Contract Heather

8/3/2019 Contract Heather

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CONTRACT LAW PROFESSOR KOSTRITSKY

Heather Chung

PROMISE

I.Contract: Enforceable promise (R2: a promise is a manifestation of intention to act or refrain fromacting in a specified way, so made as to justify a promisee in understanding that commitment having been

made)

A.Fundamental Policies & Values1.Freedom to/from K consensual and voluntary assentIndividual autonomy -freely bargain.2.Morality of Promise Pacta Sunt Servanda Agreements must be kept-ethical and legal obligation3.Accountability for Conduct Security in K Need to be held responsible for words and actions4.Social Justice & Protection of Underdog coercion, dishonesty, lack of meaningful choice .5.Fairness equalities unconscionability and Good faith6.Economic facilitate exchange/trade/commerce & stability and predictability of social order/future:

Rationally/comfortably and safely allocate resources and make financial decisions

B.Type of Contracts1.Bilateral contract: seek a promise in return; each party has a right and duty.2.Unilateral contract: Seek an action in return, no returned promise; Only one party has a right to

performance and the other party only has a duty to perform promise

3.Mere gratuities are not enforceable(1)Too broad, circumstances might change, impulsiveness, people might not give gifts if they thought

it was enforced

(2)No gains are made from this trade contract law to facilitate gains from trade in a world withscarce resources

4.Implied-in-fact: the parties agreement is inferred, in whole or in part, from their conduct; the samelegal effect as an express contract.

(1)Exhibit mutual expressions of agreement(2)Source of obligation is intention of parties(3)Parties intention to contract is inferred from their conduct(4)Must have discernable terms

5.Volunteered benefit(1)Usually, volunteers cannot recover compensation(2)Defeats purpose of volunteerism(3)No expectation of compensation(4)One can offer a gratuitous benefit and receive payment if he affords the receiver an opportunity to

decline, unless there is a reasonable excuse not to do so. (ex. Emergency or duty imposed by law)

(5)Officious intermeddlers dont receive compensation; low responsibility on recipient to declineservices.

6.Implied-in-law (Quasi Contract): Not a contract. It is an action for recovery imposed by law wherejustice so requires, even though the parties have not intended to make any agreement nor settled

terms. Prevents parties from retaining a benefit where circumstances show that it would be

inequitable and the party will be unjustly enriched.

(1)Benefit conferred upon D by P(2)Appreciation by D of such benefit (vs. officious intermeddler)(3)Acceptance and retention of benefit by D, so it would be inequitable to retain it without payment

(unjust enrichment/restitution)

(4)Expectation of compensation on part of P (vs. volunteer)(5)D given reasonable time to decline contract (except emergency)(6)Intention of parties doesnt matter(7)Terms dont have to be completely settled


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(8)Maybe you can sue(9)Key concept is measurable benefit conferred, not promise

(a)Not quasi contract or implied in law(i)Bailey v. West (1969)lame horse: not enforceable because there was no intent to be bound

(not quasi; one has to reasonably expect compensation; volunteerism) and no prior

relationship or intention through conduct (not implied in fact)

C.Unenforced promises1.Void Contracts:agreements have no legal effect from the very beginning, as in a gambling contract that

is void as against public policy.

2.Voidable Contract: party at his option may either enforce or not enforce the contract . One who hasbeen induced by fraud has the choice of either avoiding the contract or enforcing it.

(1)Bolin Farms v. American Cotton Shippers Assoc. (1974)sale of cotton at a fixed price, toskyrocket

(i)P could not break the promise simply because it didnt work out how they wanted; asubsequent change in the price of goods relieve the seller of K obligation

(ii)P enter into K w/ full knowledge and experience you deal with the results(iii)Forward sales contractdeal with the risk. Or take it into account when making the

contract.

3.Unenforceable Contract: an agreement that is otherwise valid, but that may not be enforceable due tovarious defenses extraneous to contract formation such as SOF or Illusory K. Can be converted into afully binding contract by the act.

MUTUAL ASSENT

I.Mutual Assent: For a contract to be formed, parties must reach an agreement to which they mutuallyassent, reached through the offer and the acceptance.

A.What is mutual assent?1.Parties must intend to have a contract2.Objective meeting of the minds: takes place through the offer and acceptance: one party proposes a

bargain and the other party agrees to this proposed bargain.

3.Each party must act in such a way as to lead the other to reasonably believe that an agreement hasbeen reached.

4.Parties must agree on the major or essential terms. If they disagree on the minor terms or did notprovide minor terms, the courts may conclude that one partys understanding controls or may supply

the missing terms.

B.Objective theory of contracts- existence and terms of the contracts be determined from themanifestations made by each of the parties. (usually a question of fact)

1.Uses of Objective theory(1)Determine whether the mutual assent was sufficient to form a contract (2)Determine the meaning of particular terms of the contract

2.Test for intent: what a reasonable person in the position of the other party would conclude that hisobjective manifestations of intent meant. (Objective + Subjective)

(a)Subject matter contracted about(b)The relationship of the parties(c)The circumstancesor the context around the transaction; Business setting

(1)Embry v. Hargadine, McKittrick Dry Goods- implied offer by employee to the president forrenewal then got fired (offer/assent objective test)

(a)HOLDING: If what D said would have been taken by a reasonable person to be an offer ofemployment, and P so understood it, then it constituted a valid contract .

(b)The secret feeling or inner intent of a party dont affect the formation of contract if the partyswords and acts indicate otherwise.

(c)Liability should fall with D because he is in the best position to clear up the ambiguity (least costavoider), and D unjustly benefitted from this.


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(2)Lucy v. Zehmerjest offer to sell the land while drinking :Assent objective test(a)P sues for specific performance Ct. held that contract is formed.(b)It doesnt matter if D intended offer as a bluff; what matters is that the P reasonably believed in

words and acts; seems to have been an acceptance before he left bar; assent to pay implicit in

contract to buy.

(c)Any statement made after contract was made is irrelevant and would constitute a repudiation bythe D if contract were found to have existed. If he wasnt justified in thinking there was acontract, then we ask if he relied reasonably for promissory estoppel to apply.

OFFER

VII.Valid Offer (objective and reasonable standard)A.R24 the manifestation of willingness to enter into a bargain so made as to justify another person in

understanding that his assent to that bargain is invited and will conclude the bargain.

B.Reluctance to fine contract1.If the offer presents a close questiona lot of grey areathe court will generally find that there was no

offer. Whereas, once a contract has been found to exist, courts will be quite willing to supplement the

actual terms with provisions on which the parties have not explicitly agreed .They are much less

willing to take liberties with the language of what is asserted to be an offer.

C.Elements1.An expression of a promise or commitment to enter into a contract

(1)an offer cannot take effect until it becomes known to the offeree2.Certainty and definiteness in the essential terms

(1)Must create the reasonable understanding that upon acceptance a contract will arise without anyfurther approval

3.Communication or manifestation to the offeree(1)The communication must convey that reasonable understanding that the offeror intends a

contract to arise and expects to be committed upon acceptance

D.Tools of Analysis (Always use reasonable person standard)1.Language Words used in communication are always primary indicator of what was intended

(1)Look at every word and sentence; do they lack commitment(2)I offer You quote Proposal

2.Certainty and definiteness in the essential terms(1)Lack of Specificity- means lack of commitment; lack of consideration; lack of bargaining(2)The more definite the terms, the more reasonable it is to think a legitimate & complete offer

3.Context and Surrounding circumstances(1)Is this later in negotiations? Inquiries?(2)Sense of urgency?

4.Prior practice and relationship b/w parties(1)Prior relationship give clues to how offeree should have reasonably interpreted communication(2)Custom of industry

VIII.Preliminary negotiations: R26A.Offer has to go beyond preliminary negotiationsB.Solicitation: A manifestation to enter into a bargain is not an offer if the person to whom it is

addressed knows or has reason to know that the person making it does not intend to conclude a

bargain until he has made a further manifestation of assent.

1.Objective test: test is whether a person in the offerees shoes would reasonably have understood thatthe offeror was merely seeking to invite bids or start preliminary negotiations .

2.Statement of future intent- an announcement by a person that he intends to contract in the future willnot usually be considered an offer.

IX.Offeree sometimes required to know of the offerA.Restatement: it is essential to a bargain that each party manifest assent with reference to the

manifestation of the other.


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B.Rewards: a person who does act without knowing about the reward cannot claim the reward.C.Objective manifestation: As long as the offerees conduct leads the offeror to reasonably conclude that

the offeree knew of the offer (not subjective)

X.Offer made in jest: An offer which the offeree knows or should know is made in jest is not a valid offer,and even if it is purportedly accepted, no contract is created .Vs.Lucy v. Zehmer

XI.Advertisements as offersA.Most advertisements in the mass media, in store windows etc. are not offers to sell, because they donot contain sufficient words of commitment to sell. Usually do not constitute offers.1.Unilateral offers directed to the public: can be retracted at any time-no commitment or consideration;

no bargaining - was not an offer made to any specific person but was made to the public generally

(1)Not reasonable for the offereee to think that it was a genuine offer that required only anacceptance

(2)Terms so indefinite: that could not be considered a valid offer2.Lonergan v. Scolnickpaper ad. to sell land then sold it to 3rdparty after a form letter to hurry

(1)Solicitation for an offer, not mutually agreed upon; no reason to wait; no commitment(2)If P knows or has reason to know that the person making it does not intend it to constitute an

expression of fixed purpose until he has given a further expression of assent, no offer has been

made.

(3)The letter that D sent to P did not identify the P as the particular offeree because it was a formletter, thus it was not an expression of fixed purpose, not definitive offer .

(4)The statement that he expected to have a buyer in the next week would cause a reasonable personto believe that D intended to sell to the first-comer, and was reserving the right to do so .

B.Exception is when there is a specific terms or promise(1)If the advertisement contains words, expressing the advertisers commitment or promise to sell a

particular number of units, or to sell the items in a particular manner, there may be an offer .

(2)Lefkowitz v. Great Minneapolis Surplus Storenewspaper ad offering fur coats but refused tosell based on house rule; valid offer.

(a)The ad that is clear, definite, and explicit for only one party; leaves nothing open to negotiation($, what, amount, and who will get it)

(b)When he showed up first, ready to pay, so the D could no longer change offer.(c)He could have modified the offer but before it was accepted and not after .

XII.Offer distinguished from expression of opinionan offer must contain a promise orcommitment, rather than merely an opinion. Whether a reasonable person in the position of the offeree

would have understood the offeror as having proposed a bargain, rather than as having merely stated an

opinion.

XIII.Offers at auctionsUCC 2-328, Rest Section 28.1.Invitations to bid- solicited through the sending out of invitations to submit bids, the invitation is not

an offer unless it contains language so indicating. In the usual case, the invitation is simply a

solicitation of offers, the bids are offers, and it is up to the inviter to decide which, if any, of the bids

to accept.

2.If the invitation to submit a bid contains language indicating a commitment on the part of the inviterto award the contract or sale to the highest bidder, the invitation may be held to constitute an offer,

and the inviter will be bound to a contract with the highest bidder .

TERMINATION OF OFFER

I.R36 Termination of Offer: an offer gives to the offeree a continuing power of acceptance until thepower has been terminated. (destruction of power of acceptance, effective on receipt)

A.R38 Offer terminated by offerees rejection1.If the offeree rejects the offer, her power of acceptance is terminated unless either:

(1)the offeror indicates that the offer still stands in spite of the rejection or(2)the offeree states that although she does not now intend to accept the offer, she wishes to consider

it further


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B.Counter offer terminates power to accept- if the offeree makes a counter offer, his power toaccept the original offer is terminated just as if he had flatly rejected the offer .

1.A counter offer does not terminate the power of acceptance if either the offeror or the offeree indicatesotherwise.

2.Remember, the offerees power of acceptance is terminated only when his response is true counteroffer rather than a qualified acceptance of the sort referred to in 2-207(1).

(1)Common Law: Mirror Image Ruleany change in terms = counter offer .(2)UCC 2-207(a)Under 2-207 the buyer has the advantage and this helps avoid unfair surprise . Seller

acknowledgment surprises are gone.

(b)Merchants additional terms become part of the contract in certain circumstances if the otherparty (the offeror) merely remains silent. It effectively modifies the common law rule that a

proposal for a contract cannot be accepted by silence.

(c)However sellers are not without protection they can always choose not to ship the goods untilthey get assent to terms they want. Can choose to walk away.

(3)Minneapolis & St.Louis Railway Co. v. Columbus Rolling-Mill Co.D makes offer; P writes backaccepting, but lowering quantity of rails; D rejects it, P tries to accept original offer

(a)Once a counter offer is made, the initial offer is dead.3.If the offer is irrevocable, a counter offer will not terminate the offerees power of acceptance .4.If the offeree merely makes an inquiry about changing the terms of the offer, he has not made a

counter offer, but merely a counter inquiry. If so, his power of acceptance is not terminated.

C.Lapse of time1.R41(1) Offeror is master of his offer; he can set a time limit for acceptance. At the end of the time

limit, the offerees power of acceptance automatically terminates by lapse.

(a)If no time is specified at the end of a reasonable time (Q of fact)(i)Offers sent by letter or telegram begins when the offer is received not when it is dispatched .(ii)When offer made face to face or over the phone within conversation, the offer terminates at

the end of the conversation and cannot be accepted afterwards.

2.In addition, an offerees power of acceptance is terminated by the non-occurrence of any condition ofacceptance under the terms of the offer.

D.R43 Revocation of the offeror1.Direct Revocation

(1)the offeror is free to revoke his offer at any time before it is accepted (except in the case of anoption contract

(2)R42 Revocation is effective upon receipt (Lost revocation becomes ineffective)2.Indirect Revocation

(1)the offeror takes definite action inconsistence with an intention to enter into the proposed K andthe offeree acquires reliable information to that effect.

(2)R43 Third party: Where offeree learns of offer made to third party there is an indirect revocationwhen the offeree learns that the offeror has taken a definite step inconsistent with the proposed

contract and the offeree acquires reliable information to that effect which indicate to a

reasonable person that the offeror no longer wishes to make the offer.

(3)R46 General notification to the public or unknown people, a notice of termination can be givenpublicity by advertisement or other general notification equal to that given offer .

3.Dickenson v. Doddsoffers house till Fri.9am, P heard the D sold it to another, then P accepts ;(1)Even though P thought he could accept anytime up until Friday; the outward actions of D should

have known that wasnt the case

(2)Mere rumor not sufficient- If the offeree merely hears rumors that the offeror has or will takeaction inconsistent with the offer, and he reasonable believes the rumor, there is no revocation,

even if the rumor turns out to have been true.

E.R48Death of incapacity of the offeror or offeree1.even if the offeree does not learn of the offerors death or incapacity until after he has dispatched what

he intends as an acceptance

II.Irrevocable Offer


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A.Option contract: offeror to grant the offeree an option to enter into the contract, the irrevocableoffer so formed.

1.R25An option contract is a promise, which meets the requirement for the formation of a contract andlimits the promisors power to revoke an offer.(Must be exercised before term expires, mail box rule

does not apply to an option contract.)

(1)Binds the offeror to his promise while the offeree is not yet bound(2)Offeror has no right to withdraw unless offeree declines to accept in the prescribed time2.Three Types of Option Contracts(1)Paid-for(2)Option K created by part performance: Unilateral K

(a)CL- offeror could revoke an offer for a unilateral contract any time up until the completion ofthe requested performance.

(b)R45Option K that makes offer irrevocable through part performance(i)If an offer for a unilateral K, or not clear unilateral or bilateral K (R62) is made, and part

performance is tendered in response the offeror is bound by the K; Partial performance Acts

as:

(ii)The offer is revocable up until the time of partial performance(iii)D is only bound if the requested act was donenot preliminary preparationimplying that

he will let it be done and he will keep his offer open until the offeree who has begun can finish

doing it (when doing it will require time and expense).(c)UCC 2-206 view: offeree must seasonably notify the acceptance within a reasonable time;

otherwise offeror can revoke deal.

(d)Marchiondo v. Scheckunilateral offer to broker on condition to sell of property and revoke(i)Where an offer invites an offeree to accept by rendering a performance, an option contract is

created when the offeree begins to partially perform. (Q of fact)

(ii)Where notice of revocation is given when the brokers services have proceeded to the pointwhere success is probable, the court may be convinced it was given to avoid paying the

commission while enjoying the benefit of the services.

(e)R87(2) Distinguish Between Part Performance andMere Preparation: Preparationthat arent explicitly required by the K, but are necessary for performance to begin .

(i)Action or forbearance is binding as an option K to the extent necessary to prevent injustice.yNarrow Interpretation: Not substantial b/c did not start drilling wellyMore liberal: Spent a Considerable amount of money moving the equipment: Shows-irrevocably committed / more definite and substantial conduct

(ii)The offer has gone beyond a promise (not R90)(3)R87(2) Offer by sub-subcontractor

(a)can apply not only to preparations made prior to an acceptance by promise (ie Drennan v. StarPaving) but also to preparations made prior to an acceptance by performance.

(b)Offers by sub-contractors to general contractors(i)Subcontractors bid is usually held to be automatically irrevocable for at least the time

necessary for the general contractor to obtain the job and then accept the subcontractors bid .

(ii)OLD or Minority: JamesBaird Co. v. GimbelBrothersmistake so withdrawyNot an option contract b/c no consideration, offer revoked before it was accepted, not PEbecause it is not charitable donations and gratuitous promises. (R90)

(iii)ModernLaw: Drennan v. Star Paving Co.mistake bidyHOLDING: A promise which the promisor should reasonably expect to induce action orforbearance of a definite and substantial character on the part of a promisee and which

does induce such action or forbearance is binding if injustice can be avoided only by

enforcement of the promise. R87(2)-PE

yD had reason to expect that if its bid was low it would be used by P and so induced "actionof a definite and substantial character on the part of the promisee ." D's bid did not state

nor clearly imply revocability at any time before acceptance.


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yReasonable reliance acts in lieu of ordinary consideration. D had a stake in P's relianceon its bid. This interest plus P's being bound by his own bid make it only fair that P should

have the chance to accept D's bid after the general contract was awarded to P.

yDamages put in position had contract been performed (expectancy) so differencebetween original bid and the amount contractor has to pay

(c)General Contractors Choice once bid is accepted:(i)General isnt free to delay acceptance one hes awarded the general contract, but hes notbound to accept either; can use another sub(ii)Offer isnt only irrevocable for a reasonable amount of time(iii)If he bid shops, he cant claim continuing right to accept subs bid; would lose protection of

implied option contract, and subs offer would become revocable

(iv)But if sub doesnt revoke, the offer is obviously still open for acceptance(d)Created by consideration 87(1): must have its own consideration

(i)in writing and signed by the offeror, recites a purported consideration for the making of theoffer, and proposes an exchange on fair terms within a reasonable time; or

(ii) Is made irrevocable by statute(e)Grautituous options- even if the offeror states that his offer is irrevocable for a certain period,

and even if he uses the word option, the offer is nonetheless revocable unless there is a written

recitation to the effect that consideration has been paid or consideration has in fact been paid .

B.Firm offer under UCC 2-205- entitled Firm Offers, provides that an offer bya merchant to buy orsell goods is irrevocable if the offer meets two conditions

(a) it is in a signed writing and(b)it gives explicit assurance that the offer will be held open.(c)Such an offer is irrevocable even though there is NEITHER consideration nor a recital that

consideration has been paid.

2.Reasonable time period- irrevocable for a reasonable time3.Stated time- time period controls4.Three-month limit- whether or not a time period is stated, an offer under 2-205 cannot be made

irrevocable for a longer period than three months.

5.Forms supplied by offeree- if the firm offer is contained on a form drafted by the offeree, the offer isirrevocable only if that particular firm offer clause is separately signed by the offeror .

ACCEPTANCE

I.R50 AcceptanceA.An acceptance is the offerees manifestation of assent to the terms of the offer, made in a manner

invited or required by the offer.

B.R54 Acceptance byperformance requires that at least part of what the offer requests be performedor tendered and includes acceptance by a performance, which operates as a return promise.

C.Acceptance by a promise requires that the offeree complete every act essential to the making of thepromise.

II.Who may accept the offerA.R52R29 An offer may be accepted only by a person or a group of a person in whom the offeror

intended to create a power of acceptance.

III.R30. Form of Acceptance Invited: Offeror is the master of the offer, can ask for acceptance in anyway he wants as long as is reasonable. If he doesnt ask for a certain manner, offeree can accept in any way

as long as reasonable. If not prescribed, then reasonable nature and character of the agreement .

A.R62 Offeree invites promise or performance or R32 unclear, then offeree can choose between either .1.Where an offer invites an offeree to choose between acceptance by promise and acceptance by

performance, the tender or beginning of the invited performance or a tender of a beginning of it is an

acceptance by performance.

2.If R62: either performance or promise beginning to perform means a promise to complete.B.R54Acceptance by Performance


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(1) no notification is necessary to make acceptance effective unless contract requires suchnotification. (vs. UCC2-206(2): offeree must notify offeror, unless he has reason to know)

(2)If an offeree has reason to know that offeror has no adequate means of learning of performancewith reasonable promptness and certainty, contract duty of offeror is discharged unless

(a)Offeree exercises reasonable diligence to notify offeror of acceptance, or(b)Offeror learns of performance within a reasonable time, or(c)Offer indicated that notification of acceptance isnt required(3)Failure to give this notification may discharge the contractual duty of the offeror . This notice

requirement protects the offeror from being bound indefinitely by an acceptance of which he is

unaware.

(4)R45 Option K: Part performance makes an offer temporarily irrevocable.2.Carlill v. Carbolic SmokeBall Co.Ad. 100, if the smoke ball dont prevent cold

(a)Unilateral contract not looking for a promise actually looking for many unilateral contracts(more Ks, more $) No need to notify of acceptance (acceptance by performance is good enough) .

(b)Proof of offer and reasonable to rely on: proof of sincerity- the deposit of1000 and all necessaryinformation/terms clear (parties mentioned, terms and payment, performance conditions met)

(c)Mode of acceptance Ambiguous: No clause stating acceptance by promise and thus notificationnot necessary so P accepted in the most reasonable way

(d)Sufficient consideration: P suffered a detriment or inconvenience in taking the ball three times aday, D received a benefit Ps using the ball enhanced their sales and profits and promotion.

C.R56Acceptance by Promise1.It is essential to an acceptance by promise that the offeree exercise reasonable diligence to notify or

that offeror receive acceptance seasonably

2. Reasonable time: determined on the nature of the K, the usages of business and other circumstancessurrounding the case which the offeree at the time of his acceptance either knows or has reason to

know

3.R50 (3) Acceptance by promise requires that the offeree complete every act essential to making of thepromise.

4.Ever-Tite Roofing Corp. v. Greenroofing show up, D revoke(a)Holding: Ps conduct (loading the trucks, hiring the workers) and showing up at the house was

an implied promise to perform and proceeded with due diligence .

(b)OwnersDID NOT notify Ps of withdrawal before the acceptance of the K, or in a timely fashion;therefore breach of K

(c)Comment A of 32 Where performance takes time, however, the beginning of performance mayconstitute a promise to complete it.

D.R69(1) Acceptance by Conduct or Silence1.The offeror cannot impose a duty on the offeree to take some affirmative step to reject the offer,

making failure to act an acceptance

(1)Purpose of this rule is to protect the offeree from imposition, so it only applies if the offeree doesnot wish to be bound by her silence

(2)If the offeree intends to accept by remaining silent, she may rely on this mode of acceptance .(a)Offer has authorized silence as acceptance(b)Offeree who silently receives the benefit of services (not goods) will be held to have accepted a K

for them if

(i)H

e had a reasonable opportunity to reject them, and(ii)He knew or should have known that the provider of the services expected to becompensated for them.

(c)If prior dealings between the parties or other circumstances make it reasonable for the offeror toexpect the offeree to give notice of rejection

(d)Unintentional acceptance by exercising dominion over the goods in a way inconsistent w/ theofferors ownership of the goods.

(3)Russell v. Texas Co.: excess of the rights granted to its lease (easement), express proviso


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(a)HOLDING: Even though Texas claims they did not intend to accept; The offer was clear andunambiguous that continual activity would constitute the acceptance, therefore the offer was

accepted through conduct reasonably led to believe that act of offeree was an acceptance .

(b)Waive K and Sue in Torts: When the use of goods, a wrongful use, can be construed as impliedacceptance and can sue under breach of K or can waive K suit and sue under torts.

E.UCC 2-206 Acceptance1.Shipment of goods: either shipment or a promise to ship constitutes acceptance(1)Nonconforming goods- seller accepts by sending even goods which dont match the order

Accepts and breaches by the same action

(2)Accommodation shipments- the seller can ship what she knows to be nonconforming goodswithout risking being found in breach, by accompanying the shipment with a message saying

words to the effect.

(a)Shipment treated as a counteroffer of the goods.(b)Buyer has a choice

(i) keep the nonconforming goods a contract at the price the seller has indicated by seller(ii)the buyer can reject the shipment and thus prevent a contract from coming into existence

at all (in which case neither party will be liable for breach of anything .).

IV.Acceptance become effectiveA.R63:Mailbox Rule (default rule only to acceptance by

promise) Unless the offer provides otherwise; acceptancesare deemed effective as soon as put out of the offerees

possession by mailing, faxing, email; w/o regard to whether it

ever reaches the offeror.

B.Does not apply to option contracts (R64b) nor lapse of timeuponreceipt by the offeror.

C.R67, UCC 1-201(36)Misdirection of acceptance- If anunreasonable means of communicating the acceptance is used, or the acceptance is misaddressed,

it is still effective when dispatched if it is received within the time in which a properly dispatched

acceptance would normally have arrived. If it is not received within this time, it is effective only as

of the time it is actuallyreceived.

Effective Upon

Receipt

Effective UponMailing (pr

dispatch)

Offer Acceptance

Revocations

Counter Offer

Rejections

MAILBOX RULE OVERTAKING

REJECTION

9/2

9/4

9/5

9/6

9/7

Seller offers B

B sends acceptance to S

B sends rejection to S

S receives Bs rejection

S gets Bs acceptance

B is bound by ACCEPTANCE

(when acceptance was sent) But if

S relies on rejection and sell it to

3rd then B is NOT BOUND

OVERTAKING ACCEPTANCE

9/2

9/3

9/4

9/5

9/6

S offers to B

B sends rejection to S

B sends acceptance to S

S gets the acceptance

S gets the rejection

R40: rejection or counter offer

terminates the power of

acceptance (upon receipt)

B and S are BOUND 9/5 but,

If 9/5 S gets rejection and 9/6 S

gets acceptance then NOT

BOUND (CO or Estoppel)

MAILBOX RULE ACCEPTANCE

ALONE

9/2

9/5

9/8

9/9

Seller sends offer

B receives offer and sends

acceptance

S (didnt get Bs acceptance)

sells to third-party

S receives Bs acceptance

Seller is BOUNDON 9/5 when

buyer sends ACCEPTANCE

Even when the properly mail is

LOST or NEVER RECEIVED


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ACCEPTANCE VARYING FROM OFFER

I.Battle of the Forms (Liberal)1.2-207 (1):

(1)A definite and seasonable expression of acceptance or a written confirmation which is sent withina reasonable time operates as an acceptance even though it states terms additional to ordifferent from those offered or agreed upon, (1st path to formation of K; gets rid of mirror

image rule)

(2)Unless acceptance is expressly made conditional on assent to the additional or different terms.(Magic Proviso)

2.2-207 (2):(1)Additional terms become part of the K if both parties are merchants for addition to the

contract. (If one party member is NOT a merchant than additions seen as proposals) Between

merchants such terms become part of the contract unless:

(a)the offer expressly limits acceptance to the terms of the offer;(b)they materially alter it; or(c)notification of objection to them has already been given or is given within a reasonable time

after notice of them is received.

(2)AdditionalTerms: Could be a drafting error or Could be interpreted that if terms differ they dropout of the K and a default rule is set in its place.

(3)Different and Conflicting Term(a)Knockout rule-Majority: the conflicting clauses knock each other out of the contract, so that

neither enters the contract. Instead a UCC gap filler provision is used if one is relevant;

otherwise, the common law controls. UCC 2-207 Comment 6

(b)No K if diverge as to Price, Quality, Quantity, Delivery terms .(c)Alternative Approach-the clause proposed in the 2nd form simply fails to have any effect.

The result is that the clause appear in the offer enters into the K.

3.2-207 (3): Conduct by both parties, which recognize the existence of a K is sufficient to establish a Kfor sale although the writings of the parties do not otherwise establish a contract . In such case the

terms of the particular contract consist of those terms on which the writings of the parties agree,

together with anysupplementary terms incorporated under any other provisions of this act.

(1)Only applies when there is no contract formed by the writing b/c the offerees response is not anacceptance but a counteroffer.

(2)Seeks to avoid the unfair imposition(3)UCC 2-204(1) If no contract was formed by the writing but their conduct shows they intend a

contract the contract is recognized as existing. Contract by conduct where there is not even an

attempt at offer and acceptance, but parties behave in a way indicating an agreement .

II.Magic ProvisoA.Acceptance expressly conditional on assent to changes or all of the terms listed .1.If no K formed by the exchange of the documents, but seller then goes ahead and ships the good. (CO)

(1)Parties may walk away(2)K by parties conduct: terms of the K on which the writings agrees + gap fillers

III.Analysis:1.Was K formed?

(1)If you have different terms with NO PROVISO: YES KFORMED(2)If K formed b/c NO PROVISO: What is in or Out of K?

(a)If one party is not a merchant; than additions are seen as proposals to the K(b)If both parties are merchants; the additions are included in the K UNLESS:

(i)Go to section (2) and see if term fits w/n categoryyIf fits within category than it will fall out of K: Knock Out RuleyFall out: Only includes additional terms and not Different terms

(3)IF K Not Formed in sec (1) b/c of writings including magic proviso(a)ONLYTIME YOU GO TO SECTION (3): only governs if no K formed through the writings


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(b)If the magic proviso is not accepted than no K UNLESS(i)K formed through conduct: Existence of K is recognized if performance on either side

consistent to K

(ii)If conduct forms K: The terms consist of those terms agreed in writing; do not incorporatedifferent or addition terms; fill in with default or supplementary terms

B.Itoh v. JordanMagic Proviso with additional terms on steel pipes (1) Itoh accepted steel when it was sent (but never assented to additional terms) .(2)CO- Not Acceptance: There was no K formed b/c return form and additional term included the

magic proviso that applied to the entire K; sellers acceptance conditional on buyers assent to

term.

(3)2-207 (3): If there is performance then you have a contract based on conduct, but only of theterms both agreed to. Contract by conduct governed byterms on which party agree +

supplementary terms. For those not agreed to, use the UCC gap fillers.Here, arbitration

wasnt a supplementary term, so it isnt included in contract.

(4)The arbitration term in exchanged forms do not agree; drop out of the transaction(5)Since the parties agreed to proceed with the performance and D proceeded without gaining actual

assent of the clause he runs the risk of having it be dropped out (since he had the choice of

withholding shipment)

(6)

1.

CONSIDERATION

I.R71 Consideration: essential element of K formationA.A promise is not recognized or enforced unless consideration is given for it1.Nundum Pactum: K not enforceable b/c not clothed in consideration

B. Generally, benefit to promisor and/or detriment to promisee1.Result of deliberation, manifested by reciprocal bargaining and negotiating2.Ensures a promise is NOT accidental, casual, or gratuitous3.Quid pro quo is the consideration

II.Bargain: Negotiation resulting from the voluntary assumption of an obligation by each other .A.Reciprocal inducement: A promise must induce the detriment and the detriment much induce the

promise.

B.Prove by showing a benefit or a detriment1.Detriment: Legal detriment is doing something he is under no legal obligation to do or refrains from

doing something that he has a legal right to do.

2.Benefit: Any tangible or economically valuable gain that the promisor was not legally entitled toexpect or demand.

III.No Consideration


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A.Gratuitous promise:Gratuitous promise for a gift fails b/c no bargain/no reciprocal inducementand no detriment suffered by promisee.

1.Even if in writing, no K(1)Jara v. Suprema Meats,Inc.-father 20% stock of sons biz.

(a)Holding: Sons promise not to raise compensation was unsolicited and without consideration . Itwas offered without expectation of any exchange or promise or performance from P therefore no

bargain-for exchange.B.Conditional Gifts (Pre-Conditions)- lack of consideration and the detriment is not bargained for

no reciprocal inducement.

1.Kirskey v. Kirkseyinvited deceased brothers wife then asked to leave after 2yrs(1)Even though P suffered detriment, there was no bargain b/c no reciprocal inducement, no

benefit from her giving up land to come and stay with him, he promised to give a gift, the

conditions of her giving up land were merely conditions necessary (Pre-conditions) to accept

gift.

C.Looking at surrounding circumstances to distinguish bargains from pre-condition. (Q of fact)1.Hamer v. Sidway-uncle

(1)P was induced to forbearance of legal right and detriment is enough to show consideration.D.Past Consideration- if detriment suffered before promise made it cannot be said that the detriment

was exchanged for the promise although the detriment may have induced the promise, it was not

itself induced by the promise.1.Passante v McWilliam: Attorney arranged a 100,000 loan for a start up company. In gratitude for

the loan, the board promised attorney 3 % stock interest Company later withheld stock interest

(1)HOLDING: The stock had not been bargained for in exchange for anything (the loan hadalready been given-Past consideration) and there was no expectation of payment, the

promise of interest was a mere promise

E.Altruistic motive/pleasureone who promises to give a gift out of love or altruistic desire, orexpects to receive love or affection in return is not sufficient consideration

1.R71MixedMotives: However if substantial indications that some bargaining took place the bargainelement is met even though there is other evidence that promisor had overriding altruistic motive .

That is, the courts do not look to whether ultimate motive was charitable, but whether there are some

aspects of bargain present.

(1)Thomas v. Thomas-husband wanted the wife to have the house but died before the will->executor agreed to give it to her with stipulation of 1lb.

(a)Ct. can look at any part of the agreement to find consideration. Although no evidence ofbargaining b/w executors and widow, the writing of promised performance from widow was

valuable consideration and was enough despite other motives of the executors agreement

showed consideration independent of motive to enter into agreement.

(b)Ds motive was to only honor the promise but the deceaseds wish is irrelevant .(c)The stipulation for its payment was not a mere proviso, but an express agreement.(d)R79 Adequacy of Values Exchanged- As long as detriment suffered in exchange for a

promise, it does not matter if they are equal value or exchange based on freedom to K leave

it to parties to decide

F.Nominal Consideration (Sham consideration)- Satisfies the form requirement of considerationbut lacks in substantive value; so small that it does not induce the return promise is not treated as

sufficient; just an attempt to make a gratuitous promise enforceable by cloaking it in form ofbargain; nothing more than a sham but it can be either consider as gift or not.

(1)In Re Green-woman paid $1 to lover for rent, insurance, and support (trifle, insignificant,existing of nominal consideration is not sufficient)

(2)In option and guaranty K, the nominal or token consideration is bargaining for something of aspeculator nature or value.

G.Business context1.Even in a business context, a promise may be unenforceable due to lack of bargaining.2.Langer v. Superior Steel Corp promise a pension of $100/m after the retirement.

(1)Holding: D receives benefits by inducing to prevent searching other jobs. Sufficient consideration


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(2)Also enforceable under, Promissory Estoppel: If offeree reasonably relies on the offer than theoffer becomes irrevocable, interim liability rule; dont need assurances that rise to the level of a

legally operative offer.

H.Illusory Promise- A statement which appears to be promising something, but hat doesnt committhe promisor to anything at all.

1.Reservation of right to change mind(1)Rehm-Zeigher v. Walker- whiskey escape clause in K that if for any unforeseen reason, requestfor full

(a)HOLDING: Buyer reserved the right to evade obligation with un-defined words by his owndiscretionno mutuality in K. (illusory promise)

(b)At NO time was the agreement to buy binding b/c could have cut off business at any time (couldhave bought zero- FREE WAY OUT) therefore Ds obligation to sell is also not binding.

(c)All I needmust purchase from the promisee-supplier or not at all, or all that I produce areenforceable promise because restriction is a legal detriment.

(2)Spooner v. Reserve Lifebonus announcement on board(a)HOLDING: made it known not to rely on indefinite words contained in the premise, which in

effect make is performance optional or entirely discretionary on the part of the promisor .

(b)Illusory K that it cannot be enforced.Vs. P: D got benefit a encourage, fraud2.Requirements and Output Contracts

(1)Where the seller wants to dispose of its full production and the buyer can use it; depends on goodfaith obligation for both sidesseller sells all his output; buyer buys all the output

(2)UCC 2-306 allows but limits that qty cannot be unreasonably disproportionate to any statedestimate.

(a)McMichael v. Price-agree to buy all the sand seller produce(i)HOLDING: A fixed output contract in good faith that set and a bind obligation which offers

no free way out for either party.

(ii)the parties entered into K knowing seller was a new business but recognizing his experienceand knowledge in the field TF it was the intent to enter into mutually binding agreement.

(iii)vs. Requirement contract that D have to provide according to Ps needs.II.2-306(2) Implied Obligation (consideration) through nature of the agreement

A.Wood v. LucyLady Duff - an exclusive right to promote her work in a K1.HOLDING: A valid contract even if a promise may be imperfectly expressed, if a promise may be

implied from the writing.

2.Although he did not expressly promise to use reasonable efforts; implied promise by the assumption ofexclusive agency right was duties to make reasonable efforts so obligation was implied in K

III.R74 Settlement of ClaimsA.Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not

consideration unless

(1)the forbearing or surrendering party believes that the claim or defense may be fairly determinedto be valid.

(2)Forbearance to sue for a lawful claim is sufficient consideration for a promise to pay if:(a)Subjective Element-Must beHonest Belief- made in good faith(b)Objective Element-Must have Reasonable basis of support under circumstances; not frivolous

or unlawful

(3)Fiege v Boehm- refrain condition from prosecuting him for bastardy, not fatherf(a)HOLDING: Forbearance to assert an invalid claim may serve as consideration for a return

promise if the parties at the time of the settlement reasonably believed in good faith that the

claim was valid.

B. To encourage out-of-court settlement in good faith.IV.Moral Obligation; Promise + Antecedent Benefit or Material Benefit Rule

A.A conferred measurable benefit on B, motivated by past, B promised to pay A for benefit conferredB.Issue:Whether the prior benefit plus the later promise should create ground for enforcing promise

independent of consideration, restitution and promissory estoppel

1.Traditional Rule


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(1)Mills v Wyman-Dr. took care of the son(2)HOLDING: A moral obligation, even under the material benefit rule, is insufficient consideration

for a promise w/o preexisting obligation. (mere voluntary, good Samaritan act)

C.R86 Promise for a Benefit Received; may be enforced despite lack of consideration; gets around pastconsideration rule

1.A promise made in recognition of a benefit previously received by the promisor from the promisee isbinding to the extent necessary to prevent injustice

2.A promise is not binding under subsection (1)(1)If the promise conferred the benefit as a gift or for other reasons the promisor has not been

unjustly enriched; or

(2)To the extent that its value is disproportionate to the benefit3.Webb v. McGowin-fall w/ block to avoid kill D (R86)

(1)HOLDING: A moral obligation is sufficient consideration to support a subsequent promise to paywhere the promisor has received a material benefit.

V.PRE-EXISTINGDUTY RULE- A performance or a promise to do what the promisor is already legallybound to do (a pre-existing duty) is not real consideration

1.Test: Whether there was additional consideration of some sort for the new condition, involvedsomething which the debtor was not legally bound to do or give

(1)Alaska Packers v. Domenico-Sea workers claim additional wage w/ duress(a)HOLDING: the modification was extracted under coerces a promise by an unlawful threat to

breach the K leaving Alaska without any viable alternatives.

(b)The K is not enforceable, although the seamen completed their performance in reliance on it.2.Modern Approach:Modifications w/o consideration are allowed if made in good faith

(1)UCC 2.209 (1) An agreement modifying a contract within this article needs no consideration tobe binding. (Abolishing the pre-existing duty rule)

(2)Modifications:The use of bad faith to escape performance on the original K terms is barred,and the extortion of a modification without legitimate commercial reason is ineffective as a

violation of good faith

(3)R73: Performance of a legal duty owed to a promisor which is neither doubtful nor the subject ofhonest dispute is not consideration; but a similar performance is consideration if it differs from

what was required by the duty in a way which reflects more than a pretense of bargain. R89(a)

Unforeseen circumstances by the parties when the contract was made .

(4)Ways around the pre-existing duty rule(a)Rescission- parties mutually rescind K, TF can enter into a new one(b)Estoppel R89(c): make a modification binding to the extent that justice requires enforcement,

in view of material change of position in reliance on the modification.

(c)Bankruptcy factor(d)New modifications from original contract (ex, payment in smaller time frame)(e)Material Breach - If a party breaks or goes against part of his duties, the other party is

discharged from his duties and therefore no longer a pre-existing duty b/c contract was

breached

(5)Use UCC as Persuasive support for service Ks (CL or Rest)(a)Use these guidelines for analysis

(i)HAS to be unanticipated(ii)

Has to be fair and equitable in light of circumstances not anticipated(b)Dissatisfied Entertainer Example p 91

(i)Future fixed price contracts are set up for safety purposes, each party is taking certain risks(ii)Here the entertainer took a risk that he may have had a hit record, and to appear for

20,000 would be a bad deal for him. Bond is paying him 20,000 and taking the risk that

Ajax wont be popular then and he will loose money. Those future factors, either a hit or a

sink, are foreseen. Also he demands 50,000 or else he wont show up, this is coercion and

duress, and not a voluntary agreement. It may be too late for Bond to get another performer.

The situation may have been different if Ajax came to him saying that he was under pressure

to get some more money because of the hit and could Bond give him 5,000 more, and this


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seems reasonable since he is such a big hit and he could probably sell more tickets that

seems fair and equitable and not coerced

(6)Angel v. Murray -Waste collector in Kw/ city and unexpected rise in housing(a)HOLDING: Modern trend towards more flexibility recognizes that in certain circumstances

modifying contracts should be enforced when unexpected or unanticipated difficulties arise

during the course of performance of contract

(b)even though there is no new consideration, as long as the parties agree voluntarily and notunder coercion or duress Conditions fair and equitable for increase in payment(7)Levine v. Blumenthal- unpaid balance of rent increase for 2ndyear of lease

(a)Either economic disaster or acceptance of partial payments adequate consideration for themodification of contractual obligation.TRADITIONAL VIEW (Expired for the most part)

(b)Exceptions(i)a reasonable practice or understanding in business and commerce(ii)Promise to pay less, but also to not enter bankruptcy(iii)Substituted performance accord when debtor delivers satisfaction

VI.PROMISES BINDING W/O CONSIDERATIONA.Restitution as anIndependentBasis for Liability (legal action);Designed to prevent

Unjust enrichment

1.QuantumMeruit; The measure of recovery if restitution is justified2.Implied-In-Fact K: obligation in the intention of the parties, intent to promise agreement

(1)Parties agreement is inferred, in whole or in part, from their conduct.(2)Recovery usually what the parties intended

3.Implied-In-Law K (Quasi-K): not a K at all but an obligation imposed by law for the purpose ofjustice and equity; W/O reference to the intention of the parties usually (imposed despite intentions)

B.Essence: D has received a benefit which it would be inequitable for him to retain1.D knowingly accepts benefit conferred on him from P2.Appreciation or knowledge by the D of benefit3.Under circumstances that would make it unjust to keep benefit w/o paying for it

(1)Expectation of compensation on part of P(2)Must give D an opportunity to decline it, unless it was impossible for D to do so(3)doctor random heart attack victim who was unconscious at the time

VII.PROMISSORY ESTOPPLEA.R90 Unbargained for Reliance (substitute consideration and SOF)B.Elements:1.Promise-made w/reasonable expectation that promisee would rely; Must be foreseeable

(1)Focus on analyzing promisors conduct and evaluate his intent objectively2.Inducement and reasonable reliance -promise induced reliance

(1)Must be Reasonable and Justified; Made in Good faith(2)Evaluate promisees reaction and evaluate reliance objectively;

3.Detriment incurred (change in position)-enforcement is necessary to avoid injustice(1)Focus on the harm or loss; the consequence of the reliance

4.Remedy limited as justice requires(1)Focus on appropriate relief (usually reliance; restitution; NOT expectancy measurement

C.NOTE: Promissory estopple: requires the existence of a promise (usually voluntary w/o consideration)1.

Can be used as a sword in a cause of action for damages 2.Do not confuse Equitable estopple: based upon a misrepresentation of existing or past facts (thatinequitable and can not be justified);Available only as a shield or defense

D.Often gratuitous promise: intra-family promises most Ct. dont give full K damages but compensateout-of-pocket losses.

1.Ricketts v. Scothorn-promise granddaughter to give $ so she doesnt have to work for life(1)HOLDING: Allowed cause of action through PE; although the promise was a voluntary and

gratuitous gift (not bargained; no consideration); however when the donee has made a change in

position for the worse in reliance of such promise to their detriment. Equitable estoppel

(2)Quitting her job was reasonable and probable consequence of the promise.


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(3)It would be grossly inequitable to permit the executor of the promisor to resist payment .E.Charitable Donations1.When donations offered are relied upon by the foundation it would be inequitable to refuse payment .

The charitable donation usually must be in writing; PE does not apply to oral promises

2.Allegheny College v. JamestownBank-memorial fund in her name for the donation(1)HOLDING: As soon as P accepted the money and put it aside to be held as a scholarship fund,

they relied on the promise that the remaining payments would be paid (suffered detriment didnot go looking for more money)

(2)The donor complies with conditions imposed on a charitable gift promised by a donor is sufficientconsideration. NO PE.

F.Expanded to Certain Commercial Settings/Promises1.At-Will employees have no rights and can be fired at any time for any reason by the employer. If fired

an employee has no cause of action b/c they knew their situation and there was no justifiable reason

to rely on having a job.However, sometimes when employer makes assurances or promises that the

employees job is safe and than latter fires; there is a cause of action if employee relied to their

detriment

2.Blinn v.Beatrice Health Center-declined another job to stay w/ assurance(1)HOLDING: No unilateral K formed through oral promise; Promise and assurances of employment

could have reasonably been expected to induce P to forgo the job opportunity to stay at work; the

promise did induce P to stay working at his detriment; gave up job opportunity in reasonable andforeseeable reliance; recovery granted

3.Offers By Sub-Contractors(1)May call for PE in certain circumstances; when the sub-k offers bid and had reason to think it will

be used (it is the lowest); and GC uses the bid relying on it; the sub-K may be entitled to pay for

the reliance if sub-K

G.UCC: not explicitly recognized by the UCC, but most ct. have held that a party to a contract for thesale of goods may invoke the doctrine in appropriate circumstances.

H.R205 Pre contractual promises;Duty to bargain in Good faith1.Preliminary negations do not usually rise to the form of a promise; they are usually seen as tentative

commitments; the promisee would not have reason to rely on negotiations b/c they are not definite;

however sometimes the preliminary commitments are substantial enough to induce action and

recovery is granted; when the promisor makes assurances and the promisee relies and the K falls

through allow recovery to ensure bargaining in good faith

2.Hauffman v. RedOwl-supermarket franchise after taking many steps, denied(1)HOLDING: At times franchises need to make preliminary steps to be assured that P is worth the

investment; here the negations rose to a level that reasonably induced reliance to Ps substantial

economic detriment, which was foreseen.

3.P was allowed to recover reliance measures (most common), or restitution to recover the amount ofvalue for the benefit conferred on the D; prevent unjust enrichment.

ALLOCATIN OF RISK (CONDITION OR WARRANTY)

I.R224 Condition: an event which must occur before a particular performance is dueA.R226 the event was made a condition, interpreted as to the intention of parties

(1)by the agreement of the parties explicitly, or implied in fact (express condition), or(2)term supplied matter of law for policy reason or inference from parties by court (constructive

condition)

B.R234 Order of performance: If parties dont agree upon of order of performance1.Where only one partys work requires a period time ordinarily comes first2.Most cases: Simultaneous performance, unless indicates otherwise normally require both to occur

simultaneously (concurrent condition)


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C.Satisfaction of a party- A contract may make one partys duty to perform expressly conditional onthat partys being satisfied with others performance. Such a satisfaction clause may refer either

to the subjective satisfaction of the obligor or to an objective standard .

(1)If contract requires a subjective satisfaction- the condition does not occur if he honestly butunreasonably is dissatisfied.

(2)Satisfaction of a third person- expressly conditions on the satisfaction of some independent thirdparty, usually an architect or other professional. Third partys subjective judgment usuallycontrols.

II.Bilateral agreement made by respective parties have a relation to each other1.Mutual and Independent of each other

(1)Either party can recover for separate breaches of performance in separate suits (2)Ct. wont apply constructive conditions

2.Conditional and Dependent; One for the other conditionality(1)Intend performance by one to be conditioned on the performance of the other (2)Until condition occurs by the 1st party the 2nd party is not liable for breach

(a)Precedent- any event which must occur before performance under a K(b)Subsequent- promise which is not to be performed until the other party performs a precedent

agreement

(3)Goodison v. Nunnreal estate K, P sue under liquidate damages before completing his duty (a)HOLDING: Concurrent and dependent condition: a party must tender his own performance

before the Ds failure to perform his reciprocal duties will be considered a breach .

3.Mutual and Concurrent (Most K) promises to be performed at the same time; both parties arerespectively bound

III.Relation to material breach1.Substantial Performance (non-material breach)- where a party breaches the contract by

deviating from its terms, but nonetheless performs well enough that the breach is not material

(1)the other party always has a claim for damages resulting from the breach(2)If a party fails to substantially perform, but the defects in the performance could be fairly easily

cured, the other partys duty to give a return performance is merely suspended .The defaulting

party then has a chance to cure his defective performance.

2.Material Breach- the non-breaching party may not only recover damages but may also suspend orbe discharged from his own obligations to pay under the contract.

(1)Palmer v. Fox- unimproved lot as an investment, promised to pave the road(a)HOLDING: Concurrent and dependent condition: The K does not implicitly or explicitly made

promise independent; and making improvements was a material aspect of the agreed exchange;

the failure to perform excuses the other partys counter performance; The agreement to

improve and the agreement to pay were dependent obligations; the Ds agreement to

pay the price and to surrender K was dependent upon the vendors agreement to make specific

improvements and to deliver the deed; therefore no obligation to pay until improvements made

(2)Defect is so substantial that it cannot be cured within a reasonable time, or if the defaulter fails totake advantage of a chance to cure it, the other party is then completely discharged from any duty

to perform, and he may also sue for breach of contract.

(3)R241 Factors determining whether a breach is material- the more the breach defeats theentire purpose of the contract, and the expectations of the non-breaching party, the more likely it

is to be considered material.(a)Deprivation of benefit the injured party reasonable expected

(i)Adequacy of compensation for loss by the awarding damages(b)Part performance- the greater the part of the performance which has been rendered by the

breaching party, the less likely it is that a breach will be deemed material

(c)Likelihood of cure of breach- likely and able to and willing to cure the breach, breach is lesslikely to be deemed material

(d)Willfulness of breach- willful breach is more likely to be regarded as a material breach(e)Delays in performance- constitute a material breach only if it operates to significantly deprive

the other party of the benefits of the contract .


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(f)Time not necessary of essence unless the contract so statesIV.R225 Effects of the Non-Occurrence Of a Condition

A.If it does not occur: absolutely or technically performance needed(1)Performance of a duty subject to a condition cannot become due and discharges unless the

condition occurs or its non-occurrence is excused (the entire contract was subject to it)

(2)Dove v. Rose Acre Farms-Farm crazy bonus guy(a)P claim that the condition was not literal but substantive and that he completed his work.(b)HOLDING: The condition was not substantive; but based on a central theme of Ds business

policyTFMATERIAL aspect of the exchange and part of the consideration for the bargain; it

was made explicit, important and unyielding and known to all who entered them; the P did not

meet them therefore there is no recovery.

(c)Here: P openly/expressly/voluntarily agrees to forfeiture -> burden of proving the satisfactionof condition precedent -> cannot -> No K

(d)If duty R227: promise not to be retarded -> breach -> damages but not discharge so bonus stillneed to be paid.Avoidance of forfeiture

B.R227(1) Reduce the risk of forfeiture- When the nature of the condition is uncertainty and oneparty has relied on the bargain either by preparing to perform or part performance, an

interpretation is preferred that will reduce the risk of forfeiture. (literal compliance rule) Unless,

the risk is assumed within his control.

V.Excuse: Waiver or impossibility or impracticabilityA.Waiver: Voluntary relinquishment of a contractual right (one-sided: unilaterally gives up w/o

exchange v. not modification of K, which needs consideration for common law, not UCC)

1.UCC Analysis:(1)Use Objective Approach to determine/interpret Purpose intention of condition:

(a)Language: interpreted in light of the parties intentions, circumstances surrounding the case,parol evidence, and industry custom.

(2)Part of the consideration for the bargain; material/essential element of agreement (a)IF YES: NOT be waived w/o new consideration.(b)If NO: Was a waiver established? Election or PE (wavering party induces to change the position)

(3)UCC 2-209Modification; Rescission and Waiver(a)Modifying K need no consideration for sale of good, unless SOF, which need written

modification.

(b)Retraction of waiver: no consideration waiver can be retracted to reinstate the condition, if thewaiving party has not detrimentally relied on it.

2.Restatement(1)Material Term 84 (1)(a): If a condition is a material part of the exchange and not just a

condition present aside from a material aspect; then it must be modified by the parties and may

need new consideration

(2)84(1) Election waiver- when party does not perform condition but other party goes forwardw/ transaction then can not afterwards try to re-enforce the condition

(a)R84(2) and R89(c)(i)Estopple Waiver Party tells the other not to worry about condition and the other party

relies -1st party can not afterwards re-instate waiver

(b)R84 Promise to Perform aDuty in Spite of Non-Occurrence Of a Condition(i)

A promise to perform all or part of a conditional duty under an antecedent contract in spiteof the non-occurrence of the condition is binding, whether the promise is made before or

after the time for the condition to occur, unless

(ii)occurrence of the condition was a material part of the agreed exchange for theperformance of the duty and the promisee was under no duty that it occur.

(c) 89Modification of Executory ContractA promise modifying a duty under a contract not fully performed on either side is binding

(i)if the modification is fair and equitable in view of circumstances not anticipated by theparties when the contract was made; or


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(ii)to the extent that justice requires enforcement in view of material change of position inreliance on the promise.

(3)Clark v. West - The drunken law book writer(a)HOLDING: Waiver of a contract condition is not implied by mere acceptance of the proffered

performance with silence. (Q of fact): remanded for new trial.

(b)The writing of the treatise, rather than abstinence, was the bargained-for consideration.(i)Modification of a promise require a new consideration(ii)Waiver of condition w/o consideration.

B.R229 Excuse of a Condition to Avoid Forfeiture1.To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court

may excuse the non-occurrence of that condition, unless its occurrence was a material part of the

agreed exchange.

2.Analysis:(1)Whether the promises are dependent or independent(2)Promises within agreements fall into (3) categories:

(a)So plainly independent that they can never be by fair construction conditions of one another(b)So plainly dependent they must always be conditions of one another, or(c)Other promises are dependent conditions when there is a departure in substance; but will be

viewed as independent and collateral when the departure is insignificant

(3)4 PARTTEST: Whether substantial Performance (immaterial breach) or Material Breach-Weigh:(a)Purpose to be served

(i)Utilitarian; functional value(ii)Art: Aesthetic value(iii)silent intention: assumed to intend the reasonable and probable

(b)The desire to be gratified: subjective value(c)The excuse for deviate from the letter: normally dont look at the willfulness

(i)Ex: oversight and inattention of the subcontractor(d)The cruelty of enforced adherence

(i)Ex: Grossly disproportionate dismantle and tear down the pipe(ii)No altercation is permitted if it is so dominant and pervasive as in any real or substantial

measure as to frustrate the purpose of the K

3.Outcome(1)R241Material Breach:Treat Like dependent covenant agreement

(a)Discharged from obligation to perform (similar to non-occurrence)(b)O.W. Grun Roofing v. Cope screwed up multi-colored roof case

(i)HOLDING: No substantial performance as long as the other partys general plane andpurpose in entering into the K remain unfulfilled.

(ii)The purpose and object of the roof was not simply for utility purposes but to have a houseof uniform color; it was as much for decoration and appeal; having a roof of different colors is

significant defect and will necessitate redoing the entire thing; therefore it was a MATERIAL

breach; therefore she is discharged of her obligation to pay and he owes damages

(2)Immaterial Breach (Substantial Performance):Treat like Independent(a)Not discharged from duty; but can be awarded damages(b)Jacob & Youngs v. Kent wrong pipe

(i)P is entitled merely to sue for difference between the value difference of the structure if builtto specifications.The significance of the default or omission is grievously out of proportion to

the oppression of the forfeiture.

(ii)A change will not be tolerated if it is so dominant and pervasive as to frustrate the purposeof the K. (Cost effective: Peevy house)

(iii)The omission of Reading pipe was not fraudulent or willful but an innocent mistake(consideration of justice: dont want the parties to be excessively worry about the K with

trivial deviation independent promise); even Ds architect inspected the pipes upon arrival

and did not notice; not condition of the breached promissory condition.


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(iv)Trial Ct.: Express Condition Theory-substantial performance does not matter becausecondition not occurred -> discharge (Dunn bonus case-evidence excluded)

(v)Damages: the difference in value b/w the dwelling as specified and the dwelling asconstructed nominal or nothing & Unfair forfeiture; non-willfl breach is disproportionately

large in relation to the value of the benefit that full performance will confer on the plaintiff.

4.Margin ofDeparture: Vary with Circumstances(1)Simple Performance(a)Less room for error; more likely to enforce strictly e.g. Selling a book(2)Complex Performance

(a)When more difficult and detailed, more room for error going to allow slight mistakes e.gbuilding a skyscraper

C.Changed Circumstances-Impracticability1.Existence impracticability: risk existed but no risk of assumption b/w parties (outside of the parties

radar), though not literally impossible.

(1)If due to changed circumstances, performance would be infeasible from a commercial viewpoint(because of an extreme increase in cost, a tremendous increase in the time needed for

performance), the promisor is excused just as she would be if performance were literally

impossible

(2)Cost increase must be extreme- must be shown that the contract itself has not explicitly orimplicitly cast the risk of impartibility upon the party seeking to assert that defense.Howforeseeable the increase in costs, the more foreseeable- the less likely it is that the parties

intended that the buyer of goods or services would bear the risk of a large cost increase.

(3)UCC 2-615- sellers non delivery, or a delay in delivery, is excused if performance as agreed hasbeen made impracticable by the occurrence of a contingency the non-occurrence of which was a

basic assumption on which the contract was made.

(4)R266 Existing Impracticability or Frustration- Non-existence of a thing that was a basicassumption on which the contract was made; no duty to perform

(5)U.S. v. Wegematic (NY 1966) ALWAC 800 vs. IBM(a)D submitted a bid to Federal Reserve Board to supply them with computers; advertised them as

state of the art; P stressed importance of early delivery; D failed to deliver on time, and claim

that it became impossible for them to delivery b/c of engineering difficulties; P had to go out

and seek comparable equipment at a higher cost

(b)HOLDING: risk of engineer difficulties should fall on D since they promoted their product asrevolutionary assuming the risk of the technological breakthrough; couldve put exculpatory

language in contract to protect them against possible difficulties; Ds remarks led P to believe

that machine was already in existence, so impracticability wouldnt have been a defense;

government wasnt taking risk that other party would be able to get out of their contractual

duties if they ran into engineering difficulties

(c)No promise of risk of allocation of goods2.Supervening Impracticability- Supervening events that come in after contract has formed, which

make performance more difficult or literally impossible

(1)Death, exist(2)Taylor v. Caldwell music hall burns down

(a)ISSUE: In contracts in which the performance depends on the continued existence of a givenperson or thing, is a condition implied that the impossibility of performance arising from theperishing of the person or thing shall excuse the performance?

(b)Yes. D was excused from performance; Traditionally follow the K; no excused written in the Kthen no excuse are allowed; The agreement was not a lease but a contract to let; The

entertainments that were planned could not be made w/o the existence of the hall .

(c)Contract could not have fulfilled unless a particular, specified thing continued to exist; andwhen there is no express or implied warranty that the thing shall exist, the contract is not

positive and absolute.

(d)It is subject to the implied condition that the parties shall be excused in case, before, breach,performance becomes impossible from the perishing of the thing without fault of the contractor .


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(e)This appears to be within the intent of the parties when they enter into a contract .The excusefrom the contracts performance is implied in law because from the nature of the contract it is

apparent it was made on the basis of the contributed existence of the particular, specified thing .

INTERPRETATION OF THE CONTRACT

I.Determining Content/Meaning/Scope of ObligationA.Assuming that there is some uncertain or ambiguous written expression of the agreement.B.R200 Interpretation: ascertainment of the meaning of a term or language1.Plain Meaning Rule: Still used but may deny relevance of the intention of the parties2.ModernTrend: Towards informality in formation of Ks

(1)Modern Context Evidence Approach: The test of admissibility of extrinsic evidence to explainmeaning is not whether it appears to the court to be plain and unambiguous on its face, but

whether the offered evidence is relevant to prove a meaning to which the language of the

instrument is reasonably susceptible- Treynor

(2)Reinforced by Rest 212 comment: Interpretation of the meaning of terms is to be made in light ofthe circumstances, relations of parties, nature of transaction, usages of trade and course of

dealing.(3)

A court must determine what the parties meant by the words they used

Exclusion of relevant extrinsic evidence occurs only when:

(i)It is possible to know meaning from the words alone(ii)Evidence is not admissible to add to, detract from, or vary the terms of a K

3.Hierarchy of interpretation(1)Looking at other written or oral agreements.(2)UCC 1-303The bargain of the parties in fact as found in their language or by implication from

other circumstances including the course of performance, course of dealing, usage of trade .

(3)Statutory or Judge-made default rules(a)Supplemental Rules (default gap fillers based on hypothetical intentions =implied terms)(b)Specific- Rules respecting commercial trades(c)General Rules applicable to any K

(4)General standards of reasonableness.(a)A term reasonable to the circumstances is supplied by the court(b)Represents community standards of fairness and policy

4.Pacific Gas v. Thomas Rigging-repair steam turbine and to perform work at its own risk (indemnityclause)

(a)HOLDING: Words are not symbols w/ fixed meaning; meaning varies w/ verbal context andsurrounding circumstances and purposes in view of the linguistic education and experience of

their users TF the exclusion of parol evidence merely b/c the words do not appear ambiguous

to the reader (judge in this case) can easily lead to attribution of a meaning that was never

intended

(b)TF: Since indemnity clause was fairly susceptible to the meaning that it was intended towardsthird parties only it should be considered

C.Basic Analysis toDetermine admissibility of extrinsic evidence1.Terms must first be determined before it can be decided whether they are offered for a prohibited

purpose (vary or contradict terms; excluded under parol evidence rule)

2.Test of extrinsic evidence: Rational Interpretation requires:(1)A preliminary consideration of all credible evidence offered to prove the intention of parties(2)IncludesTestimony as to: Circumstances surrounding the formation of agreement including the

object, nature, and subject matter of the writing so that the court can place itself in the same

situation in which the parties were at during the time of contracting

(3)After considering evidence, if court decides that the language, in light of all circumstances, itfairly susceptible of either one of the two interpretations contended for, then extrinsic evidence

to prove either of such meanings is admissible


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D.R202 Rules in Aid of Interpretation (rules for structure outlined above)1.Words and other conduct are interpreted in the light of all the circumstances, and if the principal

purpose of the parties is ascertainable it is given great weight .

2.A writing is interpreted as a whole, and all writings that are part of the same transaction areinterpreted together.

3.Unless a different intention is manifested(1)where language has a generally prevailing meaning, it is interpreted in accordance with thatmeaning;(2)technical terms and words of art are given their technical meaning when used in a transaction

within their technical field.

4.Where an agreement involves repeated occasions for performance by either party with knowledge ofthe nature of the performance and opportunity for objection to it by the other, any course of

performance accepted or acquiesced in without objection is given great weight in the interpretation of

the agreement.

5.Wherever reasonable, the manifestations of intention of the parties to a promise or agreement areinterpreted as consistent with each other and with any relevant course of performance, course of

dealing, or usage of trade.

E.R206 Interpretation Against theDraftsman Contra proferentem against the offerorIn choosing among the reasonable meanings of a promise or agreement or a term thereof , that

meaning is generally preferred which operates against the party who supplies the words or fromwhom a writing otherwise proceeds.

F.PMust prove: That the words meant a specific meaning; and not a broad meaningG.FrigalimentImporting Co. v. BNS Sales-issue of Chicken1.Plain meaning of word had several definitions; Negotiations b/w the two offered ambiguity mis-

communicating; D was a newcomer to the industry that he wouldnt know the trade usage.

2.HOLDING: Ds subjective meaning of chicken coincided w/ an objective meaning of Chicken andthe P failed to prove that the word was used in the narrower rather than in the broader sense; P

should have known by the price difference.TF no recovery

3.Vs. Peerless: R20 true provocation and equally reasonably misunderstand the meaning of the Chicken-> no K

II.Parol Evidence The GatekeeperA.Parole evidence rule: Determines when extrinsic evidence will be allowed andapplies where an

agreement is recorded in writing and one party proffers evidence to prove a term that is not

contained in the writing or to explain or expand on a term in the writing

1.Primary purpose: control jurys decision-making. Judge restricts information given to jury, doesntsubmit information to be suspect and unreliable.

2.R212 Interpretation of integrated agreements: you can never really have an unambiguous meaningbecause meaning is a contextual idea and therefore parol evidence should be allowed to help

determine if it is ambiguous or not.

B.Application1.Looking at the scope of the agreement, Is the written agreement the final agreement?

(1)Contextual evidence used to interpret the contract depends on both the completeness and clarityof the written record of agreement and on the quality of the contextual evidence .

(2)The more comprehensive the writing, the harder to admit extrinsic evidence.2.

R209T

otal or Partial integration?(1)Partial Integration- If the document is not intended by the parties to include all details of theiragreement, or if the writing is not a complete and final record.

(a)Evidence admissible to supplement if consistent additional terms (R216)(b)No contradictory terms allowed (R215)

(2)Total Integration- include all the details of their agreement: No evidence allowed(a)If the written memorandum is a complete and final and certain record of the parties agreement,

that is it unambiguous and clearly expresses every term in the agreement and it is intended to

be the exclusive statement of everything that was agreed

(3)No Integration: Evidence is admissible if it is consistent or relevant with the writing .


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C.Tests1.Williston 4 corners of the contract: objective (reasonable person) in nature

(1)Examine only the document itself and look for a merger clause.(a)Merger clause: total integration NO parol evidence, unless the document is obviously

incomplete, or the merger clause was included as the result of fraud or mistake, or there is some

other reason to set aside the contract.

(b)No merger clause: look at the 4 corners of writing as a whole and whether or not uponinspection whether the contract looks complete.Total integration unless the alleged oraladditional terms were one which might naturally have been made as a separate agreement by

reasonable parties in the position of the actual parties to the contract.

2.Corbin liberal view(1)Places less emphasis on the writing itself and looks much more to the actual intent of the parties .

Because no writing can prove its own completeness only way you can tell is by looking at parol

evidence.

3.UCC 2-202 Parol or Extrinsic Evidence: more liberal than R(1)Evidence of consistent additional terms are admissible to explain or supplement unless court

concludes the writing was a complete and exclusive statement.

(2)Trade usage (industry1-205, 202(5)), course of performance (this K 2-208,R202), and course ofdealing (prior 1-205(1), T202203) may be introduced to help interpret meaning of a writing even

if it is a complete integration(3)Excludes evidence only if it clearly and certain would have been part of writing, if any doubt, let

the evidence in.

4.Wigmore (Natural Inclusion)(1)Closely connected in subject matter to the principle transaction of the written agreement

(a)If you look at the scope broadly evidence wont get in.(b)If you narrow the scope of the agreement so it should have naturally been included in the

original agreement evidence may get in.

5.Traynor J (Cal)(1)Evidence of oral collateral agreements be excluded only when the fact finder is likely to be misled .

D.Exceptions to the parol evidence rule(1)Matter of interpretation (UCC2-201)(2)Agreements made after the written contract(3)Contract defects (can always bring in evidence of fraud, duress, illegality, etc)(4)To show conditions precedent.

E.The Substance Test: Evidence Not allowed when: (216 (a))Mitchill1.K Completely Integrated: An inspection of the K in light of surrounding circumstances shows the K is

very complete; no gaps Shows the full object and measure of the extent of such agreement

2.Contemporaneous Evidence: The agreement is SO clearly connected w/ written as to be part andparcel with it

3.If the bond b/w the two is too closely related to the subject dealt with then can not be admitted4. Mitchill v. LathAgreement to remove icehouse across the street

(1) 3 criteria as to whether an oral agreement is received to vary the written contract:(a)the agreement must in form be a collateral one, and(b)it must not contradict express or implied provisions of the written contract, and(c)

consists of terms which the parties could not reasonably have been expected to include in thewritten contract.

(2)HOLDING: TF agreement is collateral in FORM but too closely related in SUBSTANCE and sincethe written K is SO thorough and final and can not see any gaps then the evidence can not be

admitted to alter its finality.

F.Naturally Omitted Test 216 (b)1.Base on the credibility of the collateral agreement: (Look at factual/contextual/circumstances)

(1)Permits proof if: the agreement is such as might naturallybe made separate, If you have anydoubt allow it


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(2)Prohibits proof if: the additional terms are such that would certainly have been included in thewritten document (when you are sure)

2.Masterson v. Sine- bankruptcy; K w/ sis by reserving the option to purchase it later(1)Parol Evidence Problem: b/c idea that the land would stay in the family is not in the final written

agreement- so determine whether or not that evidence would come in.

(2)Traynor: (R.Test1) Evidence of oral collateral agreements should be excluded only when the factfinder is likely to be misled. (R.Test2) In this case, it appeared that collateral agreements mightnaturallybe made as a separate agreement so parol evidence on the issue is allowed.

(3)Deed is a formal formed K.Type of collateral agreement that would be made in a separateagreement; clause isnt one which the parties wouldve certainly included in the deed; agreement

was onlypartial integrated; formalized nature of deed makes it natural to omit term from

it. (UCC test3) to show the liberal trend.Terms in the K and the option K presumed to be

assignable P663, silent K v. option K contradiction is not enough.

3.Alaska Northern Development,In

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