CONTRACTS OUTLINECONSIDERATION

CONSIDERATION (Value given by one party in exchange for performance or promise to perform by another party ( legal detriment suffered by the promisee in exchange for the promisors promise

( Gratuitous promises w/no reliance or consideration unenforceable (DeLeo)

Exception for charities (Allegheny College)

( Forbearance of a legal right (detriment) (irrelevant whether promisee benefits) can serve as valid consideration (Hamer v. Sidway)NOMINAL CONSIDERATION

( Mere inadequacy of consideration will not void a contract (Batsakis)

Martin v. Little Brown & Co. (471)

Implied In Fact Contract = Agreement legitimately inferred from parties intentions evidenced by circumstances, course of dealing & common understanding. Must render services in circumstances promisor can entertain reasonable expectation of payment by party benefited. No bargained-for-exchange & no consideration by promisee not enough to establish existence of implied contractImplied In Law Contract quasi-contract = obligation created by law for reasons of justice

Qunatum meruit given in cases of unjust enrichmentREST. 2d 71(2) BARGAIN DEFINITION:

A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

Bargain Element ( For a promise to be supported by consideration, the promisees detriment must have been bargained-for by the promisor (see definition for bargain).PAST CONSIDERATION

(Promises unsupported by consideration, not done at Ds request, & for services received in the past are generally held unenforceable (Mills v. Wyman)Webb v. McGowin (236)

Unrequested rescue created moral duty to P, since D received directed benefit. D affirmed by offering compensation.

Where promisee cares for, improves, & preserves promisors property, though done w/o request = sufficient consideration for subsequent agreement to pay for service b/c of material benefit received ( Where benefit of services to promisor (and/or provider cost) substantial, courts will most likely hold K enforceableREST. 2d. 86 Promise for Benefit Received

(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice

(2) A promise is not binding under Subsection (1):

(a) if the promisor conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or

(b) to the extent that its value is disproportionate to the benefit.

Exceptional Situations

- Reasonable Payment Expectation is essential element of a claim for restitution - Compensation justified where person acting in course of profession

- Purely humanitarian or otherwise non-professional voluntary acts of small value not entitled to compensation and contractual obligation

(snotty law student trying to receive compensation for volunteering)

Other cases binding without consideration SOL, bankruptcy, minor contracts

Statute of Limitation

- Most states require promise to pay debt be in signed writing - Sometimes promise to repay implied from debtors actions

Voluntary acknowledgement of debt

Voluntary transfer of money, etc.

Statement that SOL wont be pled as defense

Bankruptcy

- Most states require promise to pay debt be in a signed writing

- Courts enforce express promise & wont infer promise from debtors actions

PRE-EXISTING LEGAL DUTY RULE

C/L ( Requirement of additional consideration for modification to be enforceable Exceptions

Unforeseen Circumstances

Statute Provision

Detrimental Reliance (material change in position b/c of mod)UCC 2-209 (abolishes PDR) Modification, Rescission and Waiver

Only a good faith requirement, no consideration necessary Modifications bringing K w/in SOF must be in writing Although No Oral-Modification Clause may be waived Moon case, foreman waived by requesting addl workREST. 2d, 73

Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration

REST. 2d, 89 Promises Modifying Contracts

A promise modifying a duty under a contract not fully performed on either side is binding

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

(b) to the extent provided by statute; or

(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise

(Party cannot claim estoppel based on his own wrong, where the promise is simply a repetition of a subsisting legal promise ( When party merely does what already obligated to do, he cant extort more money (Alaska Packers Assn - 569)

Alaska Packers fisherman were given insufficient nets, thus fewer fish and less compensation(Parties can rescind contract by mutual consent & then make new K where their mutual promises are consideration for each other (Schwartzreich 572)

Gray Area parties agree to mutual rescission and then sign new contract

Many argue the aim of rule is better left to duress doctrineBrian Construction v. Brighenti (573) (1978)

When party agrees to perform obligation already owed, although for lesser money, 2nd agreement invalid ( however, new & distinct agreement imposing additional burdens supported by consideration is valid. Unforeseen, burdensome circumstances (additional obligation) involving greater consideration constitute separate contract

Universal Builders v. Moon Motor Lodge (580) (1968)

UCC 2-209(4)(5) K can be modified orally even if K has no oral modification clause ( may waive provision If oral agreement or permission given while performance of condition possible & in reliance on agreement/permission, while it is un-revoked, promisee materially changes his position = enforceablePromissory Estoppel

REST. 2d, 90 Promise Reasonably Inducing Action or Forbearance

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

(2) A charitable subscription or marriage settlement is binding under subsection (1) w/o proof that the promise induced action or forbearance

NOTE Usually limited to reliance damages, but modern courts have leaned towards expectation damages (in alliance w/norms of contract law)

THREE PART TEST

(1) Promise which promisor should reasonably expect to induce action or forbearance of a definite & substantial character?

(2) Promise induced such action or forbearance?

(3) Injustice avoided only by enforcement of the promise?

Ricketts v. Scothorn (245)

Where a gift induces detrimental reliance, the donee may collect on the promise under the doctrine of promissory estoppel

NOTE (For intra-family gifts upon which there is reliance, damage award is typically limited to out-of-pocket losses, not expectation interest.

Goodman v. Dicker (278) (1948)

Where reasonable reliance is incurred in furtherance of oral promise, equitable reliance damages are appropriate to serve the ends of justice(Reliance on negotiations may be enforceable through doctrine of PE (Hoffman v. Red Owl)

Expands PE doctrine even though no actual offer existed (just promises)

Allegheny College v. Chautauqua Bank (251)

(Posthumous remembrance = consideration to make K enforceable NOTE (Modern courts typically DO NOT impose detrimental reliance requirement in cases of charitable subscription (only applicable w/written promises) Rest, 2d 90(2)RELIANCE & STATUTE OF FRAUDS

PART PERFORMANCE (remedy against SOF): E 269 Specific Performance = remedy in Part Performance cases (involving only land)

To compel SP, reliance must not be adequately compensable in money Critical enforceability element = actual possession by promisee w/promisors acquiescence varying forms in different states

In some: possession

In others: possession + partial (or whole) payment

In others: possession + permanent improvements

REST. 2d. 139 Part Performance

(1) Promise which promisor should reasonably expect to induce action or forbearance on part of promisee or third person & which does induce the action or forbearance is enforceable notwithstanding the SOF if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.

(2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:

a. Availability & adequacy of other remedies, particularly cancellation & restitution;

b. The definite & substantial character of action or forbearance in relation to remedy sought;

c. The extent to which action or forbearance corroborates evidence of making & terms of promise, or making & terms are otherwise established by clear & convincing evidence;

d. The reasonableness of the action or forbearance;

e. The extent to which the action or forbearance was foreseeable by the promisor

Seavey v. Drake (264) (1882)

Expenditure in money & labor (in equity) = consideration for promise & will be enforced Where SOF may exempt for lack of written contract or memo, equity mandates that there be an exception to rule when part performance/reliance has taken placeEQUITABLE & PROMISSORY ESTOPPEL Majority ( expansion of PP desirable (beyond land cases)

Equitable Estoppel deals w/past wrongs & Promissory Estoppel deals w/reliance on future promises and damages resulting from the relianceLIMITED PROMISES

ILLUSORY PROMISE: Statement which appears to be promising something, but which in fact does not commit promisor to anything at all

REST. 2d, 77 Illusory & Alternative Promises

A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless

(a) Each of alternative performances would have been consideration if it alone had been bargained for; or

(b) One of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration

Where promise reserves complete discretion to the promisor to act as he chooses, promise is illusory & unenforceable in effect, promisor fulfills his promise however he acts (Davis v. General Foods Corp. 1937)

Nat Nal Service Stations v Wolf neither party was bound to any obligation due to the indefiniteness of the time period. Each sale constituted a separate contract, thus the wholesaler was not obligated to give the discount.

ALTERNATIVE PROMISES:A promise which reserves to promisor several alternative performances

(Generally enforceable if each alternative performance would have been consideration if it had been bargained for alone (Rest. 2d, 77(a))(Consideration where one alternative would be consideration & substantial possibility that, before promisor makes choice, events will eliminate others

PARTY DISCRETION ( If one partys performance left completely to his discretion, so that he may choose not to perform at all, he has not furnished consideration for the other partys promise MUTUALITY OF OBLIGATION

Promise = consideration if performance promised, either act/forbearance, would be consideration if it alone were bargained for (bilateral contract context) ( Each party must make promises that somehow bind them at some period of time

Gurfein parties are bound since there was a time when seller could have shipped and buyer was obligated to pay, even though buyer had the right to cancel before shipment

The fact that a rule of law renders a promise voidable or unenforceable does not prevent it from being consideration (Rest. 2d, 78) allows purchaser who was defrauded option to still make purchase

IMPLIED PROMISES

Wood v. Lady Duff Gordon (299)

Implied promise to use good faith efforts to market Ds designs = sufficient detriment to P to constitute consideration for Ds counter-promise of exclusivity understood that there was a circumstantially & textually implied instinct of obligation REST. 2d, 205 Good Faith

Every contract imposes upon each party duty of good faith & fair dealing in performance & enforcement

Good Faith (Emphasizes faithfulness to agreed common purpose & consistency with justified expectations of other party

Bad Faith ((1) Evasion of spirit of bargain, (2) lack of diligence/slacking off, (3) willful rendering of imperfect performance, (4) abuse of power to specify terms, & (5) interference with or failure to cooperate in other partys performance

REQUIREMENTS & OUTPUT CONTRACTS

(Non-UCC requirements & output contracts usually valid if buyer (requirements contract) implicitly promises best efforts to sell goods and/or seller (output contract) implicitly promises attempt to maintain production at reasonable levelUCC 2-306 Output Requirements & Exclusive Dealings

(1) Term which measures quantity by output of seller or requirements of buyer means actual output or requirements as may occur in good faith except no quantity unreasonably disproportionate to any stated estimate or in absence of stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded

(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by seller to use best efforts to supply goods and by buyer to use best efforts to promote their sale

Exclusivity of dealings implied (buyer/seller buys everything from other)

Does not lack for mutuality of obligation best efforts qualifies

Feld v. Henry S. Levy & Sons (310) Bread Crumbs

Short of cancellation provided for in K, D expected to continue to perform in good faith & could cease production only in good faith. Good faith required continued production until cancellation, even if no profit (good faith cessation mightve been ok)(Output Ks dont lack mutual obligation & not unenforceable b/c of term indefiniteness. Party to determine quality/quantity required to act in good faith & produce in good faith according to reasonable commercial standards

Corenswet termination of contract not a violation of good faith if there is a clause allowing termination without reason

Raises separate issue of whether unilateral termination w/o cause violates unconscionability clause

MUTUAL ASSENT

MUTUAL ASSENT:For contract to be formed, parties must both intend to contract & must agree on at least the main terms of the deal

Irrelevant whether parties to K subjectively intended to be bound; intentions measured by what reasonable person in position of other party would have thought 1st party intendedDickey v. Hurd if one party is aware of the other partys ambiguity of term, they must inform them

Embry v. Hargadine McKittrick Dry Goods Co. (325)

Law imputes intention corresponding to reasonable meaning of words & deeds judges intention by outward expressions & excludes all questions in regard to unexpressed intention. If outward expression and/or acts manifest intention, immaterial what may have been real, but unexpressed, state of promisors mind on subject of agreement

Kabil Developments v. Mignot (329) Helicopter Services

Objective theory of contracts ( objective test doesnt preclude admission of subjective testimony concerning whether party felt he was entering into contractual agreement ( When dispute concerns unwritten agreement, conclusion of mutual assent constructed from evidence of negotiations/other past conductNOTE:If parties actions make clear intention to be bound even b/f legal document, courts will almost always find enforceable K (regardless of document)

If neither party intends the meaning of the contract, then not bound to it

(New York Trust Co. v. Island Oil & Transport Corp. 1929)REST, 2d 21 Neither real nor apparent intention that promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract

Moulton v. Kershaw Salt Advertisement

Generally, advertisements not considered offers; however, if offer clear, definite & explicit, leaving nothing open for negotiation, may be enforceable as offer inviting acceptance (e.g. wording expressing commitment particular number of units or particular manner are more likely to be considered offers)

Empro Mfg. Co. v. Ball-Co Mfg., Inc. (1989) Agreement in principle

Parties may have agreement in principle, but if material terms left for future negotiations = unenforceable

Preliminary agreements typically not binding, those that are fall into 2 categories:

Fully binding preliminary agreement parties agree on all parts but agree to memorialize agreement in formal document

Binding preliminary agreement parties agree on certain major terms, but leave others open for further negotiation, only required to have good faith in negotiationsUCC 2-305 Open Price Term

The parties, if they so intend, can conclude a contract for the sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if:

(b) nothing is said as to price; or

(c) the price is left to be agreed by the parties and they fail to agree; or

(d) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded

( UCC 2-305 Open Price Term Price is a reasonable price at the time set for delivery

Price term to be fixed in good faith Where price term not fixed by fault of one party, other may cancel or fix the term at a reasonable price

( UCC 2-309 Time for Shipment Unspecified Reasonable time after contracting

Termination by one party (except on happening of agreed event) requires reasonable notification & an agreement dispensing therewith is invalid if would be unconscionableOFFER & ACCEPTANCE

REST. 2d 24 Offer

The (objective) 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]

OFFER Creates immediate power of acceptance in offeree

Invitation to Deal v. Offer

Communication advising interested parties that something is for sale for a price not below x merely establishes basis for auction & does not constitute offer (unless perhaps on basis of prior dealings)

Bid Solicitations basis for preliminary negotiations whether solicitee would reasonably believe a bid is a solicitation or offer If containing words of commitment, may become offer (i.e. highest bidder by certain date) Price Quotations implies reservation of right on suppliers part to accept or reject customers orders

Can be considered as an offer if language dictates for immediate acceptance

No offer if reserving power to close deal w/proposer

Retail Advertisements usually just invitations to deal

Can be offers if sufficiently definite & explicit, inviting particular performance

Particular number of units or sale in particular manner

INDEFINITENESS

REST, 2d. 33 Certainty/Indefiniteness

(1) Even though manifestation of intention meant to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain

(2) The terms of contract reasonably certain if they provide basis for determining existence of a breach and for giving an appropriate remedy

(3) The fact one or more terms of proposed bargain are left open or uncertain may show manifestation of intention is not intended to be understood as offer or as an acceptance

(Terms of a contract are sufficiently definite (1) if they provide basis for determining existence of breach and (2) basis of appropriate remedy

(Even if terms are initially too indefinite, subsequent performance may cure the indefiniteness

Essential Elements of Agreement

Parties to the contract

Subject matter of the contract

Time for performance &

Price

UCC 2-204 Formation in General

(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes existence of such a contract

(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined

(3) Even though one or more terms are left open, K for sale does not fail for indefiniteness if the parties have intended to make a contract, and there is a reasonably certain basis for giving an appropriate remedy

Comment: The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement, but their actions may be frequently conclusive on the matter despite the omissionsIf intent to K evident, Court supplies missing terms UCC 1-303 Trade Usage (general standards in the field)

Course of Dealing (previous dealings b/w parties to K)

Course of Performance (conduct after entering K)

Empro Mfg. Co. v. Ball Co Mfg. (1989) LOI/subject to approval

LOI test is whether parties intended to be bound (objective theory) ( best way of telling is through the actual words of LOI ( phrases such as subject to indicate that LOI not intended to be bindingMISUNDERSTANDING Prevents K from Ever ExistingREST. 2d, 20 Effect of Misunderstanding

(1) There is no manifestation of mutual assent to an exchange if the 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 the meaning attached by the other

(2) The manifestations of the parties are operative in accordance with the 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 the other knows the meaning attached by the first party; or

b. That party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party

GENERAL RULE:If misunderstanding concerns material term & neither party knows, or has reason to know, of misunderstanding, no contract(If offeree is negligent in misunderstanding the terms of the offer, he is generally bound by the K terms as stated

Raffles v. Wichelhaus (Peerless) (359)

No meeting of the minds & latent ambiguity as to what terms of agreement actually signified no consensus ( If misunderstanding concerns material term & no meeting of the minds, there is no contractREST. 2d 50 Acceptance

Offerees (objective) manifestation of assent to terms of the offer, made in a manner invited by the offer

Cobaugh v. Klick Lewis, Inc. (363) (1989) Hole-in-one

Offer = manifestation of willingness to enter bargain w/understanding that acceptance of another party to enter terms of bargain will conclude it. Manifested, objective intent of offeror, not subjective intent, determines whether offer is invitation for assent & acceptance according to its terms (where no specified time-limit on offer, it remains open for a reasonable time unless revoked)NOTE (Claimant must know of offer when giving desired information or performance; otherwise, mere public service or accidental action (reporting crime, etc) impossible to assent w/o knowledge of existence

DURATION OF POWER OF ACCEPTANCEREST. 2d, 36 Methods of Termination of Power of Acceptance

(1) An offerees power of acceptance may be terminated by

(a) rejection or counter-offer by the offeree, or

(b) lapse of time, or

(c) revocation by the offeror, or

(d) death or incapacity of the offeror or offeree

(2) In addition, an offerees power of acceptance is terminated by the nonoccurrence of any condition of acceptance under the terms of the offer.

( Rejection terminates offer unless The offeror indicates the offer still stands in spite of rejection or The offeree states that, although not presently accepting, wishes to consider

( Lapse of Time

If no time limit explicitly set on offer, expiration after reasonable time

Offeror may treat a late acceptance as valid if he so chooses

( Counter-Offer terminates offer unless

Offeror indicates otherwise

Original offer was irrevocable (option K)

Counter inquiry (still has power to accept) distinguished from counter-offer

( Death or Incapacity

( Non-occurrence of Condition of AcceptanceUCC, 2-206 Offer and Acceptance in Formation of Contract

(1) Unless otherwise unambiguously indicated by language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances

(2) Where beginning a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance

RULE:If mechanism or medium of acceptance unspecified, offeree may complete acceptance through the medium of his choice (but if performing, must notify offeror of acceptance within a reasonable time)

REST. 2d 32 Invitation of Promise or Performance

In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance as the offeree chooses

REST, 2d Effect of Performance Inviting Either Performances or Acceptance

(1) Where offer invites offeree to choose between acceptance by promise and acceptance by performance & offers beginning of invited performance or a tender of a beginning of it is an acceptance by performance.

(2) Such an acceptance operates as a promise to render complete performance.

Allied Steel v. Ford (369) (1960)

If offeror prescribes exclusive manner of acceptance, attempt by offeree to accept offer in different manner does not bind offeror in absence of meeting of minds on altered type of acceptance ( Where offer unclear as to acceptance by promise or performance, offeree may accept by either (Rest. 2d 32) & beginning performance IS acceptance of full performance contract (Rest. 2d 62)

Davis v. Jacoby (372) Old man/wife needed help/promised to come

Where doubt as to whether offer invites acceptance by performance or promise (unilateral/bilateral), offeree may choose his method presumption towards construing ambiguity as bilateral contracts

OPTION CONTRACTSREST. 2d 45 Option Contracts Created by Part Performance or Tender

(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it

(2) The offerors duty of performance under any option of contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

(Where offer clearly unilateral (inviting performance), beginning of performance creates temporary irrevocability option contract (Rest. 2d 45(1))

IMPORTANT LIMITATION temporary irrevocability takes place only once performance begun

Preparation insufficient to qualify (exception see Rest. 87(2))UCC 2-205 Firm Offers

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed 3 months

- Non-Merchants are not bound by gratuitous firm offers

Principle of Indirect Communication

Where offeree learns of inconsistent behavior by offeror w/offer (i.e. selling to someone else), the offer has been revoked

Knowledge of negotiations w/third party or mere rumor of inconsistent activity on part of offeror not enough to constitute revocationPetterson v. Pattberg (378) (1928)

Ds offer withdrawn b/f binding = no K. If offeror says, I revoke, b/f offeree accepts, K is non-binding ( Mere preparations for performance (i.e. getting money to pay) not enough to make offer irrevocableNOTE (Modern courts likely to allow recovery to the extent necessary to avoid injustice reliance damages (Rest. 2d, 87(2))REST. 2d, 87 Option Contract

(1) An offer is binding as an option contract if it:

a. Is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or

b. Is made irrevocable by statute

(2) 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

Thomas v. Bescher (392) Option K under seal/$1 consideration/not paid

Where an option contract recites purported consideration the option is enforceable, even though the consideration is never actually paid

NOTE (Prevailing view of sealed options is option agreement under seal valid in jurisdiction where C/L significance of seal remains, even though no consideration given (purported consideration)

Drennan v. Star Paving (399) (1958) Sub bid/General relied/Mistake

D had reason to expect bid, if lowest, would be used; once part of requested performance begun, offeror cant revoke his offer (Rest. 2d 45)

CONDUCT CONCLUDING BARGAIN

Livingstone v. Evans (416) Land offer $1800/counter/response no less

Ds response was a renewal of original offer (i.e. cannot reduce price) ( Counter-offers serve as rejections (Rest. 2d, 36); however, offeror may renew offer SILENT ACCEPTANCE

Assent ( inferred from many things in some cases, even failure to object or respond, viewed contextually, may be enough to indicate an implied contract

REST, 2d 69 Acceptance by Silence or Exercise of Dominion

(1) Where offeree fails to reply to offer, his silence & inaction operate as acceptance in the following cases only:

a. Where offeree takes benefit of offered services with reasonable opportunity to reject them & reason to know that they were offered with the expectation of compensation

b. Where offeror has stated or given offeree reason to understand assent may be manifested by silence or inaction, & offeree in remaining silent & inactive intends to accept the offer

c. Where b/c of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept

(2) An offeree who does any act inconsistent with offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.

Hobbs v. Massasoit Whip Co. (448) (1893) Eel skins/not returned

Conduct implying acceptance or assent is acceptance or assent whatever may have been actual state of mind of the party ( silence, combined w/retention, amounted to an acceptance & binding contract (previous course of dealings, Rest, 2d 69 (1)(a))THE PRIVILEGE OF SILENCE (E23)

(Silence will not usually be acceptance of an offer in absence of duty to speak

Exceptions

Taking benefit of offered services

Reason to understand silence as consent Prior conduct making silent acceptance reasonable Acceptance by dominionAdditional Terms

Additional, non-material terms become part of K unless timely notice of objection Silence makes fair to assume additional terms have been assented to by offeree Even where material alteration, prior dealings may provide basis for concluding offeree reasonable in inferring assent from offerors failure to object to itAustin v. Burge (1911) Asked not to send/continued payment

Although objecting to something, if one continues to receive & use item under circumstances where he had no right to suppose it was a gratuity ( held to have agreed by implication to pay their valueDEVIANT ACCEPTANCE (E 26)UCC 2-204 Formation in General

(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract

(2) An agreement sufficient to constitute contract for sale may be found even though the moment of its making is undetermined

UCC 2-207 Additional Terms in Acceptance or Confirmation

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

a. The offer expressly limits acceptance to the terms of the offer;

b. They materially alter it; or

c. Notification or objection to them has already been given or is given within a reasonable time after notice of them is received

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such cases the terms of the particular contract consists of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act

ROLE OF 2-207 ( Battle of the Forms(1) To determine whether contract formed by exchange of documents;

(2) what the terms of that contract (if formed) actually are

Merchants UCC 2-207(2) largely overthrows C/L mirror-image rule

Additional Terms automatically become part of K, unless:

Offer expressly limits K to terms of offer

Material alteration (i.e. disclaimer of warranty) Material alteration if consent to it cannot be presumed

Notification of objection to additional terms Conflicting Terms in Documents

Knockout Rule UCC gap-filler provision used (if relevant) Conflict b/w expressly drafted clause & UCC gap-filler (UCC wins) Knock each other out, but UCC gap-filler comes back in Where the acceptance is expressly conditional on the offerors assent, no K is formed by the exchange of documents the acceptance probably becomes a counter-offer which is accepted by performance on the part of the offeror (performing under the K contract by conduct)

Terms are those on which the parties writings agreed, plus supplementary terms from the UCC

Merchant & Consumer UCC 2-207(2)

Additional terms do not become part of the K, unless the offeror explicitly assents to itConfirmation Terms

Terms different in a confirmation of an oral agreement will almost never become part of K, even if receiving party fails to object (same for expressly conditional confirmation clauses

Idaho Power v. Westinghouse Electric (422) (1979)

Language in acknowledgement must virtually track language in 2-207 in order to be found unenforceable must show an express unwillingness to proceed apart from assent to variant terms (E36)ProCD Inc. v. Zeidenberg (430) (1996) phone database/shrinkwrap term

Vendor may invite acceptance by conduct (UCC 2-204) & propose limitations on conduct constituting acceptance license binding on D; terms are as to contents of package, & buyer may not pick & choose his terms of choice ( contract not formed until buyer received the goods & kept them for period beyond prescribed return period yields contract on sellers terms (acceptance of buyer by performance)

NOTE (This is the not formed until receipt approach often criticized (ProCD)

(acceptance by performance)

NOTE II (Other approach is formed at time of order approach (Klocek)

(a) Buyer typically considered offeror

(b) Seller = offeree (terms additional)

(c) Buyer usually not merchant

a. Where seller is merchant & buyer is not, the terms do not become part of contract unless buyer specifically assents

b. B/w merchants, terms automatically become part of K if silent on subjectC/L Mirror-Image Rule Acceptance must be a precise mirror image of the offer (if containing different terms, it is counter-offer or rejection)

Alternatively to the Mirror-Image Rule, Rest 59 similar to UCC 2-207

C/L Last Shot Principle

Party sending last written proposal (if other party began performing) got benefit of counter-offer acceptance

REST. 2d, 59 (similar to UCC 2-207)

A reply to an offer which purports to accept it but is conditional on the offerors assent to terms additional to or different from those offered is not an acceptance but is a counter offer

Official Comment: Definite & seasonable expression of acceptance operative despite statement of additional or different terms if acceptance not made to depend on assent to additional or different terms.MAILBOX ACCEPTANCE RULE

Morrison v. Thoelke (437) (1963) acceptance/b/f arrival called

An acceptance is effective upon mailing, not receipt ( an unqualified offer was accepted & acceptance made manifest by postageExceptions

a. Rule does not apply if offer stipulates acceptance not effective until receipt

b. Rule does not apply for option contracts (effective upon receipt)

c. First sends rejection & then sends acceptance, whichever arrives first = effective

d. If offeree sends acceptance and then a rejection, the acceptance is effective unless the rejection letter arrives first & the offeror detrimentally relies upon it

VERY IMPORTANT ( Offeror = master of offer

Offeror chooses medium of conveyance (i.e. mail, email, etc)

Whatever medium of conveyance offeror chooses, offeree may respond through THAT medium or through faster one & rule is Deposit Acceptance If offeree chooses slower response (email offer/mail acceptance), the rule is acceptance upon receiptREST, 2d 63 Time When Acceptance Takes Effect

Unless the offer provides otherwise,

(a) an acceptance made in a manner and by a medium invited by an offer is operative and completes manifestation of mutual assent as soon as put out of the offerees possession, without regard to whether it ever reaches the offeror; but

(b) an acceptance under an option contract is not operative until received by the offeror

REST, 2d 40 ( Rejection Acceptance Upon Receipt(Rejection or counter-offer by mail or telegram does not terminate power of acceptance until received by offeror, but limits power so that letter or telegram of acceptance started after sending of otherwise effective rejection or counter-offer only counter-offer unless acceptance received before he receives rejection or counter-offerSTANDARDIZED FORMS

Adhesion Contracts ( (1) standardized form (take it or leave it) & (2) gross disparity in bargaining power, (3) large number of non-negotiated pre-drafted terms, (4) standardized terms complicated, ambiguous & exceptionally favorable to the drafter

GENERAL RULE ( TO AVOID ENFORCEMENT OF ADHESION CONTRACT

(1) The contract itself is actually an adhesion contract and(2) The contract either

a. Violates his reasonable expectations; orb. Is unconscionable (shockingly unfair)

( UCC 2-302 Unconscionable Contract Clause

Allows courts to police contracts (whether K at formation was unconscionable)

Principle one of prevention of oppression & unfair surprise (not bargaining)

( REST, 2d 208 Unconscionable Contract or Term

- Similar to UCC (broad latitude)Sharon v. City of Newton (513) (2002) Cheerleading Indemnity

Indemnity Release binding when person of ordinary intelligence reviews a document clearly labeled for purpose of indemnification for childs participation in school activities Exception = baggage check or ticket stubs (pseudo-contracts) are not such that person of ordinary intelligence would understand indemnification unless expressly informed Mundy v. Lumbermans Mutual (514) (1986) stolen silver/policy cap

Changes to standardized contract become effective once party receives copy of revised contract if changes clearly described & set apart (i.e. plain English, visible)EXCULPATORY CLAUSESHenningsen v. Bloomfield Motors (520) (1960) possible SW defect

General Rule = failure to read does not absolve P of assumption of burden, but D must also show that agreement was understandingly made. Disclaimers unfairly procured, if not brought to buyers attention/sufficiently aware or not clear & explicit, are invalid (inequality of bargaining power as well)UCC 2-314 A warranty that goods shall be merchantable is implied in contract for their sale if the seller is a merchant with respect to goods of that kind

UCC 2-315 Where seller at time of K has reason to know any particular purpose for which goods required & that buyer is relying on sellers skill or judgment to select/furnish suitable goods, there is unless excluded or modified under next section an implied warranty that goods shall be fit for such purposeUCC 2-316(2) (as is) Exclusion or Modification of WarrantiesRichards v. Richards (1994) Wife indemnity/riding w/18 wheeler spouse

Exculpatory contracts, though viewed unfavorably, are not automatically void ( court must weigh against public policy to decide validity ( overly broad & general exculpatory contracts are invalid

Three Factors to Consider:

(1) Documents purpose not clearly identified (passenger authorization when actually indemnity agreement)

(2) Release is extremely broad & all-inclusive breadth demonstrates one-sidedness & unreasonably favors drafter

(3) Standardized contract offering little or no negotiability or bargaining ability

PAROL EVIDENCE RULE

PER ( Governs the effect of a written agreement on any prior oral or written agreements b/w parties to suit

Subsequent Oral Agreement ( Does not bar evidence of oral agreements after writing

Interpretation Maxims

Does not bar evidence about meaning parties intended particular contract terms

Ambiguous terms usually construed against the draftsman (contra proferentem)

Course of performance & course of dealing help illuminate (custom)

Primary purpose of parties in making K given great weight

Terms given lawful, reasonable & effective meaning when at all possible

Negotiated terms take precedence of standard termsThree Approaches to Interpretation

Four-Corners (document on its face)

Plain Meaning (evidence about context, but not preliminary negotiations)

Liberal Rule (evidence of prior negotiations admissible)

Weakens PER rule significantlyREST, 2d 209-216 (471-473) ( Whether integrated agreement exists determined by court as question preliminary to determination of interpretation or application of PER

Mitchill v. Lath (457) (1928) ice house removal

To admit oral evidence ( (1) agreement must be collateral in form; (2) must not contradict express or implied provisions of written agreement; (3) must be one that parties would not ordinarily be expected to embody in writing

PER EXCLUDES IF

(1) Not collateral in form

(2) Inconsistent w/implied or express terms

(3) Naturally included

DIAGRAM

Excluded

Permitted

Separate/Distinct

Natural Part of Contract ((( No separate cons/Not necessarily ((( Sep consideration

within contract initially

INTEGRATION

Integration ( Parties intend document to represent final expression of agreementPartial Integration ( document not intended by parties to include all agreement details

No evidence of prior or contemporaneous agreements or negotiations (oral or written) may be admitted if contradicts term of written agreement

Total Integration ( document intended by parties to include all details of agreement

No evidence of prior or contemporaneous agreements or negotiations (oral/written) admitted if contradictory or additional to written agreement

RULE SUMMARY

(1) Evidence may never be allowed which contradicts integrated writings(2) May never supplement an integration intended to be completeHatley v. Stafford (1978) Wheat/buyout $70 acre/buyout in peak season

Presumption towards complete integration presume writing intended to be complete, when complete on face & should admit evidence of consistent additional terms only if substantial evidence that parties did not intend writing to embody entire agreement

Two Viewpoints - PER(1) JUST look at K itself to decide whether it appears to be integrated & then decide whether to admit evidence of oral agreement (four-corners rule)(2)Consider all evidence to decide whether admittable under PER to jury for consideration of facts to see if it really existed & was enforceable oral agreement

Additional Terms

Inconsistent Additional

NO

NO

Completely Integrated Agreement

_____________________________________________________________________

MAYBE

NO

Partially Integrated Agreement

(Is term naturally sort of thing to be incl.)

UCC 2-202 ( Final Written Expression: Parol or Extrinsic Evidence( Agreement may be supplemented by course of dealing/trade usage (1-205, 1-208)

( No inconsistent terms ever allowed *questions of law for a judge to decide*

( May not supplement (even w/consistent terms) a totally integrated agreement

RULE (Consistent, collateral & unnatural (not likely to be included in contract) terms should be allowed consideration within partially integrated agreementsTHRESHOLD ( Partially Integrated or Completely Integrated

NEXT LEVEL ( Consistent or Inconsistent

NEXT LEVEL ( Unnatural or NaturalFRAUD EXCEPTION TO PER (E 181)( Even if writing completely integrated, PER always allows evidence of earlier oral agreements to show illegality, fraud, duress, mistake or lack of considerationLipsit v. Leonard (485) (1974)

PER no bar in actions in tort for money damages based upon oral fraudulent promises inducing written agreements ( Fraud Damages ( out of pocket rule

BOA v. Pendergrass (1935) promissory note/payable on demand

PER not admissible where, as here, it would prove a promise directly at variance with the promise of the writing ( Direct Variance Rule

LaFazia v. Howe (490) (1990) New restaurant/bad tax returns/bought

Fraud vitiates all contracts, EXCEPT where express specific disclaimer or merger clause blocks fraud action (specificity = touchstone issue for deciding whether valid)

Merger Clause = a clause indicating writing constitutes sole agreement b/w the parties

Where clause is broad & boilerplate, it does not block oral evidence

Where specific concerning representations that have not been made, the majority of courts will not allow the oral evidenceFOUR-CORNERS RULE

Pacific Gas & Elec. v. Thomas Drayage & Rigging (504) (1968)

Four-Corners Rule (belief in potency & meaning of words) ( Test for admissibility of extrinsic evidence = whether offered evidence relevant to prove meaning to which language of instrument is reasonably susceptible ( Court must determine intent by looking at words contextually. If court decides, after looking at agreement contextually, that evidence is susceptible to one interpretation, parol evidence is inadmissibleFederal Dep. Ins. Corp. v. W.R. Grace & Co. (1989)

Four-Corners Rule not ridiculous ( language not taken lightly. If language clear b/c judge doesnt know commercial context extrinsic ambiguity challenging party should present objective evidence (not say-so) that K doesnt mean what it plainly says.

Spaulding v. Morse (508) (1947)

Every written agreement interpreted w/view to material circumstances of parties at time of execution, in light of pertinent facts within their knowledge, & in such manner as to give effect to main end designed to be accomplishedREST, 2d 212 Interpretation & Integrated Agreement

(2) A question of interpretation of integrated agreement ( determined by trier of fact if depends on credibility of extrinsic evidence or on choice among reasonable inferences to be drawn from extrinsic evidence. Otherwise, question of interpretation of integrated agreement determined as question of law

Cmt:Historically, questions of interpretation of written documents treated as questions of law in the sense that they are decided by the trial judge rather than by the jury.

POLICING THE BARGAIN

Chapter 4

COMPETENCY TO CONTRACT

Infancy Doctrine ( Minors absolute right to void any contracts for non-necessary items

- Right to disaffirm only survives for a reasonable time after majorityDoctrine of Necessities ( If the purchased item is necessary, minor liable for contractHalbman v. Lemke (543) (1980) Minor disaffirms vehicle K

Infancy Doctrine (C/L) ( absolute right of minor to disaffirm K for purchase of non-necessary items ( Generally, minor entitled to recover all consideration proffered relating to transaction & give in return as much of original purchase as left to other contracting party (however, disaffirmance permitted even where such return impossible)

UNDUE INFLUENCEOdorizzi v. Bloomfield School (557) (1966) Teacher gay/arrested/fired

Undue Influence ( coercive persuasion overcoming will w/o convincing judgment & taking unfair advantage of anothers weakness of mind or taking grossly oppressive & unfair advantage of anothers necessities or distress ( Combination of Elements Proves UI ( undue susceptibility + excessive pressure = undue influence.

Von Hake v. Thomas (560) (1985)

A confidential relationship [where one party, having gained trust & confidence of another, exercises extraordinary influence over another] is a prerequisite to proving constructive fraud ( law does not assume that ones will has been overborne by anotherFINALIZING DISPUTES ( SETTLEMENT AGREEMENTS

DURESS

Hackley v. Headley (586) (1881)

Duress ( unlawful act inducing party to perform some act under circumstances which deprive him of free will ( However, where party does not threaten anything which he does not have legal right to perform ( no duressNOTE ( Subjective to P irrelevant if person of average firmness would have yielded

Capps v. Pacific (589) (1969) Commission payment/Part paid

Better rule allows statement of a duress cause or defense such as P has pleaded here to be tried on its facts (personal difficulties) more recent cases different view from HackleyGeneral Rule Hackley approach still most popular ( financial difficulty by itself will not justify setting aside a settlement

REVISIONS OF CONTRACTUAL DUTY

Austin Instrument v. Loral Corp. (562) (1971)

Contract voidable under duress when established that party making claim forced to agree by means of wrongful threat precluding free will ( economic duress/compulsion demonstrated by (1) immediate possession of needful goods threatened, (2) breachee unable to obtain goods sought elsewhere, & (3) ordinary remedies for BOC inadequate Wolf v. Marlton Corp. (566) (1959)

Duress is tested, not by nature of threats, but rather by state of mind induced in victim ( SUBJECTIVE TEST

NOTE ( Exertion of legally permissible right wont always escape judicial scrutiny must determine whether rightful exercise of legal rightMISTAKE, MISREPRESENTATION, WARRANTY & NONDISCLOSUREConstructive Fraud ( Breach of legal or equitable duty which law declares fraudulent b/c of tendency to deceive others, to violate public & private confidence, or to injure public interest. Neither actual dishonesty of purpose nor intent to deceive is essential element of constructive fraud (relationship dependent)Jackson v. Seymour (601) (1952) Sister sells to brother/trees cut/value up

Neither party aware land value (mutual mistake) ( where inadequacy of price shocks conscience, equity seizes slightest circumstance indicative of fraud, either actual or constructive

FIDUCIARY DUTIES

Mere inadequacy or quality isnt per se grounds for avoiding enforcement

However, may be such unconscionableness or inadequacy of a bargain so as to demonstrate gross imposition or undue influence

In such cases, Courts of Equity interfere on satisfactory Ground of Fraud Should shock conscience

Constructive Fraud ( Two Relationship Groups

Fiduciary ( Relationship requiring high degree of candor & reliability b/w parties (i.e. trustee/beneficiary; principal/agent; attorney/client)

Key ( ascendancy of one party over another achieved through placing of trust & confidence of one & assumption by the other

Confidential ( Less the product of legal status than result of unusual trust or confidence reposed in fact (i.e. blood relationship, marriage, physician/patient, minister/parishioner)

All that is required is parties dont deal on equal terms & high degree of confidence placed in honesty & good faith of other party

MUTUAL MISTAKE

Mistake ( Refers only to mistaken belief about existing fact, not an erroneous belief about what will happen in the futureREST, 2d 152 ( Requirements for Avoiding Enforceability Under Mutual Mistake(1) Basic Assumption ( must concern basic assumption on which contract was made

(2) Material Effect ( material effect on agreed exchange of performances(3) Risk of Mistake ( adversely-affected party must not bear risk of mistakea. Means of Allocation of Risk (i. By agreement of partiesii. Aware at formation of only limited knowledge but treats such knowledge as sufficientiii. Allocated risk by court on ground that it is reasonable in circumstances to do soSherwood v. Walker (606) (1887) Barren/fertile cow/K rescinded

Where mistake affects substance of the contract, it must be considered that there was no contract to sell item as it actually was mistake as to very nature of item (cow) ( mistake only as to quality of item not enough (remedy = rescission of whole K)

REPLEVIN ( action or writ for receipt of what one owns (title has passed to person)

Beachcomber Coins Inc. v. Boskett (1979) Coin mistake

Where parties know doubt exists as to certain matter & contract on that assumption K not rendered voidable b/c one is disappointed ( however, parties must be conscious of the uncertainty of the pertinent fact

UNILATERAL MISTAKE

REST, 2d 153 Three Basic Requirements for Unilateral Mistake Avoidance

(1) Same criteria must be met as for bilateral mistake; and(2) Either of the following must be the case

a. Mistake is such that enforcement would be unconscionable; orb. Other party had reason to know of mistake or his fault caused mistakeElsinore Elementary v. Kastorff (616) (1960)

Where honest clerical error in bid & Ds subsequent prompt rescission, he is not obliged to execute contract ( bargain too sharp & no reliance by D (other party knew or had reason to know of mistake in bid)S.T.S. Transport v. Volvo (1985) (7th Circuit)

If mistake results from economic climate miscalculation (enforceable) ( problem solved by excluding miscalculations of judgment [as opposed to miscalculations of fact] ( courts will generally grant relief for errors which are clerical or mathematical Distinction ( b/w errors of judgment (enforceable) & errors of fact (not enforceable)WARRANTY ALTERNATIVE

EXPRESS WARRANTY (Explicit promise or guaranty by seller that goods will have certain qualities

UCC 2-313 Express Warranties by Affirmation, Promise, Description, Sample

(1) Express Warranties by Seller Created as Follows:

a. Any affirmation of fact or promise made by seller to buyer which relates to goods & becomes part of basis of bargain creates an express warranty that goods shall conform to affirmation or promise

b. Any description of goods made part of basis of bargain creates an express warranty that goods shall conform to the description

c. Any sample or model made part of basis of bargain creates express warranty that the whole of the goods shall conform to the sample or model

(2) Not necessary to creation of express warranty that seller use formal words such as warrant or guarantee or that he have specific intention to make warranty, but an affirmation merely of value of goods or statement purporting to be merely the sellers opinion or commendation of the goods does not create a warranty

- If disclaimer of express warranty & express warranty not consonant, disclaimer invalid

Tribe v. Peterson (625) (1998) No Buck Horse

Express Warranty ( created by any affirmation of fact made by seller to buyer relating to the goods & becoming part of the basis of the bargain ( must be a positive & unequivocal statement concerning thing sold which is relied upon by the buyer which is understood to be an assertion concerning items sold & not opinion

IMPLIED WARRANTY OF MERCHANTIBILITY ( UCC 2-314

Disclaimer must mention merchantability & (if writ) must be conspicuous

Cant be buried in fine print

Implied limitations as is with all faults etc (UCC 2-316)

Implied warranty can also be excluded by prior course of dealing

WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE ( UCC 2-315

Express disclaimer must be in writing & conspicuous

Conditions Buyer Must Prove for Recovery UCC 2-315

(1) Seller had reason to know buyers purpose

(2) Seller had reason to know that buyer was relying on sellers skill or judgment to furnish suitable goods; and(3) Buyer did in fact rely on the sellers skill or judgmentMISREPRESENTATION

Three Types of Misrepresentation ( Intentional (deceit at C/L) Original fraud Intent = distinguishing characteristic/essential element Negligent Lacks scienter (intent) Negligent if reasonable person in same or similar position would have discovered or communicated Innocent sometimes known as equitable fraudJohnson v. Healy (635) (1978) Extending UCC warranty principles to realty cases

Where innocent misrepresentation which he reasonably relied upon to his detriment, P entitled to choose b/w rescission of contract & damages (Strict Liability)

Man makes statement in regard to matter upon which hearer may reasonably suppose he has means of informationand statement is made part of business transaction, or to induce action from which speaker expects to gain an advantage, he should be held liable for the consequences of reliance upon his misstatement. Williston, Contracts (1920)Cushman v. Kirby (640) (1987)

When person has full information & represents as much, but fails to disclose entirely & leads other party to believe that entire representation has been made, guilty of fraud ( if words & reliance upon them bring about adverse consequencesSilence ( alone insufficient to constitute fraud unless a duty to speak ( if facts known & accessible, bound to disclose such facts & make them known

NONDISCLOSURE & CONCEALMENT Duty to disclose arises where facts are:

Unlikely to be discovered; or

As a result of close relationship Duty rarely arises where parties deal at arms length & info is ordinary

Modern View ( several situations vendor is obliged to disclose:

1. Disclosure necessary to prevent previous assertion from being misrepresentation or from being fraudulent or material

2. Disclosure would correct mistake of other party as to basic assumption on which other party is relying (good faith)

3. Disclosure would correct mistake regarding writing

4. Other person entitled to know fact b/c of trust relationship

CHANGED CIRCUMSTANCES JUSTIFYING NONPERFORMANCE

IMPOSSIBILITY ( When impracticable & impracticable when can only be done at excessive & unreasonable cost

REST 2d 261 Impossibility

Where after a contract is made a partys performance is made impracticable w/o his fault by occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render performance is discharged unless language or the circumstances indicate contrary

Summary

(1) Event must have occurred after the contract was made

(2) Non-occurring event must have been a basic assumption of contract(3) Event was not the fault of the party seeking discharge(4) Language or circumstances dont dictate discharge should be denied (i.e. b/c of allocated risk)Taylor v. Caldwell (1863) Music Hall Burning Down

Where person or thing necessary to contract fulfillment (music hall), destruction excuses vendor from obligation ( if performance becomes impossible b/c of perished thing, impossibility (if not arising from vendors fault) excuses vendor from liabilityCarroll v. Bowersock (654) (1917) New flooring/fire destroy

D liability, must have benefited from Ps work ( something = benefit once attached to Ds realty ( Where benefit accrued to vendee (incorporated realty), he is responsible for paying damages; otherwise, vendor is liable & assumes risk (i.e. construction)

Lincoln Welding Works v. Ramirez (658) (1982) Work flood damage

Court will enforce the terms of the contract if it says that one party will bear the risk of the loss (Can contract out of the default rule)

RISK & INSURANCE IN LAND PURCHASES Majority View ( doctrine of equitable conversion Places risk on vendee for fortuitous casualties after entry into contract of sale & prior to closing

Vendees right to specific performance means that contract amounts to equitable ownership in vendee

Question as to what happens in instance where vendor has insured property but it hasnt actually passed to vendee ( Most jurisdictions posit that vendee may have specific performance w/price abatement (e.g. to unpaid price)

Minority View ( vendor bears liability until either title has been transferred or vendee has taken constructive possession of premises

Absent change in title or possession, loss remains where it falls (on the propertys owner), not to be shifted to another person

IMPRACTICABILITY

REST. 2d 264 Prevention by Government Regulation or Order

If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made.

Louisville & Nashville R.R. Co. v. Crowe (662) (1913)

Contract lawful when made ( terminated by later governmental regulation rendering performance unlawful ( BUT party who received performance under such agreement should not retain it w/o payment (damages)American Trading v. Shell International Marine (669) (1972)

Issue:Whether D obliged to pay extra expenses P incurred in going alternate route ( whether Suez Canal was exclusive method of performanceImpracticability not applicable b/c the mere increase in cost alone is insufficient ( must be extreme and unreasonable expense

Maple Farms v. City School District (672) (1974)

Except in most exceptional circumstances, party claiming discharge of an obligation b/c of adverse financial circumstances is unlikely to get reliefUCC 2-615 Excuse by Failure of Presupposed Conditions

Delay or non-delivery by seller (who notifies & allocates production reasonably & fairly) is not a breach of duty if performance has been made impracticable by the occurrence of a contingency, the non-occurrence of which was a basic assumption of the K or by compliance in good faith w/applicable government regulation

Comment: Increased price alone insufficient to qualify, unless it is the result of unforeseen circumstances altering the essential nature of the contractMishara Construction v. Transit (673) (1974)

Circumstances drastically increasing difficulty & expense of performance may be within compass of impossibility (not usually a successful argument, though)SUMMARY OF IMPOSSIBILITY Incorporation into structure & benefit key

REST. 2d 272 ( recovery in impossibility & frustration may go beyond mere restitution & include elements of reliance by claimant even though they have not benefited other party

FRUSTRATION OF PURPOSE

Factors of Consideration

Foreseeability of supervening event

Risk allocation

The extent of the damage (i.e. completely/partially thwarting purpose)

Whether party seeking discharge was at fault (or failed to guard against)Krell v. Henry (675) (1903) Window renting/royal procession watching

Coronation procession was foundation of K & non-event prevented performance of K

Lloyd v. Murphy (680) (1944)

Doctrine of Frustration ( performance remains possible but expected value destroyed by fortuitous event which supervenes to cause failure of consideration ( supervening frustrating event must have been (1) not reasonably foreseeable & (2) a near complete destruction of the ability to perform as contemplated

UNCONSCIONABLE INEQUALITY

UCC 2-302 - Unconscionable Contracts ( (Rest, 2d 208 same)(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract

(2) or it may enforce the remainder of the contract w/o unconscionable clause

(3) or it may so limit the application of any unconscionable clause as to avoid any unconscionable result

Questions for Consideration

Was it unconscionable to include the term at the time of the contract

Would the person have agreed to terms at time of the K, if fully understood

Woollums v. Horsley (688) (1892)

Where K substantively unconscionable & unjust enforcement, the K is unenforceableWaters v. Min Ltd. (695) (1992)

Where K obtained under adverse circumstances & totality of circumstances (including price disparity) indicate too hard a bargain (or no bargain), court will not enforce the KWilliams v. Walker Thomas Furniture (699) (1965)

C/L unconscionability = absence of meaningful choice (procedural unconscionability) together w/contract terms which unreasonably favor other party (substantive unconscionability) in determining reasonableness or fairness, primary concern must be contract terms in context of circumstances in which they were made

Brower v. Gateway (701) (1998) Gateway Arbitration Clause

Where party meddled w/remedies to make them prohibitively expensive or unreasonable (leaving a party w/o remedy) ( K may be unenforceable solely on substantive groundsGianni Sport v. Gantos (709) (1986)

Where a clause is substantively unreasonable, court may hold that it is unconscionable (QUALIFIED HOLDING court reluctant to endorse)

EXPRESS CONDITIONS

CONDITION ( an operative fact subsequent to acceptance & prior to discharge

Rest 2d 224 Condition Defined

A condition is an event not certain to occur which must occur unless its non-occurrence is excused before performance under a contract becomes due.

Fact can be made to operate as a condition only by:

Agreement of both parties (express written out or implied by actions)

Construction of the law (constructive imposed by courts for fairness)

Non-occurrence of a condition will prevent existence of a duty in other party

Classification of Condition

Precedent Conditions = any event, other than lapse of time, which must occur before performance under a contract is due

Subsequent Conditions = event operating by agreement of parties to discharge a duty of performance after it has become absolute

No substantive difference b/w two, but procedural distinction important

For conditions precedent burden of proof is on P For conditions subsequent burden of proof is on DHoward v. FCIC (716) (1976) (4th Circuit) Crops cut/b/f inspection

Legal policy opposed to forfeitures policies typically construed in insureds favor ( when doubtful whether promise or condition precedent exists, words construed as promise ( insertion of clause concerning destruction of stalks inserted for convenience (not precedent condition) in evaluating damages

Prevention Doctrine A party who prevents fulfillment of a condition of his own obligation cannot rely on such condition to defeat his liability ( an express promise to perform on the happening of an event warrants implication of a promise to refrain from activity impeding its happening, and breach of the implied promise is legally as serious as the breach of the express (Traynor).REST. 2d 227 Standards of Preference with Regard to Conditions

(1) In resolving doubts as to whether event is made a condition of an obligors duty and as to the nature of such an event an interpretation is preferred that will reduce the obligees risk of forfeiture unless the event is within the obligees control or the circumstances indicate that he has assumed the risk

Illustration:A (general contractor) contracts w/B (sub-contractor) for plumbing work on construction project. B to receive $100,000, no part of which shall be due until five days after Owner shall have paid A therefore. B does plumbing, but owner becomes insolvent & fails to pay A ( under duty to pay B after a reasonable time (General Rule of Construction) obligee (B) did not assume the risk of forfeiture.Schuler-Haas v. Aetna ( no express language to contrary in document (& no extrinsic evidence), where payment stipulated to occur on event, occurrence of event fixes only time for payment ( not a substantive condition of legal responsibility to pay

Clark v. West (753) (1908)

CP may be waived (reliance upon waiver assurance) either by implication words & acts or expressly (newer rule ( waivers may be revoked if no detrimental reliance on them)

REST. 2d 229 Excuse of a Condition to Avoid ForfeitureTo the extent that the non-occurrence of condition would cause disproportionate forfeiture may excuse non-occurrence of condition unless its occurrence was a material part of the agreed exchange

Aetna Cas. & Surety Co. v. Murphy (760) (1988)

Issue:Whether insured who gives belated notice of claim can still recover on insurance K by rebutting presumption that his delay has been prejudicial to insurance carrier

If insurer suffered no material prejudice from delay or non-occurrence, it may be excused b/c not material part of agreed exchange ( If occurrence of condition required by agreement of parties (express), rather than matter of law (constructive), strict compliance. Rule relaxed so failure to perform EC excused to avoid disproportionate forfeiture

Although many cases apply literal enforcement, there may be instances of disproportionate forfeiture occasioned by such enforcement (i.e. where bargaining unequal, unfair forfeiture & lack of prejudice towards obligor)Jacob & Youngs v. Kent (833) (1921)

While full performance still standard of duty, when omissions both trivial & innocent, may sometimes be atoned for by allowance of resulting damage & not always be found to be breach of condition followed by disproportionate forfeiture (substantial performance)

CONDITIONS OF SATISFACTION

EXCUSE FOR IMPRACTICABILITY

Grenier v. Compratt Construction Co. (766) (1983)

Where condition isnt material to agreed exchange & impracticable due to circumstances unforeseen at time of K inception, contract may be enforceable w/condition being excused (full performance of K)

Second Natl Bank v. Pan American Bridge (770) (1910)

Certification may not be excused merely b/c it was unreasonably & unfairly withheld must have been done in bad faithSUBSTANTIAL PERFORMANCE

REST. 2d 228 Substantial Performance

If it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied

an interpretation is preferred under which the condition [that the obligor be satisfied with the obligees performance] occurs if such reasonable person in the position of obligor would be satisfied

Nolan v. Whitney (771) (1882)

Where performance substantial (doesnt have to be literal & exact in all cases) (given circumstances & evaluation) unreasonable refusal of certification dispenses with its necessity (condition)

Van Iderstine v. Barnet (772) (1926)

SP limited to construction contracts b/c unjust enrichment (benefit appropriated w/o payment); in other cases, certificate of approval must be withheld in bad faith for P to recover (unreasonable doesnt get you there)

NOTE ( Non-occurrence doesnt apply where benefit hasnt unjustly accrued to D

Fursmidt v. Hotel Abby (773) (1960) Personal Fancy K

Reasonable person standard (objective evaluation) applies when the contract concerns operative utility satisfaction; and a standard of good faith is employed when the contract involves personal aesthetics or fancyCONSTRUCTIVE CONDITIONS: ORDER OF PERFORMANCE

Constructive Conditions

(1) Conditions not agreed upon by the parties, but which are (2) supplied by courts for fairness & (3) only substantial compliance w/constructive conditions is generally requiredKingston v. Preston (780) KB (1773)

Where apparent that bargained-for part of K is a CP to performance (constructive condition), non-occurrence of condition absolves the non-breaching party from liability

REST. 2d 234 Order of Performances

Where all or part of performances to be exchanged under exchange of promises can be rendered simultaneously they are to that extent due simultaneously unless language/ circumstances indicate contrary

Cmt:Applies where (1) same time fixed for performance of each party; (2) where time is fixed for the performance of one and not the other; (3) where no time is fixed for either; (4) where same period is fixed within which each party is to perform

REST. 2d 238 Effect on Other Partys Duties of a Failure to Offer Performance

Where all or part of the performances to be exchanged under an exchange of promises are due simultaneously it is a condition of each partys duties to render such performance that the other party either render or with manifested present ability to do so offer performance of his part of the simultaneous exchange (TENDER)

Price v. Van Lint (783) (1941)

General Rule ( NOT construe promises as independent unless nature indicates intention to be construed as such (agreed exchange of promises presumption towards simultaneity in exchange, unless contract indicates otherwise) ( Where performance for one party may arrive b/f performance of other, K of independent promisesStewart v. Newbury (808) (1917)

Where contract to perform work & no agreement as to payment made, work must be substantially completed b/f payment can be demanded

Rules of Construction:

Where one partys promise requires a substantial amount of time for performance

Party whose performance requires time extends credit to the latter

Kelly Construction v. Hackensack Brick (811) (1918)

Where no payment time specified in contract & sale for specified quantity of goods, contract is entire & failure to pay by buyer when part delivery has been made doesnt absolve seller from obligation to complete delivery

UCC 2-307 Delivery in Single Lot or Several Lots

Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot

Cmt. 4:Where the circumstances indicate that the seller is entitled to deliver in lots, the price may be demanded for each lot if it is apportionable

REST, 2d, 233 (gist of UCC 2-307)

Tipton v. Feitner (812) (1859) divisible contracts

Two deliveries didnt constitute entire contract (different prices, delivery & bargaining) & delivery & payment concurrent for dressed hogs probable reading that payment was meant upon delivery separately for live & dressed hogs ( Court treats two parts of contract like independent promises

Buyer breached on 1st contract (damages for Seller)

Seller breached on 2nd contract (reduction in damages reclaimed on 1st breach for failure to fulfill contract w/Buyer)

REST. 2d 240 Part Performances as Agreed Equivalents

If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents a partys performance of his part of such a pair has the same effect on the others duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised

Cmt: When it is proper to regard parts of pairs of corresponding performances under a contract as agreed equivalents, the contract is loosely referred to as divisible or severable

Trapkus v. Edstroms Inc. (852) (1986)

Absent clear expression of divisibility, presumption to treat terms of contract as interdependent (CP); further, contracts calling for installment performance arent necessarily divisible contracts ( depends on intention, fair construction of terms & provisions of the contract itselfNOTE (Doctrine of Conditions ( substantial performance of one part of divisible contract has same effect on corresponding part as substantial performance of an indivisible duty has on entire contractExpress Conditions (IF clause)

Strict Compliance

Exceptions

Excuse of Condition

Impracticability/Impossibility

Waivers of Conditions

Disproportionate Forfeiture

Constructive Conditions (Implied in Law)

Substantial Performance enough

Payment Condition party w/performance time extends credit to other party

C/L rule is payment AFTER substantial performance (or full)

However, if apportionable, thats sensible application of C/L RulePROTECTING THE EXCHANGE ON BREACH

DISTINCTION COURTS MAKE ( Two types of breach(1) Complete, major & material ( typically made conditions by courts

(2) Partial, minor & immaterial ( typically treated as IP (non-conditions)

Oshinsky v. Lorraine Mfg. Co. (815) (1911)

Where time specified, terms clear & precise, & delivery time material to K, failure to deliver per K absolves non-breaching party of duty to acceptBeck & Pauli Lithographing v. Colorado Milling & Elevator Co. (817)

Where manufactured goods such that prohibit resale (or at substantial loss) & delivery time isnt material condition (or late delivery doesnt prejudice buyer), refusal to accept over trifling delay not justifiedSCOPE OF UCC ( Goods & Services

UCC 2-508 Cure by Seller of Improper Tender or Delivery

UCC 2-510 Effect of Breach on Risk of Loss If tender non-conforming, risk loss remains w/seller until cure/acceptanceUCC 2-601 Buyers Rights on Improper Delivery Reject whole

Accept the whole

Accept part & reject rest

UCC 2-602 Manner & Effect of Rightful Rejection

- Within reasonable time after delivery or tender

UCC 2-605 Waiver of Buyers Objections by Failure to Particularize Failure to particularize defect precludes buyer from relying on the unstated defect if (a) the seller could have cured or (b) seller makes a request for full & final written statement of defects buyer relies upon for rejection

UCC 2-606 What Constitutes Acceptance of GoodsUCC 2-607 Effect of Acceptance; Notice of Breach; Establishing B After AcceptanceUCC 2-608 Revocation of Acceptance in Whole or In Part Must occur within reasonable time after acceptance

UCC 2-609 Right to Adequate Assurance of PerformancePlateq Corp. v. Machlett Labs (824) (1983)

ACCEPTANCE ( UCC 2-606(1) ( acceptance of goods occurs when buyer (a) after reasonable opportunity to inspect goods signifies to seller that he will take them in spite of non-conformity; or (b) fails to make effective rejectionREJECTION ( D failed to reject as provided by 2-606 & 2-605 also provides that buyer precluded from relying on un-particularized defects in rejection notice if defects could have been cured (w/seasonable notice) by making a substituted, conforming tender

POST-ACCEPTANCE ( UCC 2-607, buyer must pay K rate after acceptance & bears burden of establishing non-conformity of goods; UCC 2-608(1) further requires non-conformity of goods have substantially impaired value to buyer CLASS DIAGRAM ( UCC ( REJECTION (contract off)

ACCEPTANCE (contract on) (REVOCATION (off)

I

Sub. Impairment

Fortin v. Ox-Bow Marina, Inc. (828) (1990) Problems w/Boat

Combination of factors (even if minor individually) may constitute substantial impairment (UCC 2-608), necessitating return of good & restitution of purchase price

WILLFUL DEFAULTER

General Rule ( willful breach defeats a claim of substantial performance

Harden v. Consolidated Edison Co. of NY (836) (1974)

Willfulness one of several factors in considering whether SP ( conduct may be material breach, but if essence of K fulfilled, SP may still be found & obligation still exist in non-breaching party to pay for enrichment

Worcester Heritage Society v. Trussell (837) (1991) ( historic

Where breaching partys actions not (1) fraudulent, (2) do not go to essence of contract, & (3) have not repudiated contract, non-breaching party may not maintain action for rescission of the contractDELAY

( Presumption that time is not the essence of the contract, unless contract states that it is or the circumstances indicate that the need for promptness is apparent

ANTICIPATORY REPUDIATION

REST. 2d, 250 Anticipatory Repudiation

A definite & unequivocal manifestation of intention on the part of the repudiator that he will not render the promised performance when the time fixed for it in the contract arrives [reasonable certainty important]

BREACH BY ANTICIPATORY REPUDIATION ( UCC 2-610 Anticipatory Breach occurs on clear repudiation of partys contractual duties b/f time has come for performance (may be oral & indicated by actions)

Suit can be brought at once for anticipatory repudiation occurring b/f performance date is due (up to P as to when he wants to sue ( b/f or after)

Wholesale Sand & Gravel v. Decker (840) (1993) Driveway Problem

Anticipatory Repudiation (AR) ( intent may be communicated through actions/words ( actions/words must be definite, unequivocal, & absolute.

K & G Construction Co. v. Harris (841) (1960)

Whether promises dependent or independent (intention & circumstances controlling factor) ( presumption towards dependent construction in bilateral contracts ( GENERAL RULE = where total price for work is fixed by K the work is not rendered divisible by progress payments (injured party can treat total breach as partial)NOTE (If performing party stops performing or performs badly, paying party can suspend payment (generally speaking)

Retraction of Repudiation (UCC 2-611) permissible until other party

(1) materially and reasonably relies on repudiation (changes position)

(2) other party sues for breach

(3) other party states that repudiation is finalPOTTOW DIAGRAM

Non-Substantial Breach

Partial/Material BreachTotal (comp.) BreachContract ON

Suspension (payments

Contract OFF - unless

can be withheld)

non-breaching party

Contract status ?

treats as partial breach

Breach Materiality Factors ( Deprivation of expected benefit (non-breaching party)

Part performance greater amount rendered, less likely material breach

Likeliness or willingness to cure

Willful (more likely to be regarded as material)

Delay usually considered insubstantial

ADEQUATE ASSURANCE

UCC 2-609 Right to Adequate Assurance of Performance (Self-help remedy)

(1) A contract for sale imposes an obligation on each party that the others expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return

Turntables Inc. v. Gestetner (849) (1976)

Seller may suspend performance until he receives buyers AA of due performance. Even if sellers suspicion buyer insolvent inaccurate, seller entitled to protection of UCC 2-609 if acting in good faith & reasonable grounds for insecurity w/respect to buyers payment

REST. 2d, 251 When Failure to Give Assurance May be Treated as Repudiation

(1) Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance

(2) The obligee may treat as a repudiation the obligors failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case

INSTALLMENT CONTRACTS

UCC 2-612 Installment Contract ( Breach (Perfect Tender rule)

Buyer must accept under (2) an installment delivery if the non-conformity is curable & the seller gives adequate assurance of the cure

Under (3), if the non-conformity substantially impairs the value of the whole K, there is a breach of the whole K & buyer may treat as such

REST. 2d 253 Effect of Repudiation(1) Where obligor repudiates duty before committing breach by non-performance & before receiving all of agreed exchange, his repudiation alone gives rise to a claim for damages for total breach(2) Where performances are to be exchanged under exchange of promises one partys repudiation of a duty to render performance discharges the others remaining duties to render performance

Cherwell-Ralli, Inc. v. Rytman Grain Co. (854) (1980) Buyer late/wanted AA

If reasonable doubt as to buyers default is substantial, seller (P) may suspend until it can ascertain whether buyer able to offer adequate assurance of future payments ( however, buyers conduct if sufficiently egregious can by itself constitute substantial impairment of value of whole contract & present breach of entire contract ( seller then allowed under UCC 2-703 to cancel remainder of con