculative).

e. Anglia TV v Reed (p345): (P signed on famous actor for TC role; spent $ in reliance; D backed out; Held that P entitled to costs including those incurred before K was made. (reliance)

f. Limiting reliance damages: Westside Galvanizing Services v Georgia Pacific (p347): the converse – P can only recover for costs incurred after K was made

III. Restitution Measure as Remedy for Breach in Bargain Context a. Rule (RS 2 § 370): a party is entitled to restitution only to the extent that he has conferred a

benefit on the other party by way of part performance or reliance.i. Suit can be brought for restitutionary damages where D is in material breach.

ii. If 1 party in material breach, other can choose btn expectation & restitutionary andiii. If chooses restitutionary, K price does not set a cap on value of benefit conferred

(1) market price is measure used, and P can recover more than K price—recovers quantum meruit—“as much as he deserves” – paid for the am’t work done.

ii. Exception: full performance—if innocent party has fully performed, then K price does set a cap. P can only get agreed-upon price.

iii. Limit: D must have received a benefit from P (illustrations p350)b. Expectation as a Cap on Reliance Damages: RS 2 § 349: Injured party’s right to damages based on

his reliance interest. P may choose restitutionary dmgs over expectation dmgs, but comment says rule intended to apply only where expectation damages are too uncertain to recover. So: many courts take position that expectation dmgs act as a ceiling on reliance dmgs.

c. Measure of Restitution (RS 2 § 371): if sum of money awarded to protect a party’s restitution interest, it may be measured by either:

i. The reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position, or

ii. The extent to which the other party’s property has been increased in value or his other interests advanced. (i.e., market value of services rendered or am’t unjust enrichment.)

iii. May be awarded for material breach.iv. Has both substantive and remedial sense:

(1) substantive: recapture of benefit conferred on D by P, which would otherwise leave D unjustly enriched

(2) remedial: based on am’t of D’s unjust enrichmentv. Osteen v Johnson (p348): P made oral K w/D to promote daughter’s singing career; D

did some, but not all, agreed after P paid him $2,500. Result: P can choose restitutionary dmgs when D is in material breach.

vi. US v Algernon Blair (p351): SC sued for labor/equip costs after ceasing work bc of D’s breach. Result: gets rest dmgs measured by mkt value of services at time rendered.

vii. One who is wrongfully terminated can collect restitutionary damages, but not if he has fully performed already: Oliver v Campbell (p353): P lawyer rep’d D in divorce; after trial ended D fired P having only $550 out of $5000 paid. Result: P fully performed so not entitled to restitution

IV. Restitution in Favor of Breaching Party (“Plaintiff in Default” Cases) a. Modern Rule (RS 2 § 374): even a party who is in material breach (and therefore cannot sue on

the K) may be able to recover the value of the benefit conferred on the other party, subject to an offset for the innocent party’s damages.

b. Application: this kind of recovery can apply to deposit that was made by breaching party if it exceeds innocent party’s damages and is not part of a liquidated dmgs clause

c. Significance: party can recover even if his default is significant.

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i. Note: doctrine of substantial performance allows party who has performed, but w/minor dif from the K, to sue on the K (but if default not minor, get restitution only)

d. Willful Breach: i. Traditional Rule: if breach is willful, party cannot recover restitution.

ii. Modern Approach: courts increasingly inclined to allow even willfully breaching P to recover in order to prevent unjust enrichment of D.

e. Sale of Goods—UCC § 2-718(2), (3):i. (2) Where seller justifiable withholds delivery of goods bc of buyer’s breach, buyer is

entitled to restitution of any amount by which the sum of his payments exceeds: (a) amt to which seller is entitled to by virtue of liq dmgs, or (b) if no liq dmgs clause, 20% value of total performance for which buyer obligated under the K or $500, whichever is smaller

ii. (3) Buyer’s right to restitution under (2) subject to offset if seller can establish (a) right to recover dmgs under UCC provisions; (b) amt of any benefits received by buyer directly or indirectly by reason of the K.

f. RS 2 approach—if breaching party can prove that deposit exceeds seller’s damages, they can recover the difference: Kutzin v Pirnie (p355):

i. Facts : K to buy house; D paid deposit of $36k, backed out. P re-sold for $17,325 less.ii. Result : P gets dmgs, but D can recover diff btn deposit and P’s damages. ($18,675)

g. P can get restitution if breach is not willful & D is unjustly enriched: Vines v Orchard Hills (p363): Facts: P put deposit on condo, breach bc husband transferred to another city, sue to recover deposit. Result: P’s breach not willful, so can recover diff btn D’s dmgs & P’s deposit.

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← STATUTE OF FRAUDS

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←← General rule: requires that certain types of contracts be in writing and signed

a. if K is “within the statute” and isn’t written, Statute is a defense to enforcement unless some exception take it “out of Statute”

b. so if K is within the Statute, it’s unenforceable against a party who has not signed a written doc containing the K’s material terms

← II. Types of Ks that must be memorialized in writing (see below)a. sale of interest in landb. sale of goods c. marriage Ksd. Ks not to be performed w/in a year of the makinge. Ks of suretyship

III. Type of writing requirea. normally any writing signed by party to be bound will satisfy; doesn’t need to be formal Kb. but should include names of contracting parties, description of subject matter, terms and

conditionsc. UCC is less stringent d. integration of several documents

i. writing may be composed of several documentse. auctions involve oral Ks, but auctioneer’s written memo of terms of sale are sufficient writing

IV. Effect of Non-compliance a. Majority view – K is unenforceable but not void means that parties can’t sue on oral K that’s w/in

but is valid for other purposesex. if oral K is later confirmed in written K, it becomes enforceable even if no new

consideration is givenii. and once oral K has been performed on both sides, neither party can recover what

they have givenb. Minority view – K is voidc. 3rd party can’t raise defense of SoF; can only be asserted by party to KRecovery in restitution: party who confers a benefit under K that falls w/in can recover in restitution even if she can’t enforce K; Rationale – suit to recover isn’t w/in SoF d. Reliance on Ks w/in SoF

iii. traditional rule – reliance doesn’t take K out of SoF iv. modern cases – reliance may estop the other from asserting SoF as a defense

1. Rest. 2d § 139 adopts this view V. Specific rules for each type of Ks

A. Sale of interest in land: “interest” in land – determined by property law1. part performance doctrine part performance of oral K for sale of interest in land operates different on

sellers and purchasera. sellers – who have performed their side of oral K by conveying interest to buyer can recover

purchase price even though K isn’t in writingb. buyers – complicated rule, but basically part performance by buyer can take K out of SoF if suit is

for specific performance B. Sale of goods – UCC § 2-201: K for sale of any goods > $500 ; “goods” = tangible movable property

a. exceptions – listed in UCC A. receipt and acceptance of goodsB. part paymentC. special manufactureD. no objection to confirmationE. admission

b. modifications: within SoF if new agreement created by old K + modification would be within SoF c. Other UCC provisions

i. § 1-206 says sale of “general intangibles” such as royalties or copyrights are within SoF d. mixed Ks for goods and services

ii. if primarily for goods withinC. Marriage Ks: covers settlements and pre-nups, not simple promises to marry

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D. Ks that can’t be performed within 1 year: includes Ks that by their terms can’t be performed w/in 1 year from date that K is made (not applicable if performance is possible, but unlikely)

F. exception for performance once K ahs been fully performed on one side, it will be enforceable even if it was oral and w/in SoF c. rationale – party could sue in restitution anyway. Allowing suit on K avoids difficulty of

calculating value of benefit conferred. G. Suretyship Ks: promises made to creditor of another person to “answer for” debtor’s obligation

e. exceptions1. promises made to debtor are w/in SoF2. doesn’t apply if promisor only promises to be primarily liable, only secondarily

a. ex. “Send a chair to John and bill it to me.” vs. “I will pay for the chair John is buying is he doesn’t.”

f. “main purpose” rule: suretyship promise is enforceable, even if oral, if it appears promisor’s main purpose in guaranteeing debt was to secure advantage of a benefit for himself

a. ex. SubK refuses to finish work b/c general can’t pay him. Owner orally agrees to pay SubK directly Enforceable promise.

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