PMBR CD #1

6 issues of contract law. Look at the fact pattern and:

a. Ask: Did the parties form an agreement?i. Offer

ii. Acceptanceiii. There can be no true contract unless the actions and words of the traders

manifest a mutual and objective assent to be bound by the terms of the agreement.

b. Ask: Is their agreement a K?i. K is a legal status. Whether it’s come into existence, depends on:

1. Presence of valuable consideration bargained for legal detriment on both sides of the exchange.

2. Absence of defenses which would preclude K formation (real defenses).c. Ask: Do the terms of that K or the subsequent actions of either of the parties who

fought, confer any duties or any rights upon non-traders (assignees of rights, intended beneficiaries, delegates of duties)?

d. Ask: Have the performance obligations created by the K matured?i. Have the K obligations matured?

1. Use law of conditions (fix time & order of performance).a. Divided into classifications that relate to their origin:

i. Express: created by terms of traders used by them in forming the bargain.

ii. Conditions implied-in-fact: Arise by necessary physical interests from what the parties obviously assume.

iii. Conditions implied-at-law (constructive conditions). (constructive conditions)

iv. Impact of state of present liability.1. Every condition modifies a promise.

a. Inserts a contingency which must be satisfied before liability on the modified promise will become absolute (impact of a true condition precedent).

b. Inserts a contingency which must be satisfied simultaneously with maturing liability (condition concurrent)

c. Condition subsequent – insert a condition, happening of which will discharge and extinguish liability to perform promise.

e. Ask: Has performance been excused?i. Where performance obligations have become objectively impossible.

ii. Performance commercially impracticable – can only be accomplished through an expenditure of funds grossly out of proportion.

iii. Frustration of purpose. Subsequent to formation of the K, circumstances have so dramatically altered that performance by the other party has no utility to me.

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I seek to be excused from performing my K duty ,claiming frustration of purpose.

f. Ask: If performance has not been excused, and in the fact pattern, it has not been tendered, you are in the presence of breach and you must discuss the law of remedies.

i. Breach by anticipatory repudiation.ii. Breach by voluntary disablement.

iii. Restitutioniv. Reimbursementv. If no adequate remedy at law, the aggrieved party may sue for:

1. Declaratory judgment2. Specific performance decree3. Injunction

II. Article 2 UCC (code changes common law)a. Goods is the subject matter.b. Parties to the bargain must be merchants.

i. Any person who makes a livelihood dealing in the subject matter or makes affirmative representations though they not be true that that is how he makes the livelihood.

III. Offer and acceptancea. Has a contract been formed?

i. Offerii. At the time of acceptance, was the offer still outstanding? (life of offer)

iii. Was there a defective acceptance?b. Positive bias in terms of finding contract reformation

i. Objective theory of contract formation1. Court views the words and actions of the traders and evaluates them

through the eyes of the reasonable person.2. Irrelevant the hidden subjective intent of the parties.

c. Look for a stipulation that an offer is outstanding in the multistate.i. If it’s not stipulated, you must find an objective manifestation on the part of one

of the traders of the present intention to form a contract.1. This must have been communicated to the other party, the offeree.

d. 3 elements to an offer:i. Intent

1. Form a present contract2. State of mind fact patterns

a. One of the parties spoke in jest, in anger, in hysteria. Could the person be manifesting a present intention to enter into a K?

b. Ex: CA bar exam question. Woman’s father is involved in a car accident. She is shaking the doctor saying that he must perform the operation which is needed to save her father’s life after doctor at first refuses. She says he must operate and that she wouldn’t mind paying $25,000. Was there an offer here? Reasonable person test under these same circumstances. Answer: No offer.

3. Preliminary negotiation fact patterns (as opposed to parties that have exchanged offer and acceptance – actually doing business).

a. Ex: D wrote M; I need these parts by this date. M wrote by mail, your order is accepted. A week later, the manufacturing seller realizes he overlooked one of the specifications requiring a far

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more expensive technique. Manufacturing seller was guilty of a manufacturing miscalculation.

b. Analysis: Look to the setting – a business letter.c. Q: What if this were made at a cocktail party? Same words, same

response. Far less likely the court will find an offer.4. Offer or negotiation?

a. The closer the terms match the essential terms, the more likely there is a present offer.

ii. Content1. Offeror must set forth the essential terms of the offer, expressly or within

the range of permissible implication, she must identify parties to the proposed contract, subject matter of the proposed exchange, time for performance, and the price.

a. Common law: Anything lacking here, too indefinite to find an offer.

b. But, a presumption to conclude today that a K has been performed.

i. Common law reform :1. If, total silence of the traders with respect to one

of the essential terms of the bargain, the court will salvage the transaction by treating their mutual total silence as a consent to trade on a reasonable term.

a. Reasonable term : If these parties had done business before, a reasonable term would be deduced on their prior history.

b. If these parties had not done business before, then the court would find a reasonable term based on the customs and morays of the business trade.

2. If the parties half spoke to the missing term, then at common law, they wouldn’t inject any interpretation b/c it might interject a meaning the parties didn’t attend.

3. UCC merchants are free to adopt term setting machinery which will fix the content of an essential term in the future.

4. Ex: If D writes to M and says to him: I need these machine products by Dec. 1st, but it’s mid-November, he’s unwilling to commit to a price and states to M I’d be willing to pay for them for a price that’s set in the trade journals.

a. Under UCC, if M agrees to abide by trade journals’ price quotation, the parties have formed a K – the 17 th of November , even though they don’t know of the price term. Agreement is enough even without the price term of offer and acceptance.

b. Also, agreement to agree in the future about essential term (ex: Price), this is

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binding as far as the UCC is concerned (contrary to common law).

c. Q: What if the trade journal does not publish in the future …. or the buyer says that I don’t agree to any price the seller will assent to….nothing can be done to defeat formation of the K; K is still November 17th – in both cases, court will imply a reasonable term.

2. There must be communication of that intention and those terms to the individual who is intended by the offeror to be the offeree.

iii. Communication1. If you prepare a writing that by its terms manifests a present intent as to

the present K and is totally detailed as to present terms and you place the agreement on your K. And the intended offeree reads the communication …. person reads it before offeror actually reads it. This is not an offer.

2. Ex: X loses wedding ring. X says I offer $50 to return the lost ring. Person returns lost ring. Does the person have claim to breach of K? No. No communication of the offer and that person wasn’t the offeree.

IV. Offerora. Under complete control under terms of acceptance.

i. If offeror says that the offer is to expire on a certain date or the happening of an event, no K can ever be created after the term fixed in time by the offeror for the expiration of the offeror.

ii. Q: What if the offeror says nothing concerning the life of her offer?1. Elemental rules of contract construction to fix this :

a. Lapse of timei. Offers die of old age.

ii. If offer sets no expiration date, offer is open for acceptance for reasonable time only.

1. On essay, discuss what a reasonable time would be.

iii. Ex: Offering ripe bananas in an unrefrigerated railroad car in July.

1. Offer time is probably 10 seconds.iv. Ex: Offer for trade of diamonds.

1. Subject matter isn’t perishable and price isn’t volatile, offer will be open for a long time.

2. Death, destruction of offeror terminates offer and death, insanity, or legal incapacity of offeror or offeree offer is revoked by operation of law.

i. Ex: Offer to sell home in Davis, CA and it catches on fire before you can buy it….offer is revoked.

3. If government says proposed bargain is illegal, offer to perform the K is revoked by operation of law.

iii. Termination by rejection?1. HYPO: You offer to sell me your car for $10,000 and I say “no.” My

rejection as a matter of law terminates your offer.iv. Revocation by the offeror

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1. Even if offeror says I’ll keep the offer open….I’ll give you one week to think about accepting the purchase of my home.

a. Common law rule: offer is inherently revocable at any time prior to acceptance, even if offeror said: you have a week.

b. Exceptions: purchase an option. You say: I’ll give you $5,000 if you stay by your word of giving me a week. This is a separate offer, consideration, and acceptance, although of usually nominal economic value. If you offer option, my rejection of the offer is irrevocable.

c. Exceptions: estoppel – common law. If I say you have a week and you change position in considerable reliance on that offer, many courts will hold that there is an offer b/c of my foreseeable detrimental reliance.

d. Exceptions: merchants firm offer (UCC) – only the offeror must be a merchant; offeree does not have to be. An offer that is in writing and is signed by a merchant trader, then the offer is irrevocable according to its terms. Ex: If merchant says you have 30 days, you have 30 days. There need not be an option or detrimental reliance.

V. Defective acceptancea. Acceptance must amount to a present, unconditional, unequivocal assent to each and

every term of the offer.b. If response of offeree has that quality, when is the K formed?c. Mailbox rule (deposit / acceptance rule).

i. If the parties are operating at a distance , communicating with one another, at what point do we form a K?

ii. K is formed effective with the dispatch of the offeree’s acceptance if it’s communicated in any commercially reasonable manner – a mode which is at least as fast and reliable as the one utilized by the offeror. **

iii. K is formed as soon as offeree places acceptance in channel of communication even though offeror does not know yet. All risks of delay, misdirection, or nondelivery are borne by the offeror.

iv. What if the offeree does not use a commercially reasonable channel of communication, but has present assent to every term?

1. K will be performed by receipt by offeror.2. Prior to acceptance, K is revocable at any time.

d. If offeree responds to offer in any way that tampers with the terms:i. No K is formed.

ii. Original offer is destroyed.iii. Rejection-counteroffer rule .

1. UCC 2 -207 (formation by an offeree who attempts to add additional or variant terms).

iv. Common law gave the offeree limited, narrow window of opportunity for acceptance mirror image rule.

1. Ex : Doctrine of revival. If there is an offer and counteroffer, rejection by offeror, another counteroffer and I accept, this would not trigger an acceptance with merely “I accept” – should make more explicit acceptance.

2. “I reject” would not reject the offer. 1 hour later I can say “I accept.”

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3. Offeree saying “there has to be an implied warranty of merchantability.” Offeror says “I reject – we don’t offer that.” Then, offeror offers her the car, it’s subject to the implied warranty b/c of no disclaimer of the implied warranty of merchantability.

e. UCCi. Attempted acceptance : Offeree says: I accept your offer, but adds a few more

terms (at c/l this would be fatal, killing the K). At UCC, this would not be fatal – there would be always be a K.

ii. Offeror may say: take it or leave it (iron clad rule). Therefore, offeror won’t be bound to offeree’s counteroffer terms.

iii. Whether or not the terms originating with the offeree are consistent or inconsistent with the offer….

1. Consequence of consistency:a. If the terms proposed by the offeree are consistent with the terms

of the offer, a K is immediately formed, where offeree proposes additional terms…unless the offeror speaks out and rejects the offeree’s consistent, additional terms.

i. If offeror does not reject the offeree’s consistent, additional terms, no K under UCC. (Compare c/l: no K – counteroffer rule).

b. Inconsistent terms proposed by offeree do not enter the K unless the offeror expressly speaks out and assents to it.

i. Terms proposed by offereee have to materially shift the economic advantage of the proposed transaction, not consistent.

ii. Terms dramatically shift the incidence of loss (i.e., reallocate risk in offer), not consistent.

iii. Per se rule: if any term of the acceptance would impair a remedy which would otherwise have been made available in event of breach of K, the term is not consistent (i.e., insert arbitration in lieu of litigation term, this would not be consistent).

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PMBR CD #2

VI. Contractsa. Bilateral K: Parties form K by exchanging promises.b. Unilateral K: A, the offeror, holds promise; acceptance on part of offeree is the doing of

a designated act.i. Rule of construction : court will construe an offer whenever possible in the

bilateral mode.1. Statutory rule under the UCC . Offer to accept goods – by seller’s

shipping goods in unilateral mode; or by seller’s promise to ship them in the bilateral mode.

ii. Once the offeree begins the substantial performance of the requested act, he does not form the K, but does cut off the power of the offeror to revoke so as to give him a reasonable opportunity to complete that which he has begun.

c. Ambiguity (Can preclude formation of K)i. Latent

1. If, at the formation stage of the bargain, neither trader recognizes that a term that they’re using to describe an essential term is reasonably susceptible to more than one meaning and each party has attached a different subjective meaning to that term, there can be no K b/c of the latent ambiguity. This is fatal to the formation of a K. Judge has no rational basis for interjecting a reasonable term.

2. If one party is guilty b/c to him the ambiguity was patent, but to the other party, the ambiguity was latent, you as the judge protect the interests of the innocent party. You give the language the subjective definition in the mind of the innocent party and you tell the non-innocent party he must live with those consequences because he was at fault.

ii. Patent1. At the formation stage, the traders are guilty of using language to frame

one of the essential terms which is obviously susceptible to more than one meaning. Neither party takes opportunity to clarify the particular understanding each is taking away with the language. If parties are equally at fault for failing to clarify the meaning of the essential term, there can be no K, b/c you don’t have basis of preferring interpretation of negligent seller & negligent buyer.

iii. Either type of ambiguity precludes the formation of an agreement.d. Effect of adopting a writing

i. Parol evidence rule1. Parties formed an agreement.2. Reduced K to written expression.3. Parties are litigating about terms of K.4. One of the parties seeks to bring in evidence of term or understanding

that is not found in the 4 corners of the writing they created.5. Ask : Is there an integrated writing?

a. Parol evidence rule protects only integrated writings (reflects intent of the parties). Both parties must have intended the written instrument as the full and final terms of the express of their

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agreement. If they did not, then the parol evidence rule has no application whatsoever.

b. Trial judge decides whether the writing is integrated.6. Rule of substantive law, not a rule of evidence, doesn’t have to do with

credibility of evidence, but whether the evidence is legally competent, not credible.

7. Judge looks to evidence the other party is trying to bring in and asks: is this evidence parol evidence?

a. It has nothing to do with the form of the evidence, it just has evidence of the time: any evidence, whether oral or written or chiseled in stone of any promise between the parties that formed this integration – prior to or contemporaneous with the integrated writing. Look to the time origin of the extrinsic evidence. What if after we modify a term – after the integrated writing? This is a modification, not parol evidence.

8. Judge inquires into the impact of the parol evidence on the integrated writing.

9. You may not used parol evidence to contradict, vary, or add to, the terms of an integrated writing. **

a. Evidence that explains an ambiguity or explains a term – parol evidence may be admitted.

i. Trial judge makes this determination.10. 3 exceptions where parol evidence may be admitted:

a. Proof of fraud.i. May be used to prove fraud in the factum, inducement, or

in the execution.b. Partial integration

i. Goes to the beginning inquiry: on the day the K was formed, the parties formed a single K, but the parties intended the writing to cover some but not all terms of the agreement.

ii. If the judge believes that, she allows the evidence go to the jury on the theory that it’s only partially integrated.

iii. Tests:1. 4-corners test. Judge will allow evidence to come

in only if the writing looks incomplete to her on its face, only then can you come in with evidence of additional terms.

2. Liberal jurisdictions eating away at the parol evidence rule say that if the party that is offering can supply the judge with any credible explanation as to why this term was left out, I should be able to go to the jury even though the writing on its face appears to be complete with no obvious omissions.

c. Collateral agreementi. On the day the parties entered the bargain, they formed

two agreements. One agreement they reduced to formal integrated writing. Lawyer seeking to introduce evidence wants to introduce collateral agreement.

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ii. 3-step analysis (determined by the judge):1. Judge must determine that the alleged 2nd

agreement is of far lesser importance in the admittedly integrated writing.

2. No collateral term can contradict the integrated writing (ex: integrated writing says it’s complete in terms of obligations, collateral agreement can’t put in something additional).

3. Some natural daylight between 2 separate agreements where court would determine that the agreements are separate.

a. Natural division of subject matter so that collateral agreement would be viewed as 2nd agreement.

e. Considerationi. Promise or set of promises which the law will enforce or in some way regard as

a source of obligation.ii. 3 parties to every K:

1. Offeror2. Offeree3. Willing court

a. Valuable consideration.iii. 3-step approach:

1. Ask: Do I find a bargain?2. Look to the terms of the bargain. Does each of the exchanged promises

or acts involve bargained-for legal detriment, to the promisor or the actor?

3. If the answer to question #2 is no (one of the parties did not incur legal detriment), is there any substitute for valuable consideration present in this fact pattern (is this a promissory estoppel fact pattern)?

4. If you’ve found a bargain and you have qualified it as a contract because there is bargained-for legal detriment on both parties of the exchange, ask yourself: do they reveal any defenses, which if established, would preclude formation?

a. Real defenses, if in the fact pattern, would preclude formation of the contract.

iv. Definition:1. May be formed either in the bargained-for promise to perform any act, or

the performance of any act, which but for this bargain, I am not legally obligated to perform.

2. May be found in the bargained-for-promise to forebear – that but for this bargain, I am legally privileged to pursue.

3. Bargained-for exchange in legal position and not any legal element of economic benefit that imparts value for valuable consideration.

4. There must be: bargained-for + legal detriment.5. Bargained-for:

a. Elements of agreement; offeror and offeree consciously exchanged promises with view to altering their legal rights and liabilities.

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b. Gifts, past consideration and moral consideration are not valuable consideration b/c there is not element of bargain.

c. Bargain is a synonym for exchange.6. Value element:

a. Ex: Bargain found in bilateral mode. A and B formed their bargain through an exchange of promises. You look to each of the promises and with respect to promise A gave to B, ask: did A’s promise involve promise to do any act which but for obligation to B, A was not legally obligated to perform? If so, A’s promise is valuable consideration.

b. Q: Did B bring valuable consideration to this bargain?i. But for the bargain with A, was B not legally obligated to

perform?1. If so, B’s promise is valuable consideration.

c. Found legal detriment on both sides of the exchange, we have found an executory bilateral contract.

d. If the attempted formation was in the unilateral mode, the analysis is the same.

i. Offeror would have made the promise.ii. I promise neighbor $25 to pull weeds from yard. If

neighbor does the requested act and therefore bring about acceptance of the offer, is there a contract?

1. Did B do an act which but for attempted K with A, B was not legally obligated to perform? B had no legal obligation to weed my yard. His act had quality of legal detriment.

2. But for the promise to give $25, I wouldn’t be legally bound to do so.

iii. Result: K in the bargained-for mode.7. Bargain, detriment on both sides of the exchange, if so, we have a K.

v. Want of consideration1. Defense to formation of a K.2. If it can be established, no K.3. At formation stage of K, other party incurred no element of legal

detriment.4. Party who gave a promise cites want of consideration, there is no K,

defense to formation.5. Trump card in all K litigation.6. Ex: The parties have exchanged promises. (90% of exams on multistate

involve bargains in the bilateral mode.) If, at the day they exchange promises, promise that B has given no quality of legal detriment, A has the defense to formation for want of consideration. His promise was legally valuable, B’s was not. (want of mutuality of obligation – common law terminology – unless both parties to a K are legally bound, neither is legally bound)

7. Ex: A and B are both merchants, both in the petroleum business. A is a seller of petroleum products at the wholesale level. B owns a chain of gas stations. Party who commenced the negotiation, wrote a formal written proposal and sent it to the seller, B. B says: if I decide to order 10,000 cases of 30-weight oil, you promise first to accept the order, ship

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within one week, and grant me a 20%-discount off of your then-list prices. You (A) accept the order B requests, ship within 1 week and grant B a 20% discount off of your then-list prices. B wrote back: I accept.

a. Discuss .b. There is no deal b/c the buyer said “if”.c. A has the defense of want of consideration.d. A promised by saying “ I accept that deal “ he promised to accept

order of 10,000 cans of oil and grant 20% discount off of list prices, promises of seller is legally valuable. But, the buyer did not promise anything – he gave an illusory promise. Buyer had the full measure of freedom before sending the letter and after the letter was receiving by the seller b/c he said “if I.”

e. Modern courts favor reconstruction of events so as to conclude that K has been formed.

i. Looking at the subsequent history between the parties .ii. Full performance of the terms of an illusory promise

cures the want of consideration and produces contractual liability.

iii. I.e., if this proposal was made on November 20th and if on 20th of December, A sells B the oil cases, then this would create contractual liability. On November 20th, there was no K – it was an illusory undertaking. On December 20th, there was full performance.

iv. What about part performance under an illusory promise? Say the seller sells 50% of what’s requested, this doesn’t cure the want of consideration. Buyer is not obligated to perform unless he got the full benefit of his bargain.

v. Rule: Part performance never cures the want of consideration.

vi. If you have a want of consideration fact pattern, look to see if there’s any facts which would cure the illusory promise and produce contract formation. (first proformation tactic of the law)

vi. Failure of consideration1. Admits that K was formed.2. Admitting that the other party incurred bargained-for legal detriment.3. Contending that the other party is in present, material breach of the K.4. Consequence – the consideration has failed.5. Failure of consideration is a defense to the enforcement of my K duties,

therefore it is a personal defense.vii. Inadequacy of consideration

1. Involves allegation that I have made a stupid deed.2. I have come out hopelessly on the short end of the transaction.3. Allegation that I made a stupid bargain.4. This is no defense at all. **5. Exception:

a. Permitted to a party in a fiduciary or confidential relationship.

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PMBR CD #3

f. Wood v. Lucy

i. Exclusive agent for 1-year to market Lady Duff’s fashion goods. Otis promised to split profits 50-50 and account to her quarterly for any profits and promised to protect the integrity of seal of fashion approval when, as necessary, copyright and trademark protection. This was marketed in NY. Lady Duff marketed her goods in LA. Otis demanded an accounting. Court said: Otis Wood had not promised her anything, had given her an illusory undertaking, had promised to split profits 50-50, but never promised there would be offer any profits; he promised to account, but if there was nothing to account…; he promised to copyright and trademark her clothing, but if there was none, he had no obligation.

ii. Court looked at the agreement and thought there was a business deal b/c they had a mutual business objective. Court said: we just have to determine that both parties said that they’d use best efforts to accomplish business objective and alleged want of consideration vanished.

iii. Same result with UCC. Every UCC sale, dealing of good faith and fair dealing, seeking to bring about the commercial objective of our relationship.

g. Want of considerationi. Pre-existing duties:

1. Ex: Suppose that individuals enrolled in PMBR bar review course were to approach the lecturer and say: Dan, I offer you $100 if you promise to show up tomorrow and give a second set of PMBR lectures. Your promise is not binding. Lecturer did not give a firm promise.

a. Did I promise to do an act that but for the bargain with you, I was not legally obligated to perform?

i. Under an agreement between instructor & PMBR for giving 3 3-hour sessions of contract law, the student is the intended 3rd party beneficiary. Promise has no legal detriment, b/c just spoke of pre-existing obligation.

2. Getting around pre-existing duties:a. If I were to exchange tenor or pre-existing duty, by promising

that I’d show up 30-second early than the time called for under the K called for by PMBR or stay 15-seconds longer, any alteration in the tenor…is to overcome defense of want of consideration.

b. If B promises to do K duty as long as A pays additional $5,000 to get architectural plans and specifications A needs – as A demands, B cannot enforce it b/c want of consideration. But, if any alteration in the tenor of B’s duty, the defense want of consideration is overcome.

3. If B ran into problems that cast upon B burdens to performance, B might have an equity of rescission.

a. If B asks for $5,000 more and tough it out and perform even though B has problems with performance, B cannot invoke the equity of rescission.

4. Common law doctrine of accord and satisfaction

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a. Raise a dispute with A over whether or not she was bound to perform. If B raised that dispute in good faith, then that dispute was a candidate of self-help remedy: accord and satisfaction.

b. Accord agreement between A and B resolving their dispute.i. A can say: I’m not admitting that you’re able to claim a

privilege to claim a bargain, but I need your help, I’m willing to pay you $5,000. If B says I don’t believe that I have any obligation to you at all and I think you should pay me $10,000 more, if there’s an element of compromise between the positions and the accord and they carry out terms of accord, payment of the money, performance of duties, etc., is called satisfaction. And B could never litigate as to whether A was entitled to the money.

5. Good faith modification (UCC):a. Code is interested in reason why B will not perform. If B tells A

in good faith she’s not willing to perform unless A pays her $5,000 more so, A is not obligated to make the payment or the promise: he can say, I’ll see you in court. But, if A promises to pay, the promise is binding.

b. Code abolishes need fori. dispute between A and B, equity of rescission supporting

B’s demand, and any element of valuable consideration supporting B’s concession.

ii. Modification of terms binding upon A the moment she consents.

c. Good faith:i. Morals of marketplace: if other merchants in some market

or calling would recognize there is moral legitimacy in seeking the modification, then the modification is being asserted in good faith.

ii. The UCC would not work between sale of architect and builder b/c this is sale of services, not goods.

iii. But if goods, ask: good faith modification of the K?iv. If subject matter is services or some other subject matter

falling outside the UCC, look to these 3 common law solutions to overcome defense of want of consideration.

ii. Promissory estoppel1. Alternative to a contractual analysis – separate civil law claim for breach

of promise.2. Suppose we cannot find legal detriment on the part of the traders and we

cannot imply it and subsequent conduct does not cure the want of consideration.

3. Then, there is no contractual relationship, but we then look to the third aspect of developing this issue b/c there may be liability for breach of promise given in a fact pattern – on a theory of promissory estoppel.

4. If P brings cause of action on this theory, it is not a contract claim.5. The individual was worse off after the promise was made to him (i.e.,

literally impoverished).

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6. Contrasted with restitution and quasi-contract, to recover on promissory estoppel, it is not essential to show that there has been unjust enrichment.

7. Protects reliance interest of aggrieved party.8. First, we must locate in the fact pattern a promise to one of the parties

made to another.a. That promise must have had the foreseeable quality of inducing

reliance on the party to whom the promise was made.9. The promise must have in fact occasioned reliance in the party of the

promisee – actions taken by the promise or actions forebeared.10. Breach of promise by promisee.11. Promisee is now aggrieved and now worse off.12. If all 4 elements are met, Sec. 90 of the Restatement – breaching

promisor is bound to terms of promise at least to point necessary to allow aggrieved party to recoup his reliance interest.

13. Use doctrine of promissory estoppel to remedy promises that were gratuitous in nature, half-completed gifts. Recent case law - -extension of promissory estoppel into the case law. Ex: Franchise world.

a. Ex: You acquired a masterpiece for $500. It’s worth millions. I spot the Colonel Sanders. I tell him my tale of tragedy. Colonel promises that he will grant me a franchise in Barstow, CA to market his KFC chicken. Colonel has made a promise. IN reliance of the promise, I undertake at my own expense a course in chickenology at Foul University to learn to prepare the KFC Chicken. Wife and I have invested all funds we could for the KFC franchise business. I convert my spouse and children in people that won’t eat anything other than chicken. In wake of all of this reliance, Colonel chances his mind and breaches the promise.

i. Money damages against Colonel? No, no contract. No offer. Therefore, element of bargain is missing. Therefore, no contractual relationship. But, Colonel did make a promise. I am also worse off today than before I met him. Can the law do anything for me?

1. Promissory estoppel. I must establish the Colonel is guilty of a promise – with foreseeable consequence of inducing reliance on part of promisee. Next element is to show I changed position in detrimental reliance on Colonel’s promise. I must establish breach of the promise (very clear). I must seek recovery of damages to put me back in the position I was in on the day the Colonel made the promise.

2. Result: I will get some relief, but not everything. Would a reasonable person have seen that there would be detrimental reliance – taking steps to learn to prepare the food? Yes. Steps were reasonable – within the ambit. I will recover tuition to Foul University. Any expenses of leaving my home and taking up residence there will be taken up as damages. Diminished family

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fortune for chicken palace in Barstow – foreseeable to reasonable person? Certainly some construction is required – we’d be prepared to shift incidence of cost to Colonel… Other claim: $75,000 psychiatric claim for me and my loved ones. Was this reasonably foreseeable? No. I would recover nothing on that aspect of my claim.

14. Promissory estoppel – can quiet title in promise – for specific performance.

a. No reliable way to measure an award.15. If there is no legal detriment on one side and therefore could not be a

contractual relationship, yet a promise given, promise breached and the promisee is worse off, then do an analysis of a potential recovery of promissory estoppel

h. Contracts defenses (common law)i. Real defenses

1. If established, preclude the formation of a K.2. Few in number, but exceedingly powerful.3. Illegality of the bargain :

a. Offeror has dialed M for murder ii. Personal defense

1. Admit K was formed, but renders person’s K duties voidable.2. Far more common and numerous

iii. Defenses1. Related to form of bargain

a. Statute of Fraudsb. An oral bargain where the law requires for a remedy that there be

a writing.2. Capacity of all the parties to the bargain

a. One of the traders was a minor, lacked the requisite mental capacity, ultra-viros activity (beyond capacity of corporation)

3. Content of the bargaina. Serious social objection to content of bargainb. Ex: Illegality or substantive unconscionability.

4. Tactics of one of the traders informing the bargaina. Fraud, constructive fraud, duress, and overreaching.

iv. Statute of Frauds1. Neither common law or UCC impose any mandatory form of the

bargain.a. Ks can be and are a lot of times oral.b. Oral contracts are perfectly valid, but it might present a problem

if the subject matter of the bargain falls within the Statute of Frauds in terms of litigation.

i. If there is no written instrument of the terms, then there can be no remedy at law for breach of the contract, unless the result of allowing the D to invoke the Statute of Frauds would be gross injustice in which case the equitable court will stop D from working behind the Statute of Frauds.

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ii. If subject matter is real property (land) or any permanent fixture attached to the real property, it falls within the Statute of Frauds.

iii. Contracts dealing with sale of goods falls within Statute of Frauds if price is $500 or more.

1. Exceptions: Under the UCC, an oral K for the sale of goods is perfectly enforceable to the extent that the seller has delivered goods to the buyer and the buyer has accepted delivery.

2. Exceptions: If both of the traders are merchants, a written confirmation of the terms of the bargain sent from one merchant trader to the other operates to satisfy the Statute of Frauds both to the sender and to the recipient unless the recipient objects to the content promptly.

3. Exceptions: Special goods. Goods custom tailored or manufactured to the specific buyer’s order or specification and not suitable for ordinary leasing. To the extent that the fabricating seller has begun to fabricate (manufacture) the goods, the buyer’s promise to pay for them is totally enforceable.

iv. Any K which by its terms is incapable of being performed in 1 year.

1. If there is any possibility, no matter how statistically remote, how improbable, that the K obligations couldn’t be performed within a year, the subject matter was never within the Statute of Frauds.

2. Ex: You promise to pay my daughter $10,000 a year for the rest of her life. She might die within a year, even if very improbable.

2. If subject matter falls within the Statute of Frauds, a memorandum of essential terms signed by the parties to be charged is required.

a. The writing can be very informal.i. Can be a series of writings stapled together, or a single

document.b. If, through written evidence, we can reconstruct the written

terms, that evidence must relate to the party to be charged.c. Signed by the parties to be charged – can be a rubber stamp of the

person’s name, or a FAX transmission – doesn’t have to be signature.

d. Why must the writing not be signed by the P?i. The P satisfies the Statute of Frauds when she files her

complaint, alleging the terms and bears the signature of her attorney.

e. Q: What if the written memorandum is missing?i. K is not void, but voidable.

ii. If D fails to assert the defense in a timely manner, the defense is waived.

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iii. Subject to doctrine of equitable estoppel – before D can create the defense, court must approve of it – it must not be of gross injustice for public policy grounds (i.e., if D is not equitable estopped).

iv. If D files in timely manner & is not equitably estopped, aggrieved party P has no adequate remedy at law.

1. P has standing to sue in equity. Equity courts are not historically bound by the Statute of Frauds. Equity willing to regard part performance as evidentiary substitute for missing writing so long as part performance points to the contract, which the P is alleging, and not to a nebulous sum arrangement. There may be equitable relief in the form of specific performance or injunctive relief.

v. If the cause of action is predicated upon a cause of promissory estoppel, Statute of Frauds has no application at all.

A. Illegality3. Time or subject matter in which one of the parties became illegal.4. Subject matter became illegal when offer was outstanding (ex:

crackdown on religious gambling, making it outlawed. If offer is outstanding, the offer is revoked by operation of law if not yet accepted. But, if offer is made, I had accepted it, and the K has not been performed (Executory) when it’s declared illegal… At common law, I claim relief by way of legal impossibility.)

5. UCC effort to save a bargain. If a K has been formed and is still executory, and along comes along a supervening government regulation that makes the subject matter of the bargain illegal, as a merchant I must determine whether some substitute arrangement can be made, both legal and practicable. If there is, I must perform under the modified, substituted arrangement. You don’t have to accept (then I can claim objective legal impossibility). If you do accept, we have a valid K.

6. Nature of illegalitya. Whether there can be any quasi-contractual relief.b. If the subject matter of the bargain or the participation of one of

the parties is intrinsically evil (malum in se), then the attempted bargain is void.

i. Ex: If I put a K on my brother-in-law with a $10,000 downpayment to the torpedo, the subject matter is evil. Intrinsically evil. In this case, there is no K. No court will assist me even if I attempt to withdraw from the transaction and try to recover the $10,000. **

c. If the subject matter is not intrinsically evil, but is prohibited by a statute or society has prohibited it, this is malum prohibitum, wrong b/c society has prohibited it. Here, no K.

i. Party who rendered valuable services may recover in quasi-contract for the market value of those services if she

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was unaware that the subject matter was regulated and therefore offensive.

ii. Recovery on quasi-contract – depends on whether the party is aware that the K offends the law. If not aware, person can recovery in quasi-contract.

iii. Both parties are aware to offense of law – subject matter of K, but if one of the parties is within the protected class of the statute, then the party may recover in quasi-contract for the market value of goods or services. Ex: child labor laws. If 15-year old child seeks to sell his labor, he is engaged in malum prohibitum, even if he is consciously aware it’s illegal, he cannot recover on wage promised by the K, he can recover for market services which he has performed.

v. Unconscionability1. Whereby a term of an agreement, one of the parties seeks to avail

himself of a privilege contrary to public policy in forming terms of the bargain. A seller of an inherently dangerous bargain attempts to exclude all warranties, even implied warranty of merchantability, it is not illegal, but it is unconscionable.

2. A reviewing court is capable of 2 reactions:a. It can refuse to have anything to do with the bargain (grant no

relief at all).b. Court can blue pencil the bargain to remove or modify the

unconscionable term while enforcing the balance of the exchange against the parties.

i. To prevent oppression and surprise to the dominant party (contract of adhesion, take it or leave it proposition).

3. If terms offend public policy, it can be policed for unconscionability.i. Content of bargain

i. Fraud1. Fraud in the factum (real fraud)

a. Any contrivance or artifice that prevents the fraud victim to appreciate the fact that the K is even in contemplation.

2. Fraud in the inducementa. Victim is aware of K in contemplation, but consent to enter the K

is seduced by lies or half-truths.b. Victim has opportunity to assert defense and have these

obligations voidable.3. Fraud in the execution.

a. Victim – where the K is formed. His consent is validly obtained. Fraud – bargain is oral, now the victim trusts the other party to reduce their oral agreement to a formal, written expression which the other party does and says here’s our deal and the victim trustingly signs the deal without closely examining it. Later, it turns out that the person preparing the writing suffers from selective memory. Now, fraud in the execution. Obligations expressed in the paper are voidable if the victim chooses to raise the defense.

4. Duress

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a. Duress of the personi. Mental force

ii. Physical force1. Ex: Gun to your head

iii. Force directed against victim and they always render the consent of the victim voidable.

iv. Force – offer you cannot refuse (signature on the paper, brain is on the wall; or signature on the paper and you’ll see your child again).

v. Threats of duress are called menace and are treated by the common law as duress and are treated as the same.

b. Economic duressi. Duress of goods

ii. Ex: One of the parties has some desperate pressing need for the subject matter and the other trader taking conscious advantage of that need insists upon harsh and one-sided terms. There must also be active pressure by the party or has actively intermeddled to make the pressure worse.

iii. Overwhelming pressure, created by or exacerbated by aggressor, coupled with harsh terms, only then do you have defense of economic duress.

iv. Ex: You’re in a desert and there is a gas station. And person says: $1,000 for the gas. Defense of economic duress? No. Harsh, one-sided terms. There may be some unconscionability ,but no economic defense b/c we didn’t create the plight that drove you to our station. Economic duress if we’re responsible for your circumstances (i.e., if we drained the gas from your car and you needed gas as a result).

5. Procedural unconscionabilitya. One of the parties at the formation stage uses formation tactics

designed to not give trader fair opportunity to appreciate the terms she is objectively consenting to. This is the individual who does business in fine print, who expresses terms of K in legalese and takes fine print document in legalese in an area dealing with consumers where they wouldn’t know the terms or what they are waiving.

j. Capacity of the tradersi. Where one of the traders is a minor, under the common law, the K obligations

of minors are voidable, yet the promises do amount to valuable consideration because the law says so.

1. If the minor does not assert the defense, he is deemed to waive it. If, in litigation, minor asserts the defense that he was under the age of legal consent when the K was formed, there can be no recovery under terms of K by the adult.

2. If the minor has consumed the benefits of the K and these are regarded as necessary (food, shelter, clothing, medical care), P adult may recover in quasi-contract for the market value of these services (but not monetary damages).

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ii. Defense of incapacity1. K obligations of individual who permanently or temporarily lacked

mental powers to form a K.2. Recovery on quasi-contract if the subject matter is a necessary (see

above); if not, no liability at all.3. Ex: Individual with self-induced mental incapacity (like being drunk). 4. Common law is divided. If mental incapacity is temporary and self-

induced, we have no sympathy for that person and defense cannot be raised.

a. Dominant and more modern view: if other person knowingly dealt with person he appreciated or should have appreciated was suffering under influence of alcohol, drugs, etc. – if other party knew about it, I may have the defense.

iii. Illegality1. Time or subject matter in which one of the parties became illegal.2. Subject matter became illegal when offer was outstanding (ex:

crackdown on religious gambling, making it outlawed. If offer is outstanding, the offer is revoked by operation of law if not yet accepted. But, if offer is made, I had accepted it, and the K has not been performed (Executory) when it’s declared illegal… At common law, I claim relief by way of legal impossibility.)

3. UCC effort to save a bargain. If a K has been formed and is still executory, and along comes along a supervening government regulation that makes the subject matter of the bargain illegal, as a merchant I must determine whether some substitute arrangement can be made, both legal and practicable. If there is, I must perform under the modified, substituted arrangement. You don’t have to accept (then I can claim objective legal impossibility). If you do accept, we have a valid K.

4. Nature of illegalitya. Whether there can be any quasi-contractual relief.b. If the subject matter of the bargain or the participation of one of

the parties is intrinsically evil (malum in se), then the attempted bargain is void.

i. Ex: If I put a K on my brother-in-law with a $10,000 downpayment to the torpedo, the subject matter is evil. Intrinsically evil. In this case, there is no K. No court will assist me even if I attempt to withdraw from the transaction and try to recover the $10,000. **

c. If the subject matter is not intrinsically evil, but is prohibited by a statute or society has prohibited it, this is malum prohibitum, wrong b/c society has prohibited it. Here, no K.

i. Party who rendered valuable services may recover in quasi-contract for the market value of those services if she was unaware that the subject matter was regulated and therefore offensive.

ii. Recovery on quasi-contract – depends on whether the party is aware that the K offends the law. If not aware, person can recovery in quasi-contract.

iii. Both parties are aware to offense of law – subject matter of K, but if one of the parties is within the protected class

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of the statute, then the party may recover in quasi-contract for the market value of goods or services. Ex: child labor laws. If 15-year old child seeks to sell his labor, he is engaged in malum prohibitum, even if he is consciously aware it’s illegal, he cannot recover on wage promised by the K, he can recover for market services which he has performed.

iv. Unconscionability1. Whereby a term of an agreement, one of the parties seeks to avail

himself of a privilege contrary to public policy in forming terms of the bargain. A seller of an inherently dangerous bargain attempts to exclude all warranties, even implied warranty of merchantability, it is not illegal, but it is unconscionable.

2. A reviewing court is capable of 2 reactions:a. It can refuse to have anything to do with the bargain (grant no

relief at all).b. Court can blue pencil the bargain to remove or modify the

unconscionable term while enforcing the balance of the exchange against the parties.

i. To prevent oppression and surprise to the dominant party (contract of adhesion, take it or leave it proposition).

3. If terms offend public policy, it can be policed for unconscionability.k. Content of bargain

i. Fraud1. Fraud in the factum (real fraud)

a. Any contrivance or artifice that prevents the fraud victim to appreciate the fact that the K is even in contemplation.

2. Fraud in the inducementa. Victim is aware of K in contemplation, but consent to enter the K

is seduced by lies or half-truths.b. Victim has opportunity to assert defense and have these

obligations voidable.3. Fraud in the execution.

a. Victim – where the K is formed. His consent is validly obtained. Fraud – bargain is oral, now the victim trusts the other party to reduce their oral agreement to a formal, written expression which the other party does and says here’s our deal and the victim trustingly signs the deal without closely examining it. Later, it turns out that the person preparing the writing suffers from selective memory. Now, fraud in the execution. Obligations expressed in the paper are voidable if the victim chooses to raise the defense.

4. Duressa. Duress of the person

i. Mental forceii. Physical force

1. Ex: Gun to your headiii. Force directed against victim and they always render the

consent of the victim voidable.

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iv. Force – offer you cannot refuse (signature on the paper, brain is on the wall; or signature on the paper and you’ll see your child again).

v. Threats of duress are called menace and are treated by the common law as duress and are treated as the same.

b. Economic duressi. Duress of goods

ii. Ex: One of the parties has some desperate pressing need for the subject matter and the other trader taking conscious advantage of that need insists upon harsh and one-sided terms. There must also be active pressure by the party or has actively intermeddled to make the pressure worse.

iii. Overwhelming pressure, created by or exacerbated by aggressor, coupled with harsh terms, only then do you have defense of economic duress.

iv. Ex: You’re in a desert and there is a gas station. And person says: $1,000 for the gas. Defense of economic duress? No. Harsh, one-sided terms. There may be some unconscionability ,but no economic defense b/c we didn’t create the plight that drove you to our station. Economic duress if we’re responsible for your circumstances (i.e., if we drained the gas from your car and you needed gas as a result).

5. Procedural unconscionabilitya. One of the parties at the formation stage uses formation tactics

designed to not give trader fair opportunity to appreciate the terms she is objectively consenting to. This is the individual who does business in fine print, who expresses terms of K in legalese and takes fine print document in legalese in an area dealing with consumers where they wouldn’t know the terms or what they are waiving.

VII. K elementsa. Offer and acceptanceb. Legal enforceability

i. As a contractii. Promissory estoppel

c. Ask: Was there a bargain?d. Look to the terms of the bargain on the day it was formed.

i. Did each of the traders incur bargained-for legal detriment?e. We have presumptively an executory K.f. Defenses to preclude formation of the K.

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PMBR CD #4

I. Rights and duties of non-tradersa. Do the terms of the K or subsequent conduct of the traders confer any rights on

nontraders?i. Nontraders : A nontrader is any person in the fact pattern who, at the formation

stage of the agreement, was neither the offeror nor the offeree.ii. If nontrader is defined by terms of the K, she is an intended third party

beneficiary.iii. If the terms of the original K are silent with respect to any nontrader, but

subsequent to formation of the bargain, one of the traders takes unilateral step of identifying a third party and seeking to transfer to that third party the right to receive performance owed by other trader to the bargain (attempted assignment of K rights).

iv. If subsequent to formation of bargain, one of the traders takes a unilateral step of identifying and seeking out nontrader where nontrader will assume obligation to perform obligation to other party under the K, this is a delegation of K duties.

b. Third party beneficiary problem:i. Facts will introduce third party at the formation stage of the agreement.

ii. You can tell he is a third party b/c the person at the formation stage is neither the offeror or the offeree.

iii. If nontrader is intended third party beneficiary, then that nontrader has the primary cause of action to remedy any breach of obligation to receive performance owed to him under a remedy at law.

iv. If bargain is formed in the bilateral mode, then it was formed by the exchange of promises.

1. If the fact pattern sees the terms of the K making explicit reference to the third party:

a. Third party neither the offeror nor offeree.b. Third party is an intended third party beneficiary.

v. 4-step analysis:1. Is the third party an intended third party beneficiary?

a. Direct undertaking of the promisor; intention to benefit in the minds of the promise 2 elements of intended beneficiary status

b. Promised obligation be delivered directly to third party rather than third party, we have the requisite direct undertaking.

i. Trader who has made this promise is the promisor.ii. Other party that formed that bargain is the promise.

c. Requisite intention to benefit third party:i. Legal test : B consciously intended that A’s performance

run to the third party beneficiary. The motive does not matter.

ii. Ex : Suppose I said harsh things of my brother in law and I’m repenting of this. My brother in law is an exercise fanatic. He’s in great shape. He has a pool in his backyard and is in it all the time. I select a business and

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asks how much would they charge to deliver 50kg of steer manure. They say $200. I say fine, I want you to deliver the manure and deposit it at 2828 Bellacasas Street. This isn’t where you live the business says. I say this is where I want it. Other party agrees.

1. Vitra-Grow company undertakes the task. Brother-in-law is the third party beneficiary. Direct undertaking of the promisor (Vita-Grow Industries Inc.), intent to benefit promisee (instructor).

iii. Third party that can’t prove both elements incidental beneficiary and no status in the eyes of the law at all.

1. Ex: In CA, 2 adjacent unimproved parcels left. I enter into a K with Ajax company to create a shopping center on the land. Faithful performance by Ajax will treble the value of the adjacent property. Ajax made no undertaking running to you, all construction efforts were on my land. I had no intention to benefit you, just me. Therefore, you are an incidental beneficiary, utterly without status, without benefit of the K.

2. Has the third party’s rights vested?a. Third party beneficiary is awaiting the performance of A. What

if A and B, in the meantime, change their mind? They seek to modify the terms to not benefit the third party. Is there anything the third party can do which would cut off the rights of A and B to rescind or modify the K? Issue of vesting the rights of an intended beneficiary.

i. Formerly, common law distinguished between 2 classes of intended beneficiaries: creditor (as opposed to donee) beneficiary.

1. Creditor beneficiary establishes this by showing that T is a creditor of the promisee and that the performance of A, if rendered, is charged with indebtedness in whole or in part. T = third party beneficiaries. Instructor is promisee; PMBR is promisor; K requires 9-hours of K lectures. Creditor beneficiary are the PMBR students. Giving lectures, discharges obligations owed to you, creditor third party beneficiary.

2. All other intended beneficiaries are the donee class. Brother-in-law is a donee intended beneficiary.

ii. Modern common law (multistate and essay): lump both of categories together into a single category called an intended third party beneficiary. Why the common law made the distinction: it favored the donee beneficiary with respect to vesting of rights (rights vested the moment the K was formed, didn’t have to know about it); rights of creditor beneficiary was vested only when K made for her

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benefit & she had learned of existence of K & changed in position of detrimental reliance.

iii. 3 ways in which modern intended beneficiary may vest rights:

1. Upon learning of third party beneficiary and she changes position, she vests her rights.

2. Third party commences for breach of cause of action benefits third party, she vests her rights.

3. If the intended beneficiary expressly consents to receive the performance of the promisor, when that consent has been requested of her, not volunteered, she vests her rights.

iv. If A and B decides to rescind or modify the K so that third party beneficiary isn’t benefited after third party beneficiary’s rights have vested, the cause of action does not go away. Third party beneficiary has an unshakeable right to the direct undertaking by the promisor.

v. If the promisor pays the promisee $5,000 (i.e., let her out of the bargain), to get out of the direct undertaking to the third party beneficiary, the agreement of the promisee is without any force or effect, third party beneficiary could claim the $5,000 on the grounds of conversion.

1. Third party beneficiary also has tortious interference of K rights as well if A and B try to tamper with the K made to benefit the third party beneficiary.

3. If you found an intended beneficiary with vested rights, the legal consequence will be that if there is any breach of the K duties created for his benefit, the primary cause of action to remedy that breach at law and equity belongs to the intended beneficiary. If the intended beneficiary commences that cause of action against party that owed him the performance, that party is the promisor. What defenses may the promisor raise faced with a cause of action brought by an intended beneficiary?

4. Where there is a breach of the terms of the K by the promisor, what rights, if any, accrue to the other party to the K, the promisee, who bargained for that arrangement and supported the valuable consideration?

vi. Intended beneficiary and A refuses to perform undertaking or the performance is inadequate, A is in total breach of the K.

1. Remedy: does not belong to the other party of the K, but to the intended beneficiary.

2. Q: What defenses may A raise so as to defeat or diminish liability to the intended beneficiary?

a. The rights of the third party are totally dependent upon a K made for his benefit.

b. Therefore, any defense which A would have had against B, where this would have been a two-party K with no beneficiary involved, may be established by A and used to defeat liability to the third party beneficiary. Defeats the claim.

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c. If there is a personal defense, obligations of A are voidable.d. Rights of third party are never greater than rights to parties in K.

This includes the defense of failure of consideration. If the reason why A refused to perform was b/c B was in material breach of K, A may use this defense to defeat any liability to third party beneficiary.

vii. Set-offs1. Any civil cause of action which A possesses against B predicated on any

grounda. You may use any defense to defeat or diminish liability.b. Dollar value of intended beneficiary’s cause of action is

$100,000. A has a counterclaim against B for breach of K worth $75,000. A may also establish counterclaim against B and use this counterclaim to diminish liability to intended beneficiary to difference between K claim and intended beneficiary claim by $25,000.

viii. Counterclaims1. Any cause of action A has against B for breach of this very K.

ix. Remedies or rights for B, the promisee:1. If in the fact pattern, the intended beneficiary, has not brought the

primary cause of action for A’s breach.2. If the intended beneficiary brought and succeeded in recovering for the

primary cause of action, that is the only remedy and B has no remedy.3. Rights of the promisee:

a. Generally, no loss of bargain…because he was not the one to receive the performance. If court denies him standing in discretion of court, any backward looking remedies in the nature of restitution, quasi-contract, reliance, promissory estoppel – there is all there could ever be.

II. Nontraders – Rights and duties of assignees and delegatesa. Fact pattern:

i. If the original formation of the K features an offeror, an offeree and you reconstruct terms of the bargain and they make no reference to nontraders….there never could be an intended beneficiary.

ii. If A identifies some stranger and seeks to transfer to that stranger the right to receive and hold in part the right the performance that is still owed to A by B, the we know that A is attempting an assignment of contract rights.

iii. A, that has made this attempt, is the assignor. The party to whom he would transfer the right for B’s performance is the assignee.

iv. Subsequent to the formation of the bargain, B takes the extraordinary step of identifying a stranger in the marketplace and seeks to enter into a transaction where B seeks to create in Y the primary carrying out of B’s duties, B is the delegor and the individual assuming these duties, the delegate of B’s duty.

v. It’s possible to have both an assignee and delegate.b. Assignment and delegation

i. 3 general propositions:1. The same bias of the modern law in favor of contract formation is now

reflected in the policy which positively favors the freedom of assignment and is increasing tolerant of the freedom to delegate duties.

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2. Where assignment of rights and delegation duties are proper, it may be achieved without prior or contemporaneous consent of other party.

3. Since both the assignment of rights and delegation of duties take place without the consent of the third party, they are never appropriate when the result would be to add to or vary the obligations undertaken by the other party to the contract or to prejudice or vary the performance to which the trader is entitled.

4. Ex: Assignment of right by A to X to receive B’s performance, if this adds to or varies the performance that B consented to at the formation stage, no valid assignment.

5. If delegation from B to Y of duties that B had contracted to A would prejudice the security A had enjoyed or the quality of the performance which A would receive, no appropriate case for delegation.

ii. 2-party transaction; 2-party agreement – executory, bilateral agreement between A and B. They form the K with no mention of nontraders. There can never be an intended beneficiary. Subject to formation of K while still executory (promises exchanged, but not performed yet), A takes it in mind to identify in the marketplace a nontrader and seek without permission of other party, unilaterally attempt to that nontrader, the right to receive the performance owed to A by B.

1. X, in these circumstances, is the assignee.2. B is the obligor (K obligations).3. 4 possible issues that can be raised:

a. Ask: Do I find a present assignment?i. If the answer is no, the question is over.

b. Assuming I found a present assignment, is the assignment between A and X operative?

c. If you found the present operative assignment, is that assignment revocable?

d. If X achieves a present and operative assignment, and if the assignment was either irrevocable or no problem with revocation, the legal consequence is the legal right to receive the performance which B had already promised to A has been extinguished in A and has become the exclusive right of X, the assignee.

e. In the event where the assignee commences a cause of action against X, what defenses may the obligor raise so as to defeat or diminish liability to an assignee?

i. Elements of present assignment. Need the manifestation of a present intention on the part of A to achieve a present transfer of her present rights to X.

1. Acts and words sufficient to define subject matter being transferred, A must wholly and immediately divest herself of all right, title, and subject matter and transfer that interest to X, this is the present assignment.

2. Fact patterns:a. Questioning A the assignor. Whatever

motivates A doesn’t matter. No present assignment unless A manifests intention to

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make assignment right here & right now. A statement from A to X that next week, I will assign my rights …this is not a present assignment.

ii. Steps of present assignment taken in the present by A sufficient to act upon her intention.

1. A must clearly define the subject matter to X.2. If A clearly manifests intent to act here and now,

no clear definition of subject matter – X doesn’t know what he got.

iii. Present intent plus steps must relate to a suitable present subject matter.

1. If there is an executory K already existing between A and B, this is what the common law looks for a suitable present subject matter.

2. Future rights, already defined by an existing K, may be freely assigned.

3. Ex: Contracts from A to B required B to pay $10,000 prior to 15th of March. There is a suitable subject matter which A may assign to X. Future rights under existing K are freely assignable.

4. Q: What about future rights in a future contract?a. In equity: An equity court would permit an

assignment, today, by A to X of a future subject matter involving obligations of B, although today there is no K between A and B, provided there is an established economic relationship between A and B that supports A’s expectation of a future K.

b. Ex : In N. California, farmers go out and borrow money from banks every spring. They pledge as security the purchasers of their crops in the late fall. There is no K, but there is an established economic relationship between the farmers in Davis and the 5 cooperatives in Davis that habitually borrow their crops. So, as far as equity is concerned, an assignment has taken place. What the assignor has is bare legal title. The equitable interest belongs to the bank as the assignee. They may bring a suit to unite the equitable claim with the bare legal title.

5. Q: What about a future K, but there is no established economic relationship?

a. Impossibility at common law and in equity.

iii. Since this is a unilateral privilege, B has not consented nor has he been asked to consent:

1. Is the assignment from A to X operative?

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a. Is the consequence of assignment, from A to B, to change the nature of the duties assumed by the obligor or the risk or does it offend some provision of the K between A and B which would attempt to restrain the creation of rights?

2. Operative quality:a. Common law protections built-in to protect interests and security

of B.i. B is privileged to ignore the assignment if B can prove

that the consequence of the assignment is to add to or modify the nature of the duties that she assumed at the formation stage. **

ii. B can contend that if forced to render duties to X, some material change in the nature of the risk that B had assumed at the formation of the K state.

iii. Burden of proving material alteration / modification is on B.

1. Ex: Modifying duties materially. K between A and B. B is to render personal services to A. A has paid B a $15,000 annual retainer during which B has agreed to represent A’s legal interests during the calendar year 1990. It would obviously materially vary the nature of the duties that B had assumed in the K required obligor to render duties to someone else, instead of person of her selection.

iv. Contract of insurance1. You are A. K insurance carrier is B. B has agreed

to pay you if you suffer casualty loss. Suppose you attempt to assign the coverage of your policy to my 16-year old son. This would not discharge duties. But, it would dramatically increase the risk to the carrier that those conditional obligations would mature. Carrier could successfully refuse to recognize the assignment based on the material change and dimension of risk it assumed in forming the K with you; you could not make a present assignment. You cannot assign coverage of policy, but you could assign the right to receive the payment (changing the insurance beneficiary).

a. The change in beneficiary would not change the carrier’s duties or the change in the dimension of risks by the carrier. In the eyes of the common law, this would be a perfectly operative common law assignment.

b. Assignment which offends provisions of the K, sought to restrain the creation of strangers of the right to receive the benefit of performance.

i. Bias in the law in favor of the freedom of assignment.

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ii. If there is a K term offended in the course of assignment, courts distinguish with respect to those terms as to whether they have succeeded in extinguishing the power in making an operative assignment as opposed to merely having the unfortunate consequence of extinguishing the assignor’s right to make an illicit assignment.

iii. If the only thing that is offended when A makes the assignment to X is some covenant from A to B that they would not make assignments, the assignment from A to X is illicit / violative of that covenant. But that language does not destroy the right of A to make a present operative assignment, if X is innocent, without knowledge that this would violate the K term and if X paid value of that assignment (i.e., if X is a bona fide purchaser for value). Innocent assignee has achieved a present operative assignment. B must now perform to his demand at peril of breaching the K. But, as to B, he may now bring a cause of action against B for breach of covenant not to assign, but this has nothing to do with the status of X.

iv. 2 techniques known to common law:1. Rescission clause between K between A and B

which states that B may regard any attempt by A to attempt to assign any rights under the K as an offer to rescind the K. If A were to go ahead and attempt an assignment to X, B could take the self-protective step as an offer to rescind the agreement which he accepts. What if X is innocent and paid $100,000 for this assignment and had no knowledge? X – has destroyed power; K is rescinded. An express condition subsequent has been triggered immediately extinguishing all of B’s duties under the K. Even as the assignment is made, the subject matter is destroyed through the use of the express condition subsequent. But what about X – an innocent BFP? X achieves no rights against B. X has a cause of action against A for breach of an implied warranty that runs from every assignor to every assignee that pays value for the assignment. Terms of implied warranty as your assignor, I warrant that I have both the right and power to make a present, operative assignment and thereafter, I will do nothing to interfere with your quiet enjoyment of that subject matter. If that fact is that the assignment triggers a condition subsequent / rescission clause…if I am the lawyer of B, I have afforded my client full protection.

3. Was the assignment from A to X, revocable?a. X must face 2 dangers: (revocation)

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i. A has changed his mind and now wishes to reacquire, personally, the subject matter which yesterday he had assigned to X.

ii. A has changed his mind and one day after making the assignment to X, makes a second conflicting assignment of the same subject matter to a subsequent, rival assignee.

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PMBR CD #5

III. Time and order for the performance of the promises which have been exchanged – law of conditionsa. Is there a fully matured duty of performance?

i. Fix a schedule under which the performance should take place.b. Ex: Simple executory bilateral K. K came into existence when parties exchanged

promises (offer and acceptance). If there was bargained-for legal detriment, a contractual relationship occurred.

c. Q: Which party, A or B, must perform first?i. 3 possibilities:

1. A must perform his obligation first, B going 2nd in time.2. B has an obligation to perform on her promises first, then A 2nd in time.3. A and B must render their performances simultaneously.

d. Every condition modifies a promise, either by setting up a contingency which must be removed before liability on the promise matures (condition precedent or concurrent); condition modifies the promise by asserting some contingency, which if triggered, means that liability to perform on the promise will be discharged (impact of condition subsequent).

i. 4-part analysis:1. Q: Does it create or condition liability?

a. Distinguish covenants in the bargain from the conditions.i. Covenants create liability; conditions modify covenants.

2. Q: What is the impact of the condition on a present duty to perform the modified promise?

3. Q: Has the condition been satisfied?a. This is a question of fact.

4. Q: If you have found a condition, you have determined its impact, and it turns out to be a condition precedent or concurrent but it has not been satisfied, then the party who has the protection of such condition, that party’s liability has never matured and therefore she is privileged to refuse to perform her promise.

a. But ask: has the condition been excused?ii. Utility of conditions

1. Traders use conditions to allocate risk.2. Courts use conditions to assign fault to party who has breached the

contract for an award of money damages (only remedy at law).a. Contrast: equitable remedies; both parties have to carry out terms.b. Remedy at law is totally one-sided; one party receives damages

to put him in position in had he not been harmed. Other party just gets a bill.

iii. Covenants and condition:1. Covenants:

a. A promise.2. Condition

a. When certain covenants should be performed.3. Failure to perform covenant on certain time is a breach.4. But, failure to satisfy a condition is never a breach of contract.

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5. Ambiguous language – covenant or condition:a. Fundamental rule of K construction; doubtful or ambiguous

construction is construed as language of a covenant (a promise). It is never regarded as the language of a condition. This judicial attitude protects the interest of the other trader.

6. You have to be obvious when introducing condition so you understand element of risk is shifted on your shoulders.

iv. What is the impact of the condition?1. Every condition modifies a promise – this is dependent on elimination of

condition.a. Contingency (must be excused or satisfied) before liability on

person performing dependent promise.i. Condition precedent or concurrent.

1. Condition precedent is any contention under the terms of the bargain must occur before there is an absolute duty to perform the modified or dependent promise.

2. Conditions of satisfaction are the most commonly tested examples of condition precedent.

a. Condition which calls for satisfaction of other party with performance with one of the traders of the other party’s obligation to pay for that performance.

b. Ex: K between A and B. Fox is a house painter. Brown owns a home in LA. One day, Fox approaches Brown and says: For $500, I will paint your house. (This is an offer.) Brown responds: I agree and I will pay you $500 provided I am satisfied with your work.

i. This is not an agreement. This was not a mirror image reflection of the offer.

ii. Brown sought to make the promise to pay dependent upon his satisfaction of Fox’s performance.

iii. What has happened in the counteroffer is that we have fixed a time and order, but we have not found an agreement yet.

iv. If Fox says,” I agree” when we have an agreement.

v. If Brown’s statement is construed to mean will pay if he wants to, this would be an illusory promise in which case there would be no K. But ,courts favor reconstruction of events so as to conclude that a K does exist. Courts would impose upon Brown an implied duty to

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exercise his judgment of satisfaction in good faith. Once this is done, they have an executory bilateral K. First, Fox goes first to perform. This is an express condition precedent to allocate all of the risks to Fox – Fox pays first. Brown then pays if and only if he is satisfied with the work. Because Fox is in a vulnerable posture, whenever the K requires me to perform first and your personal satisfaction is my adversary in transaction before maturing your liability to pay me… Common law rule: subject matter = condition of satisfaction is not personal, then level of performance to perform first, which would gratify a reasonable person’s expectations, would satisfy condition of satisfaction, even if that particular Brown says he is not satisfied.

vi. If performance is dominated by qualities of taste or aesthetics, performance is of a personal nature.

vii. If performance is dominated by utility and function, we can objectively look at it, this is a nonpersonal subject matter. Painting of the outside of house = nonpersonal subject matter. Level of expectation of reasonable person removes condition precedent.

b. Impact of condition is that it will discharge and extinguish what had been until that moment in time been a fully matured condition to perform.

i. Condition subsequent.IV. If duty is not being performed, we are apt to conclude that the party is in breach. But, has

the K party been excused? Doctrine of excusable nonperformancea. Refusal or defective performance is not actionable.b. Refusal to perform is a privilege.c. Ask:

V. If no doctrine of excusable nonperformance rescues party, then his failure, refusal, or defective performance is a breach of the contract. Breach and remedial consequences.

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PMBR CD #6

I. Condition of satisfactiona. Can be condition of designated third party as condition of satisfaction.b. Ex: We have the builder and the homeowner. The builder, under the terms of the K,

was to go with the monthly construction of the home in monthly installments. The builder went first to perform. The builder was to be paid in cost of materials incurred provided that architect issued a certificate stating that the home complied to architectural plans and specifications. Whole point of this was to shift the risk of defective or deficient work to the builder and to shift the risk so that the homeowner has no liability to pay until this designated third party exercises his judgment. The condition was satisfied. The architect issued her certificate, but if she refused, no liability on part of homeowner to make installment payment. He had no liability to make that payment unless there had been an issuance of the certificate and until that happened, he was not liable.

i. Evidence illegally irrelevant that other architects come in and think it’s up to standards b/c it’s no the designated third party architect.

c. A party can be in bad faith on grounds that do not involve any demonstration on the level of motive. The architect would be in bad faith if the reason why she refused to issue the certificate was for any reason other than her professional assessment of the builder’s work.

i. Condition is excused. Homeowner is instantly liable for the contract price.II. Conditions that are concurrent

a. Almost invariably, a condition which is concurrent in its nature is constructed (i.e., implied at law) in its origin. Rarely will you find express conditions concurrent.

b. Used to regulate time and performance where the traders have not yet spoken in that final agenda in forming the terms of their final bargain.

c. If A and B, Fox and Brown, form an executory bilateral K and then say nothing from which we can derive a conclusion as to who was to perform first, we could not determine who was in breach unless the law fixes a time schedule as to their performance.

i. We ask: are the performance obligations of both parties physically capable of being rendered in the same time and same place? If they are mutual tenders (willing to perform right here and right now) are required as constructive conditions concurrent.

1. If Brown does not manifest that she, too, is ready, willing, and able to perform, Brown is the party in breach and the appropriate target for breach and remedy.

III. Condition subsequenta. Effect is that it will discharge or distinguish what had been up to that moment begun as

a state of present liability to perform.b. Destruction to perform otherwise mature duties is a condition subsequent.c. Matters of affirmative defense.

i. Enters only if D pleads existence of condition subsequent and that it’s been triggered to extinguish the liability that otherwise existed.

ii. D bears burden of proof and burden to preponderate on existence of triggering any condition subsequent.

d. Promises modified

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e. Conditions according to their Origini. Express conditions

1. Created by very language of the bargain.2. Ex: I will pay provided I am satisfied with your work is an express

condition – the condition that I am liable unless you attempt to make an assignment of the right to receive my performance – is an express condition.

ii. Conditions implied in law or fact1. Arise by inference of what traders reasonably assumed on the day their

formed the bargain.2. Implied in fact

a. Protect reasonable moral and physical expectations of the parties to the K

b. They are never stated in so many words, but are derived from the reasonable assumption of Fox and Brown on the day they entered into the K.

c. Ex: Fox the housepainter; Brown the homeowner. There is an implied in fact condition that on the day Fox shows up to attempt the performance, Brown will allow him on the property and also that on that day, Brown will have a physical dwelling standing. Ex: If Brown’s house should burn to the ground the night before so that a physical condition is necessary for Fox to paint the house…failure of Fox to paint the house isn’t a breach of K. Fox’s duty was protected by these implied conditions – implied in fact. Merely finding the express conditions don’t just satisfy the matter – instead, implied conditions must also be met.

d. Ex: Fox is a wholesaler of citrus fruit. Brown has a chain of retail grocery stores in S. California and has warehouse facility in the Valley. Under the terms of the K, Fox is to deliver 100,000 cases of oranges to Brown’s Valley warehouse on or before February 3rd. Upon delivery, Brown is obligated to pay for them at a rate of $1.50 per case. The phrase of “and upon delivery” settles who goes first. Fox goes first. Brown pays second. On the morning of February 3rd, trucks set up from Brown’s facilities 200 miles north of here to the warehouse containing goods. When they arrive, the trucks are refused by Brown. The truck drivers are unable to unload the citrus fruit. Goods are never delivered. Date of performance has come and gone. Failure of implied in fact condition. When the physical loading conditions are reasonably assumed or denied, the liability of the seller never matured. Brown is in material breach of the K. Under the UCC, there is an implied covenant that I will cooperate in good faith in bring about the commercial objective of our bargain…when Brown deliberately withheld the availability of the offloading facilities, he breached the implied covenant of good faith dealing.

3. Implied in lawa. Constructive conditionsb. If you can’t find in the express terms of the bargain that the

parties fixed the time and order of performance, we would be in a situation that tormented c/l courts for a number of years. Fox

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promises the cow; Brown promises to pay 10 pounds. Fox never promises the cow; Brown never tenders the money. Each has a cause of action against the other for breach of contract. One judge invented constructive conditions (we have never gone beyond them) which function only if the parties have failed to fix an order for carrying out the terms of their bargain, relating to the physical order in which their respective performances are capable of being rendered:

i. If, in the physical order, performances of both parties are capable of being rendered at the same time and in the same place, then mutual tenders by each party are required as constructive conditions concurrent.

1. It is possible for Fox to tender the cow as the buyer Brown to tender the purchase price of $10.

ii. If, in the physical order, performance of one of the parties will take time or must be accomplished in stages whereas the performance of the other party may be performed at a moment in time in place, then performance by the party that will take time is a constructive condition precedent, maturing the liability of the other party that can perform the K at the time and place.

1. The person that can perform in stages – 1st in time. Person that can perform at a moment in time, can perform it 2nd.

iii. If the terms of the K set a date certain for performance by one of the parties, say nothing for regard to time to other party, then the party whose performance is fixed to the date certain must be performed to constructive condition precedent for the maturing liability of the trader.

4. Constructive conditions may be satisfied by a level of substantial performance (implied by law), this is sufficient to mature the liability of the party that is privileged to go 2nd.

a. Substantial performance is a level of performance which, given the expectations of a reasonable person, has fundamentally accomplished the objectives of the transaction, though it may be flawed as to quantity or quality…

5. But if the condition is a true condition, an express condition, then only literal satisfaction will mature the liability of the other party.

6. If there is an express condition, it is purely a matter of fact – I either was or was not satisfied with the likeness; the architect did or did not grant the certificate.

a. Suppose, you found an express condition. It is a condition precedent (or rarely, a condition concurrent in its nature) and it has not in fact been satisfied. Before you come to the conclusion that the party is not liable to perform that her refusal is a matter of privilege not breach, ask: has the condition been excused?

i. Excuse is as functional as literal satisfaction as a means of removing a condition precedent or subsequent, or disabling the operating of a condition subsequent.

IV. Condition precedent

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a. P has burden of proof to prove that all conditions have been satisfied or excused so as to mature and to render a present duty to perform, the covenant of the D she claims was breached.

V. Common law doctrinesa. Excuse may remove a condition precedent or concurrent as a barrier of present liability

upon what happened a dependent promise, or to disable a condition subsequent to prevent the party of having such an arrangement from being to claim that he has been discharged.

b. Doctrine of excuse:i. Doctrine of intervention

1. Any active intermeddling by a party having the protection of a condition which has objective of making more difficult or impossible to satisfy the condition, excuses the performance of the condition of prevention. Dependent promise becomes a matter of immediate liability at peril of breach.

c. Waiver is a voluntary relinquishment of a known and appreciated right.i. Accidental waiver – contradiction in terms.

ii. Common law:1. Once a K provision is waived, it is gone forever. It cannot be

unilaterally claimed by the party who has waived it.2. Waiver can be as to conditions and as to covenants.3. Waiver can be express or implied (by my behavior).4. Clark v. West

a. West is West Publishing Company.b. Clark was a professor of law.c. K involved arrangement between Professor Clark and West

Publishing under the terms of which Clark would offer the very first hornbook called Clark on Corporations.

d. Some elements of risk and West knew about it.e. West promised to pay Clark $10 per page of acceptable

manuscript (this is an express condition precedent of satisfaction).

i. Probably subject matter personal in nature since West has a high standard of high quality legal publications.

f. West was aware that Clark was an alcoholic.g. If during the life of the K, if Clark was to take a drink, the K

would be terminated.i. Express condition precedent discharges the liability.

ii. Executory bilateral K.h. Clark sent off the text of Chapter 1.i. West wrote a letter to him and they were very pleased with this.j. Clark had a drink, West didn’t know of this.k. Clark then sent off the text of Chapter 2.l. Clark had not yet heard from West. When he arrived in Chicago

to attend the Annual Association of American Law School convention held at the Edgewater Beach Hotel, Clark is in the lobby, greeting colleagues he has not seen in a number of years. The President of West Publishing is here and he said: Fred, I’m delighted to respond about Chapter 2 – he said you truly outdid yourself.

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m. For the next 3 days, Clark really got drunk.n. President of West said that he saw Clark drunk.o. The Convention went home and Clark went home.p. Clark wrote Chapter 3 and sent it off. West accepted Chapter 3

without a murmur of protest.q. Clark then sends off Chapter 4; within a matter of a week, an

unopened parcel of Chapter 4 is returned and the President of West says that b/c of the terms of the K and b/c Clark was drunk (i.e., above), he would not evaluate Chapter 4.

r. Clark took another drink and sued West for declaratory judgment. West was not free and clear of their obligation to evaluate Chapter 4 for its content.

s. Clark’s theory was one of waiver.t. Clark won.u. Court said: voluntary relinquishment – waiver. But, a party can

be shown to waive by way of deeds. Court said that b/c of conscious knowledge of Clark getting drunk, a few months later, it accepted Chapter 3 later, it waived the contractual condition (i.e., Clark shouldn’t get drunk). Since no statement was made of limitation (saying we’ll let you slide just this one), there was a general waiver.

v. Whenever a party acts in a manner inconsistent with condition either by express words or deeds, he is in peril of having waived the condition.

d. Estoppeli. I, who have the advantage of a condition, create an appearance which could be

deliberate, but is generally inadvertent. I would not insist upon the satisfaction of the condition…the party burdened by the condition fails to satisfy it. Suddenly, I reveal my true nature and say I am not liable. I am actually estopped.

ii. Equitable estoppel from hiding behind the condition.1. Ex: When they greeted each other at the Edgewater Hotel and the

President of West says, Clark let me buy you a drink and Clark had a cocktail, West would be estopped from citing that episode as triggering that condition subsequent.

2. If the appearance is lifted, and the position of the party who has the benefit of the condition…before the other party has changed in position, the potential for estoppel is also lifted.

a. Ex: If President of West subsequently then turned to Clark and said I’m embarrassed…you should prefer water, not alcohol… Clark would say, no, I’d prefer a martini, he would drink the alcohol in peril, triggering the condition.

e. Any active intermeddling designed to make fulfilling of condition more difficult, the condition is excused.

VI. Excuse predicated upon the threat or actuality of a breach of conditional obligationa. 3 fact patterns – knowledge of impact of threatened loss :

i. Excuse of conditions via anticipatory repudiation1. Ex: Remedy at law and in equity. 2. Alternative: electing to affirm the contract, announcing that you can’t

believe that XXX could be so base and you’re demanding that he stand

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according to the terms of the K and you’re awaiting his due-dated performance.

3. Elements:a. There must be a communication from me to you.b. There must be a definite, defiant, unyielding renunciation of

fidelity to the K.4. Consequence of anticipatory repudiation:

a. Since you have duties of your own that lie in the future, you have an election of responses:

i. You may treat this as a present material breach of the contract and bring an immediate cause of action. If you do, my obligation is accelerated from the conditional date of the First of June and regarded by the law as a present, fully matured and unconditional obligation which I breached on the 20th of January. All of your covenants, your promises, etc., are discharged.

ii. You can also affirm the K in the face of the anticipatory breach. You could, the following morning, send me the following message: I insist you abide by the terms of the K.

1. Consequence: immediately, all of your covenants are suspended until we find out what happens in the wake of your insistence that I repent.

2. If, on the First of February, the date fixed for your initial trip to Davis and initial payment and you have not heard from me, then the covenant is discharged and the condition is excused.

3. If, on February 5th, I send you a registered letter saying that I have decided to renounce James Hogan and all of his proposals…I will abide by the terms of our contract. This would be repenting on my part. Now, all of the terms of our K which lie in the future as of the 5th of February are revived, both as conditions and as covenants. If I repent, you better keep the next appointment with me b/c you have obligation to make installment payment in acquisition of Scruboak Manor. If you don’t, this is breach.

ii. Excuse of conditions where the breach is via voluntary disablement1. Majority of jurisdictions: you’re required to bring an immediate cause of

action.2. Voluntary disablement accelerates future conditional obligation to the

date on which I conveyed the title disabling me to Hogan.a. When I didn’t do it, I’m in present material breach of the K. All

of your covenants, promises of payment are discharged. Conditions precedent to my liability are excused.

3. Majority: a. Can’t reinstate terms of K by effectively reacquiring title of

Hogan.

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b. K is broken. You have immediate covenants against me – all of your covenants are discharged and conditions are excused.

4. Minority: a. Works just like a repentance of anticipatory repudiation.

iii. Article 2 of UCC.1. Excuse premised upon failure to give adequate assurances of

performance.

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PMBR CD #7

I. Breach of K by failure to provide adequate assurances of performance (UCC)a. If you enter into a transaction with a merchant (a merchant seller) and at some point in

the formation, you develop reasonable insecurity regarding the perspective ability or willingness of the merchant to perform, then you may make a written demand of adequate assurances for performance and unless the merchant upon whom you’ve made this written demand reacts within a commercial reasonable time to give you adequate assurance, you may treat his silence as a present breach of the K. (doctrine of adequate assurances)

i. The demand must be in writing (an oral demand via telephone won’t suffice).ii. The moment you make the written demand, all of your performance obligations,

both with covenants and conditions, are suspended while you await the response of the other party.

iii. If you never receive the adequate assurances, any conditions that have protected the merchant are excused.

iv. Upon expiration of reasonable period of giving us assurance, she is in present material breach of the K; your covenants are all discharged and the conditions are all excused.

v. There must be a response within a reasonable time.1. If there is a response, then all of the suspend terms are revised both as

conditions and covenants and the deal is on.II. Doctrine of excusable nonperformance

a. Impossibilityi. Objective impossibility.

ii. If subsequent to the formation of the bargain, either physical or legal barriers arise so as to render the obligor’s promised performance objectively impossible, such an obligor is excused by operation of law.

1. Critical factor: the performance must be objectively impossible.a. Given the circumstances as they have changed subsequent to

formation of bargain, not only must promisor be unable to perform, but there must be no person on the earth that can carry out the act. But, if I cannot perform, but someone else could, this is subjective impossibility and this is no excuse at all.

b. Ex: Obligation that has become objectively impossible. Fox was a housepainter by profession. He agreed to paint the interior of Brown’s spouse. He’s midway through the work and Brown’s house is destroyed by fire. This destruction would discharge the obligation of Fox to do the painting. Fox could not do the painting (pile of rubble), but there is no one on the face of the earth that could give a pile of ashes a coat of paint.

b. Impracticabilityi. Commercial impracticability (economics)

ii. A thing is impracticable when it cannot be accomplished except by an expenditure grossly disproportionate to the agreed upon exchange.

1. I’m not claiming I can’t do it, but to do it would cost me so much more than either you or I anticipated at the transaction date, but it’s intrinsically unfair to hold me to my promises.

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2. Excuse : necessary for me to show that the factors that have arises subsequent to formation was not foreseen by either you or me at the formation stage.

a. Old common law : Must not have been unforeseen to the parties + must have been unforeseeable to a reasonable person as well.

b. UCC : More relaxed rule; sufficient if I can prove that neither you or I could anticipate these after arising factors.

c. Under this doctrine, I am legally privileged not to perform.c. Frustration of purpose

i. Subsequent to formation of our bargain, circumstances have so dramatically changed that your performance is no longer of any value or utility to me.

ii. I ask from being excused from performing my promise to you, claiming frustration.

d. Summation of these doctrines (doctrine of excusable nonperformance):i. If it’s impossible, it can’t be done.

ii. If it’s impracticable, it now costs too much to do it.iii. If it’s frustrated, it’s no longer worth the original cost.

III. Breach of contracta. A party to a K who had a fully matured obligation has either failed to perform, refused

to perform, or has defectively performed.b. Two critical things:

i. Q: What is the impact of the breach upon the affirmative duties of the aggrieved party?

ii. Q: Remedial rights that accrue to the aggrieved party?c. First, do a major analysis of the breach being material, going to the very essence of the

expectation of the aggrieved party, or being minor. (essay or multistate)i. If the breach is material, it goes to the very essence of the bargain.

ii. If the breach is minor, it is impaired bargain only in some insignificant sense with respect to quality or quantity or in some inconsequential manner, with respect to time.

d. Essay:i. Write out what would be the commercially reasonable expectations of aggrieved

party arising out of this bargain.ii. State what appear to be the consequences of the breach.

e. If the breach is material, the K is dead for all purposes, other than for ascertaining an appropriate remedy.

i. Aggrieved party has immediate cause of action for monetary damages aimed to put her in the position she would have occupied had there been performance and not breach.

1. If this cannot be done, aggrieved party has standing to sue in equity.ii. Because the breach is material, aggrieved party must forego all duties he had to

perform in the future.iii. Aggrieved party – new behavior to try to mitigate the damages.iv. Aggrieved party then looks to remedies.

f. If the breach is minor only, the aggrieved party must go ahead and perform her own K duties.

i. Damage remedy: make her whole for any loss which she can prove.ii. If I wrongly decide to abandon the K thinking that the other party has materially

breached, there will be someone in material breach – me.

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iii. We therefore must be very certain that the breach is material before we abandon the K other than for mitigating the damages and seeking appropriate remedy.

g. Affirmative duties of the aggrieved party:i. If the aggrieved party is faced with material breach, he must abandon all effort

to perform the K (common law doctrine) and embark on a new course of behavior to mitigate loss (avoid any avoidable elements of loss). (common law rule)

1. This is what you use if the subject matter does not fall within UCC Article 2 (i.e., purchase for sale of goods).

2. This is apt to use for personal services (common law rule).3. If the K is unique almost impossible to mitigate damages b/c there’s

simply nothing I could do.ii. Ex: K between a seller and a buyer. Both are merchants. The subject matter of

their contract is 100,000 cases of navel oranges. The K price is $3 per case. Under the terms of the K, the seller is to deliver the goods at the buyer’s warehouse on or before the 10th of June. This is the executory bilateral K laid out last week of May. On the morning of June 8th, the seller places in motion 3 large trucks loaded with 100,00 cases, each case labeled as containing navel oranges. That afternoon, they arrive at buyer’s place of business, which amounts to a tender of performance by the seller.

1. First affirmative duty of the buyer?a. Under the UCC, it’s to inspect the goods for conformity.b. Code says that the buyer must conduct a prompt inspection of the

goods tendered by the seller.c. What if the buyer does not promptly inspect these? Then the

goods are to be received and are to be paid at the contract price no matter what is in those boxes. (This is why there is a duty).

d. Code doesn’t say what is prompt – it would be governed by nature of the subject matter. Here, perishable food would suggest that prompt is quick along with standard customs in the trade.

e. 99,900 cases contain navel oranges and 100 cases contain lemons after the buyer’s inspection on June 9th.

i. Nonconformity is discovered.2. Next affirmative obligation of the buyer that is now an aggrieved buyer -

-didn’t’ get what she ordered (100,000 cases of navel oranges).a. She (buyer) is to give prompt and specific notice to the seller of

the alleged nonconformance.i. The failure to give notice amounts to the waiver of the

nonconformity leading to the conclusion that the buyer is obligated to pay for the goods as tendered at the contract price.

b. Suppose a prompt and specific notice is given to the seller on June 9th and she says specifically, 100 cases do not comply with K specification – they contain lemons instead of oranges.

i. UCC says that the aggrieved seller may now take advantage of the perfect tender doctrine, which permits the seller to reject the buyer’s tender of the goods for any nonconformity.

1. The seller has an election among 3 alternatives:

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a. She may reject all of the goods (both the conforming oranges and nonconforming lemons).

b. She may elect to accept the goods that conform to the K description, while limiting her rejection to the nonconforming lemons.

i. I must pay you for goods I have accepted at the contract price.

c. The aggrieved seller may elect to waive the nonconformity and to accept the tender as is, with the knowledge of the nonconformity. ** (a lot of merchants choose this b/c merchants usually don’t want to litigate).

i. I pay the full K price, treating the lemons as if they were oranges.

ii. June 9th: Inspection, prompt and specific notice, election under doctrine of perfect tender.

1. But, the original term of the K had given the seller until the 10th of June – the seller tendered his performance 2 days ahead of that deadline on the 8th notwithstanding an election to reject goods under the perfect tender doctrine. If time remains for the seller’s performance under the terms of the K, then the next affirmative duty of the aggrieved buyer is to cooperate if any chure effort on the part of the seller.

a. Under our fact pattern, 24 full hours remain. If, when given prompt and specific notice on June 9th of the nonconformity, seller announces proposal to cure the matter by replacing nonconforming lemons with conforming oranges, then aggrieved buyer must cooperate in that effort. If in the time allowed, the seller manages to replace nonconforming lemons with oranges, then it is academic as to whether anyone was in breach b/c the breach has been cured and the buyer is under obligation to pay the full K price. (UCC).

b. If the buyer notifies seller of nonconformity and the seller acts in good faith by claiming surprise – seller is surprised that his goods are nonconforming. If the guy says: I’ve never had mislabeled fruit, the Code’s interest in healing this rift…requires as an affirmative duty to help cure the breach, buyer has to

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accommodate seller with a reasonable amount of time to cure the breach. Seller says give me a day and a half and I can give you the conforming goods from my warehouse in Fresno.

c. Buyer is supposed to cooperate, but shouldn’t sacrifice her own interests to the potentially defaulting buyer. But here, I’ve already got 99.99% of the goods. It would be very unlikely that granting the seller 1.5 days would be prejudicial to the aggrieved buyer’s interest. So, there would be the obligation of the buyer to grant the extension of time. If the goods are delivered within the extension of time, the breach has been healed.

d. Aggrieved buyer after the breach has been cured pays the full K price.

2. Ex: Suppose I call the seller on June 9th and says he has no intention to cure the defective shipment.

a. No cure obtained from defaulting seller, nonconforming goods = breach under the UCC, seller is in breach of the K.

b. Affirmative obligations of the aggrieved buyer:

i. I have to follow any instructions of the defaulting seller with regard to the disposition of the goods that I am rejecting under the perfect tender doctrine. I have to ask the seller what to do with the goods I’m rejecting. I must, at my own expense, follow any reasonable terms. Ex: Seller tells me to store nonconforming goods in cold storage area in LA at my own expense, I have to do this.

ii. Suppose I seek instructions, though, and he refuses to give them – my affirmative obligation is to recognize that whatever I’m rejecting under the perfect tender doctrine have no use to me, but are economically valuable to society (also valuable because it’s food)…in this case, I must use self-help to preserve the goods that I am rejecting. Q: How can I conserve the commercial value of the subject matter? Given the perishable

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nature of the subject matter and the fact that I have rejected the noncoforming goods, I have 2 needs: 1) get rid of nonconforming goods I’m reject and 2) get goods that conform to the K specification. No court can accomplish any aspect of this. I have to go to the produce market as a seller of lemons and a buyer of oranges. I now resell the lemons and form what is called in the Code a cover contract for oranges. I had a bulk price (100,000). I go to the produce market for bulk oranges -- $2 per case, 100 cases -- $200 in consequential damages. Any expenses I went through to in preserving nonconforming lemons and hauling to the produce market and the cost of the cover contract, incidental losses to the aggrieved buyer. Ex: $50 to aggrieved buyer; have $200 in consequential damages = $250 total. But, I now sell the nonconforming lemons – I get $300 for the 100 cases. What do I do? I now have exactly the benefit of my bargain. I have 100,000 navel oranges b/c I picked up the missing 100; I have faithfully disposed the nonconforming lemons, I deduct from the proceeds of the lemons the $300 and I send a check for $50 to the defaulting seller (losses were $250). The affirmative obligations of the buyer under the UCC.

iii. Obligations of an aggrieved seller1. Suppose entering into this K in late May, the buyer calls the seller and

says I can’t keep the 100,000 cases—no deal. This is a breach of K. Seller is in possession of the property.

a. Benefit of seller’s K: turn 100,000 cases into money.b. Aggrieved seller goes to the marketplace and resells the goods.

Any difference contract K and the fruits of the resell opportunity fixes the measure of her loss of bargain recovery. If there are additional items of expense, as there would be, in selling the goods, these are incidental damages.

c. Any commercially reasonable resale arrangement will be respected by the law.

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i. Mitigate your damages .IV. Remedies

a. (Also review PMBR Outline – Remedies).b. Award of money damages taxed against party in breach and given to the party who is

aggrieved.c. Damages range from the functional equivalent to performance to loss of recovery of

money damages to nominal damages.d. Loss of measure of money damages is that sum of money insofar as money

approximated puts aggrieved party in position she would have occupied had there been full and timely performance and not breach. (expectation interest – can’t get this in quasi-contract or promissory estoppel; this requires the finding of a contract).

e. Recovery of damages; P has to prove that the damages she alleges were consequential upon the breach.

i. This is a matter of cause and effect – must prove a direct cause and effect between D’s breach and P’s alleged loss.

ii. Any expenses which the P had incurred in obtaining and forming the K may not be recovered. These are not consequential the breach.

iii. Of the damages proven to be consequential upon the D’s breach, P may recover only for items of loss or injury foreseeable at the formation stage of the bargain.

iv. Hadley v. Baxendale:1. D liable to pay only to pay those damages as the reasonable person

situated as he was on the day of the agreement of the K and familiar with the terms of the K might have foreseen the probable, not inevitable, consequences of breach.

v. General Damages -- those losses generally foreseeable vs. losses especially foreseeable.

vi. Special damages – special damages which reasonable person plus disclosed special needs or special circumstances – might have seen had he stopped to think about it – would have foreseen probable consequences of breach.

vii. Loss unavoidable given reasonable efforts to mitigate damages may be recovered.

viii. You have to prove your losses to a certain dollar amount.f. P must prove a certain dollar amount for monetary damages. P must prove damages by

a preponderance of the evidence. If P can’t (or establish any of the above hurdles), you walk away with the $1 in nominal damages –inadequate remedy at law; standing to sue in equity. Prayer to addressed to the sound discretion of the court (no right for equitable relief). If court in equity declines to grant you any assistance…then you go back to the court of law. If aggrieved party has bestowed any part performance upon the defaulting party prior to his breach, she can recover at the minimum the market value for the performance in a quasi-contract, or she can waive the K and sue on the tort (waiving pursuing this under theory of K; if you have substantial expenses incurred in detrimental reliance upon the promise that has now been broken, you can pursue a remedy seeking a protection of your reliance interest measured by your out of pocket losses based on a theory of promissory estoppel).

g. If you put a stipulated remedies provision, the court will scrutinize it and categorize it as a penalty clause in which case it would be void as being contrary to public policy; small chance it would be accepted and respected as a bound, liquidated damages clause.

i. Enhancing chances clause will survive:1. At formation stage of bargain when parties are exchanging promises,

they must have looked down the road and anticipated the circumstances

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of a breach and foreseen in those circumstances that the damage remedy at law would not likely function perhaps because the damages could not be reckoned to a certain dollar amount and acting on their mutual recognition that the damage remedy at law would not function, they have adopted as a consequence of breach a stipulated remedy which has as its objective remedying the wrong, the loss, sustained by the aggrieved party.

a. What is not permitted is to build into the K a deterrent against breach.

b. Whatever you adopt as the stipulated consequence must be remedial in nature, not deterrent in nature.

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