CONTRACTS FALL 2011Chung-a-palooza

Joshua Bennett

OFFER

Requirements for a valid offer:

1 - manifestation of present contractual intent

2 - certainty and definiteness of terms (Nebraska Seed Co.)

3 - communication to the offeree

24OFFER DEFINEDManifestation of willingness to enter into a bargain, so made as to justify another person understanding that his assent to that bargain is invited and will conclude it.

29TO WHOM OFFER IS ADDRESSED(1) The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance.

(2) An offer may create a power of acceptance in a specified person or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified performance.

CASE RULES - Advertisements are generally not offers. (Leonard) Using the language Subject to shows non-intent to be bound. (Empro)

REVOCATION

36METHODS OF TERMINATION OF THE POWER OF ACCEPTANCE (REVOCATION)(1) An offerees power of acceptance may be terminated by

(1) rejection or counter-offer by offeree;

(2) lapse of time;

(3) revocation by the offerer;

(4) death or incapacity of the offeror or offeree.

(2) also by the nonoccurrence of any condition of acceptance under the terms of the offer

42REVOCATION BY COMMUNICATIONAn offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.

43INDIRECT COMMUNICATION OF REVOCATIONPower of acceptance is terminated when the offeror takes definitive action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect

Offeror can revoke offer anytime before offeree accepts. (Dickinson)(Restatements 36, 42, & 43)

ACCEPTANCEMirror-Image Rule: Terms must be substantially the same when responding to an offer. Acceptance must mirror the offer.

Mailbox Rule: Acceptance takes place when posted.

Bilateral vs. Unilateral: Only difference is mode of acceptance. Unilateral invites performance. (Carlill) Bilateral invites a return promise.

30FORM OF ACCEPTANCE INVITED(1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act...(unilateral contract).

(2) Unless otherwise indicated by language or circumstances, an offer invites acceptance in any manner and by any medium that is reasonable in the circumstances

32FORM OF ACCEPTANCE INVITED (p.II)In cases of doubt, offeree may accept by performing what the offer requests or by promising to perform, as the offeree chooses.

54ACCEPTANCE BY PERFORMANCE(1) when offer invites acceptance by performance, notice is not necessary unless the offer requests such a notification;

(2) when offer does not explicitly invite acceptance by performance and offeree knows offeror has no adequate means of learning of the performance/acceptance, offeror is released from obligation unless:

(a) offeree exercise reasonable diligence to notify offeror; or

(b) offeror learns of the performance/acceptance in a reasonable time; or

(c) offer indicates that notification of acceptance is not required.

(note that w/unilateral promise - no duty to notify)

69ACCEPTANCE BY SILENCE (Hobbs case - EELS)(1) where offeree fails to reply to an offer, his silence and inaction operate as an acceptance only where:

(a) he has taken a benefit or offered service with reasonable opportunity to reject it with reason to know that compensation was expected;

(b) offeror relates that acceptance by silence is ok, and the offeree in remaining silent intents to accept;

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

AMBIGIOUS & VAGUE TERMS

Ambiguous Terms When words have more than one meaning.

Vague Terms What extent the words used were meant to apply beyond their agree upon meaning.

Hierarchy Evidence (Will dictate how the Rules/Steps will be applied or how the Court will apply to know what a term means)

1. Words of (C)

2. Course of Negotiations

3. Course of Performance

4. Course of Dealings

5. Usages of Trade

Rules/Steps:

Have both parties attached same meaning to term at issue?

If YES -> Mutual Assent -> Enforced Shared Meaning

If no, shared meaning, does one party know or have reason to know other party has attached different meaning?

If YES -> Enforce meaning held by ignorant party.

If Restatement 201(2) does not apply, and parties attach different meaning to terms, and both reasonable, then no mutual assent = No Contract. If objective meaning can be determined (Weinberg), apply it.

UCC 1-205 - Course of Dealing and Usage of Trade (pg. 410)

(1) A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

(2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts.

(4) Express terms of the agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other. However, when that consistency is unreasonable, express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.

UCC 2-208: Course of Performance (pg. 411)

(1) where the contract involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.

(2) express terms, course of performance, course of dealing, and usage of trade should be construed as consistent with each other. If that isnt possible, express terms control course of performance, and course of performance controls course of dealing and usage of trade.

201WHOSE MEANING PREVAILS(1) Where parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (Explicit Terms)(2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or

(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

(3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

202RULES IN AID OF INTERPRETATION(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 are interpreted together.

(3) Unless a different intention is manifested,

(a) where language has a generally prevailing meaning, it is interpreted in accordance with that meaning;

(b) 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 of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection 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 are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.

GAP FILLINGTwo types of Judicially supplied gap-fillers:

1. Default: Legal rules that the parties can avoid or vary by means of an express clause that differs from the term a court will otherwise supply by default.

2. Immutable: Legal rules that may not be varied by consent and will override any express clause to the contrary.

Illusory Promises - Whether the promise of one of the parties is illusory because it leaves complete discretion to perform or not in the hands of the purported promisor. (One party has the power to decide if they will or will not fulfill the contract. A no go.)

UCC 2-306 - output, requirements, exclusive dealings contracts (pg. 444)

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

(2) a contract giving exclusive dealings means an obligation by seller to use best efforts to sell the goods; and an obligation by buyer to use best efforts to promote their sale.

34CERTAINTY AND CHOICE OF TERMS; EFFECT OF PERFORMANCE OR RELIANCE(1)there is stipulation for selection of terms in course of performance

(2)part performance may remove uncertainty and establish an enforceable contract (bargain has been formed)

(3)reliance on agreement may make a contractual remedy appropriate even though uncertainty is not removed.

204SUPPLYING AN OMITTED ESSENTIAL TERMWhen the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

Notes

Court sometimes refuses to gap fill when essential terms are not included. For a contract to be enforceable, the terms of the agreement must be ascertainable to a reasonable degree of certainty.

A requirements contract is binding where the purchaser has an operating business.

IDENTIFYING TERMS (UCC 2-207 HELL) UCC 2-207 created to address the mirror-image rule and last-shot rule.

Uses conduct to dictate what the parties agreed to. Conduct leaps ahead of forms.

Is there a contract and what are its terms?

Sections 1 & 3 deal with If theres a contract.

Section 1: Contracts established by documents.

Section 3: Contracts established by conduct.

Section 2 & 3 deals with Terms.

Between Merchants Terms come in.

Between Merchant-Civilian If either party is not a merchant, additional terms are proposals for addition to the contract that do not become part of the contract unless the original offeror expressly agrees.

When UCC 2-207 applies:

1. A debate about the terms.

2. Agreement where terms are in dispute. If terms are too disparate, then UCC 2-207 doesnt apply.

3. Do you have a deal established by (1) and/or (2) of 2-207.

4. Do you have conduct established by (3) of 2-207.

UCC 2-207: Additional Terms in Acceptance or Confirmation p. 467(1)Acceptance creates a contract even if it varies in terms of the offer unless acceptance is contingent on assent to the new terms

(2)In the case of contradictions between terms of offer and acceptance, offer terms govern unless the acceptance is expressly conditioned on assent to the new terms

(3)Different terms only become part of contract if they do not materially change contract. Terms that materially change the contract are deemed mere suggestions for future negotiation.

(4)If acceptance is expressly conditioned on assent and the original offeror performs, then there is a contract, the terms of which are those that are not in contradiction. Where there is a contradiction, the above rules govern

STEP-SAVER - A writing will be a final expression of, or a binding modification to, an earlier agreement only if the parties so intend.

UNION CARBIDE (Back Taxes) Under UCC 2-207(1), an additional term to a contract between merchants does not become part of the contract where the term constitutes a material alteration to which assent cannot be inferred.

PAROLE EVIDENCE RULEAdditional Terms! Not Contradictory Ones.

Merger Clause: Makes the writing between the parties final and conclusive.

Determining applicability of Parol evidence

Is there a written agreement?

Is the written agreement between parties intended to be final? (4 Corners Test Whats in the Contract, Look in the Writing)

YES PE inadmissible (inconsistent prior agreements will not be implemented)

No PE admissible

Is agreement complete or exclusive? (Extrinsic Evidence Test)

YES PE inadmissible (Cannot use to contradict or supplement w/ additionl terms)

NO PE can be used that does not go against written agreement

If parties intended to at least partially integrate/finalize the agreement no contradictory PE admissible

If parties fully integrated no PE of any additional terms

UCC 2-202: Final written expression: parol or extrinsic evidence (pg. 493):

...[terms of contract] may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented:

(a) by course of dealing or usage of trade (1-205) or by performance (2-208), and

(b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms and agreement

210COMPLETELY & PARTIALLY INTEGRATED AGREEMENTS(1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.

(2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement.

(3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

213EFFECT OF INTEGRATED AGREEMENT ON PRIOR AGREEMENTS [PAROL EVIDENCE RULE](1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.

(2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.

(3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.

214EVIDENCE OF PRIOR OR CONTEMP. AGREEMENT & NEGOTIATION(Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish:

(a) that the writing is or is not an integrated agreement;

(b) that the integrated agreement, if any, is completely or partially integrated;

(c) the meaning of the writing, whether or not integrated;

(d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;

(e) ground for granting or denying rescission, reformation, specific performance, or other remedy.

216CONSISTENT ADDITIONAL TERMS(1) Evidence of a consistent additional terms is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated.

(2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is;

(a) agreed to for separate consideration, or;

(b) such a term as in the circumstances might naturally be omitted from the writing.

not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.

BROWN (Hotel + Furniture) Written contract only referenced land, making the furniture open to interpretation and Parol Evidence. [Went beyond 4 Corners Test]

TRIDENT CENTER (Office building togetherness) Parol evidence is admissible to raise an ambiguity in a contract even where the writing itself contains no ambiguity.

STATUTE OF FRAUDSWriting Required for Certain Contracts (Res. 110)110TYPES OF CONTRACTS THAT MUST BE IN WRITING1. Contract of an executors duty to dead (executor-administrator provision)

2. Contract of ones debt or duty to another (suretyship provision)

3. Contract in consideration of marriage

4. Contract in sale of land

5. Contracts which are incapable of being fully performed within one year of contract date

6. Contracts under UCC (2-201)

(a) sale of goods over $500

(b) a contract for the sale of securities (UCC 8-319)

(c) a contract for the sale of personal property not otherwise covered, to the extent of enforcement by way of action or defense beyond $5,000 in amount or value of remedy (UCC 1-206)

129ACTION IN RELIANCE; SPECIFIC PERFORMANCEA contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement.

139ENFORCEMENT BY VIRTUE OF ACTION IN RELIANCE(2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:

(a) the availability and adequacy of other remedies, particularly cancellation and restitution;

(b) the definite and substantial character of the action or forebearance in relation to the remedy sought;

(c) the extend to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;

(d) the reasonableness of the action or forbearance;

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

ASSIGNMENT & DELEGATION Assignment: Manifestation of intent by holder of right (obligee) to assignee to make present transfer of right to assignee. Reqs: (1) Intent to transfer now, (2) Complete and immediate transfer of rights, (3) no possibility of revocation, and (4) loss of liability to original party. [ABSOLUTE]

Delegation refers to duties arising under a contract, not rights! Delegation is treated differently than assignment because the person that was originally bound will remain subject to the duty (a) unless the person is released by the other party or (b) until the duty is discharged by rendering of performance.

Agency is a fiduciary relationship in which one person, the principle, essentially appoints another, an agent, to act on their behalf subject to control.

Unable to be Delegated

Special Trusts (in Confidence)

Expertise (Obligation to Perform)

Relationships (Exclusivity)

UCC 2-210: Delegation of Performance; Assignment of Rights pg. 557

(1) A duty or performance is delegable unless the obligee has a substantial interest in having the delegator perform.

(2) Rights can generally be assigned unless the assignment materially and substantially changes the duty.

(3) Unless the parties otherwise agree, a prohibition of assignment of the contract is to be construed as barring only delegation to the assignee of the assignors performance.

(4) An assignment of a contract is a delegation of performance, unless there is language/circumstances to the contrary. Acceptance of an assignment obligates the assignee to performance of duties.

(5) An obligor can treat any assignment that delegates performance as creating reasonable grounds for insecurity and demand assurances from the assignee.

317ASSIGNMENT OF A RIGHT(1) An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance.(2) A contractual right can be assigned unless:

(a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or

(b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or

(c) assignment is validly precluded by contract.

321ASSIGNMENT OF FUTURE RIGHTS(1) Except as otherwise provided by statute, an assignment of a right to payment expected to arise out of an existing employment or other continuing business relationship is effective in the same way as an assignment of an existing right.

(2) Except as otherwise provided by statute and as stated in Subsection (1), a purported assignment of a right expected to arise under a contract not in existence operates only as a promise to assign the right when it arises and as a power to enforce it.

THIRD PARTY BENEFICIARIES

1. Intended

2. Incidental

302INTENDED AND INCIDENTAL BENEFICIARIES(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either

(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

315EFFECT OF A PROMISE OF INCIDENTAL BENEFITAn incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee.

CONSIDERATION

1. Bargain Theory (Bargains vs. Gratuitous Promises)

2. Past Consideration - An act that has already been completed in the past is not consideration as defined under the modern bargain theory.3. Moral Consideration - Moral obligation is deemed sufficient consideration when a material benefit is added to the other party.

4. Nominal Consideration - is regularly held sufficient to support a short-time option proposing an exchange on fair terms unless it is a sham promise.HYPO For $1, you have five days to decide if youre going to buy my house for $100,000 dollars. (OPTION CONTRACT NOMINAL CONSIDERATION)

71Requirement Of Exchange; Types Of Exchange(1) consideration must be bargained for;

(2) must take place in exchange context;

(3) may consist of:

(a) an act or

(b) forbearance, or;

(c) the creation, modification or destruction of a legal relation.

81Consideration as Motive or Inducing Cause(1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.

(2) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.

86Promise for Benefit Received 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 promisee 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.

HAMER (Kid stops drinking for a promise) Forbearance of a legal right to vice is sufficient to satisfy consideration.

CONTRACT MODIFICATIONNew Contracts, supported by the consideration of both parties, can be modified. Must have additional consideration to modify.UCC 2-209 MODIFICATION, RESCISSION, AND WAIVER

(1) An agreement modifying a contract within this Article needs no consideration to be binding.

89MODIFICATION OF EXECUTORY CONTRACTA 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.

ADEQUACY OF CONSIDERATIONThe basis of modern economics is the cognition that it is precisely the disparity in the value attached to the objects exchanged that results in their being exchanged. People buy and sell only because they appraise the things given up less than those received.

79ADEQUACY OF CONSIDERATION; MUTUALITY OF OBLIGATIONIf the requirement of consideration is met, there is no additional requirement of

(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or

(b) equivalence in the values exchanged; or

(c) mutuality of obligation.

364EFFECT OF UNFAIRNESS(1) Specific performance or an injunction will be refused if such relief would be unfair because

(c) the exchange is grossly inadequate or the terms of the contract are otherwise unfair.

PROMISSORY ESTOPPEL

Elements

1. Promise

2. Reasonable Reliance

3. Injustice of Non-enforcement

Substitute for Consideration

1. Family Promises

2. Promises to Convey Land

3. Charitable Subscriptions

4. Promises of a Pension

5. Construction Bids

Modern Usages

1. Consideration Substitute

2. (Reasonable, Foreseeable) reliance on bids

a. Not estimates

b. Not so low as to be obvious mistake

c. Bid shopping/chiseling not allowed

3. Promise made during prelim. Negotiations

a. Reasonable, Foreseeable; injustice

4. (Employment related) promises (sometimes)

a. Benefits post death; retirement

90PROMISE REASONABLY INDUCING ACTION OR FORBEARANCE(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise. The remedy granted for breach may be limited as justice requires.

(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

Examples

Promise is enforceable with detrimental reliance of the other party. A promise that induces action is binding if injustice can only be avoided by its enforcement. Court doesnt apply detrimental reliance req. to charitable subscriptions/donations. A promise that induces action is binding if injustice can only be avoided by its enforcement. Where a sub-contractor submits a bid to the general contractor, who then relies upon it in figuring his own over-all bid, the subcontractors bid is usually held irrevocable.

Substitute for Breach Promissory estoppel can be applied in commercial situations where the parties engage in preliminary negotiations, one party gives assurance to the other that they will be able to reach a binding agreement, the other relies on this assurance to his detriment and then the contract falls through. Even though the contract that the parties were attempting to negotiate was not enforceable, promissory estoppel creates a separate remedy.

PERFORMANCE (GOOD FAITH)

Notion that all contracts contain an implied covenant to perform in good faith is traced to Kirke La Shelle Co. v. Paul Armstrong (1933). This was applied to the UCC 1-203:

Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.

Widely applied through Restatement 205:

Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.

GOOD FAITH (Per UCC Definition): In the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. Example - Diverting business to avoid paying returns is a violation of Good Faith. Court determines what constitute acts that arent in Good Faith.

CONDITIONS

Performance is sometimes only due if something happens or does not happen. (Condition)

Unless that condition is satisfied, nonperformance is not a breach.

Condition Precedent Act or event other than the passage of time that happens before the duty arises. (House burns down, insurance company pays.)

Condition Subsequent Act or event that happens after the duty arises. (After House burns down, condition is that you have to notify insurance company within a specific amount of time.)

227STANDARDS OF PREFERENCE WITH REGARD TO CONDITIONS(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk.

(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether

(a) a duty is imposed on an obligee that an event occur, or

(b) the event is made a condition of the obligor's duty, or

(c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control.

INTERNATIO-ROTTERDAM Failure to perform a condition precedent permits rescission. A condition is any or event, other than a lapse of time, must be literally complied with.

EVENTS -> CONDITIONS

HOWARD - When it is doubtful whether words create a promise or a condition precedent, they will be construed as creating a promise.

AVOIDING CONDITIONS

1. Waiver I give up the condition.

2. Estoppel Ive induced your reliance.

3. Excuse You can give it up.

Note In determining Waiver or Estoppel, look at reliance.

UCC 2-209: Modification, Rescission and Waiver pg. 872

(1) modification needs no consideration

(2) a signed document with a clause excluding modification or rescission except by signed writing cannot be changed, but except as between merchants such a requirement on a form contract must be signed by the other party

(3) requirements of Statute of .Frauds must be satisfied if the contract is within it

(4) although an attempt at modification or rescission does not satisfy (2) or (3), it can operate as a waiver

(5) a party who has made a waiver....[not important] unless modification was waived in the original contract; requires good faith and reasonable commercial standards of fair dealing and usage of trade;

84PROMISE TO PERFORM A DUTY IN SPITE OF NON-OCCURRENCE OF CONDITIONIf there has been no consideration given for a waiver, and the party receiving the benefit of the waiver has not detrimentally relied on it, retraction of the waiver may reinstate the condition.

229

EXCUSE OF A CONDITION TO AVOID FORFEITURETo 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.

BREACH

Constructive Conditions (Condition Precedent)

In the interest of fairness a court will sometimes imply certain events (performances) to be conditions that must be fulfilled prior to the rendering of future performance.

The breach of a constructive condition (promise) by one party can relieve the other party of its duty of performance.

Finding a constructive condition depends on a backward-looking inquiry into the presumed intentions of the parties at the time of formation, whereas finding a material breach depends on a forward-looking inquiry into the likelihood of performance occurring in the future.

Prospective Nonperformance

One reason why a party will be able to cancel a contract is if, before the time for performance arrives, the other party indicates that she does not intend to perform and thereby repudiates the contract.

Happens before performance is due = Anticipatory Repudiation.

Order of Performance/Bilateral Contracts

If party is to perform work over extended period of time, the party obligated to perform must substantially perform before becoming entitled to payment.

If periodic payments have been agreed upon, performance is constructive condition prce. first payment, and payment is constructive condition prec. to next stage of work.

Promised acts capable of simultaneous performance.

Duty of Performance. Constructively conditioned on conditional tender of offer.

UCC 2-610 ANTICIPATORY REPUDIATION (p. 900)

When either party repudiates a contract with respect to performance not yet due..., the aggrieved party may:

(1) await performance;

(2) resort to remedy for breach;

(3) in either case, suspend his own performance. (immediate action, no need to wait for date of performance to arrive)

UCC 2-611 RETRACTION OF ANTICIPATORY REPUDIATION (p. 900)

(1) Until the repudiating party's next performance is due, that party may retract the repudiation unless the aggrieved party has since the repudiation canceled or materially changed position or otherwise indicated that the repudiation is final.

(2) Retraction may be by any method that clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under Section 2-609.

(3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

UCC 2-609 RIGHT TO ADEQUATE ASSURANCE OF PERFORMANCE (p. 904)

(1) when reasonable grounds for insecurity arise, a party may demand adequate assurance in writing and may, if commercially reasonable, suspend performance for which he has not received agreed upon returns

(2) reasonableness for grounds of insecurity determined according to commercial standards

(3) acceptance of improper delivery doesnt waive right to demand adequate assurance in future

(4) if no assurance after 30 days, contract is repudiated.

Material Breach

If a breach is material, discharge of performance obligations is available to the non-breaching party. A nonmaterial breach does not allow for rescission of the contract, but damages can still be awarded.

DEFENSES (GENERAL OUTLINE)

(1) Lack of Capacity

- Infancy

- Incompetence

(2) Assent by Improper Means

- Fraud

- Duress

- Undue Influence

- Misrepresentation (Fraud or Innocent)

- Unconscionability

(3) Failure of Basic Assumption

- Mistake

- Impossibility/Impracticability

- Frustration

(4) Failure of Performance

MISREPRESENTATION

Misrepresentation may be innocent, negligent, or known to be false.

How do you determine whether something is material to a contract?

This is a mixed question of law and fact. It is material when it is likely to affect the conduct of a reasonable person. Tiny inconsequential facts are not material.

159MISREPRESENTATION DEFINEDA misrepresentation is an assertion that is not in accord with the facts.

162WHEN A MISREPRESENTATION IS FRAUDULENT OR MATERIAL(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker

(a) knows or believes that the assertion is not in accord with the facts, or

(b) does not have the confidence that he states or implies in the truth of the assertion, or

(c) knows that he does not have the basis that he states or implies for the assertion.

(2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

164WHEN A MISREPRESENTATION MAKES A CONTRACT VOIDABLE Fraudulent or a Material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

167WHEN A MISREPRESENTATION IS AN INDUCING CAUSEA misrepresentation induces a party's manifestation of assent if it substantially contributes to his decision to manifest his assent.

YOKES (1968) p. 991 - (1) When one party has superior knowledge, statements made with the area of such knowledge may be treated as statements of fact. (2) Usually, opinions are not actionable except in cases where: (a) there is a fiduciary relationship between parties or (b) where there has been some artifice or trick employed by representor or (c) where parties do not in general deal @ arms length or (d) where the representee does not have equal opportunity to become apprised of the truth or falsity of the fact represented

DURESS

Ones consent to contract is not binding if it was obtained by the use or threatened use of force.

In situations involving economic duress, our attention is shifted from the impropriety of the means of obtaining assent to the economic straits confronted by the party who has consented.

Elements:

a. Improper or wrongful act (Hurt you if you dont pay me.)

b. Wrongful Benefit

175WHEN DURESS BY THREAT MAKES A CONTRACT VOIDABLE(1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

(2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.

175WHEN A THREAT IS IMPROPER(1) A threat is improper if

(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,

(b) what is threatened is a criminal prosecution,

(c) what is threatened is the use of civil process and the threat is made in bad faith, or

(d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.

(2) A threat is improper if the resulting exchange is not on fair terms, and

(a) the threatened act would harm the recipient and would not significantly benefit the party making the threat,

(b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or

(c) what is threatened is otherwise a use of power for illegitimate ends.

UNDUE INFLUENCE

Elements

1. Particular Susceptibility

2. Unfair Persuasion

175WHEN UNDUE INFLUENCE MAKES A CONTRACT VOIDABLE(1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.

(2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.

(3) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction

UNCONSCIONABILITY Only used in rare situations:

Unreasonably favorable to one party.

Bargaining Disparity.

Factors:

a. Sharp Bargaining

b. Obscure provisions

c. Damages that shock the conscience.

UCC 2-302 UNCONSCIONABLE CONTRACT OR TERM (p. 1030)(1) If the court as a matter of law finds the contract or any term of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable term, or it may so limit the application of any unconscionable term as to avoid any unconscionable result.

(2) If it is claimed or appears to the court that the contract or any term thereof may be unconscionable, the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination

208UNCONSCIONABLE CONTRACT OR TERMIf a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

MUTUAL MISTAKE UNILATERAL MISTAKE

Mutual Mistake Mistake of fact making the contract void.

Unilateral Mistake - This is a rarely used doctrine because the standards are so high and happens when the opposing party has reason to know there was a mistake. (Tyra v. Cheney)

MUTUAL UNILATERAL

2 Parties1 Party

Material EffectMaterial Effect

Voidable by Adversely Affected Party unless;

Bears risk of mistake per 154;Bears risk of mistake per 154;

154

1. Allocated by Agreement of Parties

2. Limited knowledge, but treats as Sufficient

3. Allocated by Court due to Reasonability

151MISTAKE DEFINEDA mistake is a belief that is not in accord with the facts.

152WHEN MISTAKE OF BOTH PARTIES MAKES A CONTRACT VOIDABLE(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154.

(2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.

154WHEN A PARTY BEARS THE RISK OF A MISTAKEA party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties (express allocation of risk), or

(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient (the party has limited knowledge, but treats it as sufficient), or

(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

157EFFECT OF FAULT OF PARTY SEEKING RELIEFA mistaken party's fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation under the rules stated in this Chapter, unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.

158RELIEF INCLUDING RESTITUTION(1) In any case governed by the rules stated in this Chapter, either party may have a claim for relief including restitution under the rules stated in 240 and 376.

(2) In any case governed by the rules stated in this Chapter, if those rules together with the rules stated in Chapter 16 will not avoid injustice, the court may grant relief on such terms as justice requires including protection of the parties' reliance interests.

153MISTAKE OF ONE PARTY MAKING A CONTRACT VOIDABLEWhere a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in 154, and

(a) the effect of the mistake is such that enforcement of the contract would be unconscionable (Restatement 208), or

(b) the other party had reason to know of the mistake or his fault caused the mistake.

160WHEN ACTION IS EQUIVALENT TO AN ASSERTION (CONCEALMENT)Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.

161NON-DISCLOSURE IS EQUIVALENT TO AN ASSERTIONA person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:

(a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.

(b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.

(c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.

(d) where the other person is entitled to know the fact because of a relation of trust and confidence between them.

CHANGED CIRCUMSTANCES

Impossibility Must be physically impossible to fulfill the contract. (Old Doctrine)

Impracticability (1) Unexpected Occurrence, (2) Unallocated Risk, & (3) Performance is extremely Burdensome. (Impracticable) [Res. 261]Frustration of Purpose (1) Principle Purpose is substantially Frustrated, (2) Without Complaining Partys Fault, & (3) Non-occurrence of Specific Event. [Res. 263]UCC 2-613 CASUALTY TO IDENTIFIED GOODS (p. 1092)

(If the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer then:

(a) if the loss is total the contract is terminated; and

(b) if the loss is partial or the goods have so deteriorated that they no longer conform to the contract, the buyer may nevertheless demand inspection and at the buyer's option either treat the contract as terminated or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller.

UCC 2-615 EXCUSE BY FAILURE OF PRESUPPOSED CONDITIONS (p. 1098)

Except to the extent that a seller may have assumed a greater obligation and subject to Section 2-614:

(a) Delay in performance or nonperformance in whole or in part by a seller that complies with paragraphs (b) and (c) is not a breach of the seller's duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

(b) If the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, the seller must allocate production and deliveries among its customers but may at its option include regular customers not then under contract as well as its own requirements for further manufacture. The seller may so allocate in any manner that is fair and reasonable.

(c) The seller must notify the buyer seasonably that there will be delay or nonperformance and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.

DAMAGES

1. Expectation - Places you where youd be if the performance of the contract had taken place. (Benefit of Bargain)

2. Reliance Promisee worked in detrimental reliance; resets Promisee.

3. Restitution Promisee conferred benefit on Promisor; resets Promisor.

Note - Specific Performance for Damages = Land or Unique Goods