Bobby’s Contracts Outline – Fall 2008 and Spring 2009

Types of Contracts

Bilateral ContractsOne consisting of the exchange of mutual promises, i.e., a promise for a promise.

Unilateral ContractsOne in which the offer requested performance rather than a promise. Typically, once the performance is completed, the contract is completed and the promisee must pay.

MODERN VIEW

1) Acceptance by Promise or Start of Performancea. All offers may be accepted by promising or by performing, unless clearly indicated otherwise by

the language or circumstances. i. An offer that is accepted by the beginning of performance constitutes a bilateral contract.

2) Unilateral Contracts Limited to two circumstancesa. Where the offeror clearly (unambiguously) indicates that completion of performance is the only

manner of acceptanceb. Where there is an offer to the public, such as reward offer, which so clearly contemplates

acceptance by performance rather than a promise, that only the performance requested in the offer will manifest acceptance

3) Test for Determining Bilateral v. Unilateral a. If each party has a right and a duty – BILATERALb. If one party has a right and the other party only has a duty – UNILATERAL

OBJECTIVE THEORY OF CONTRACTSIntentions are judged by an objective standard of what a reasonable person standing in the shoes of the addressee would conclude them to mean. Subjective intentions do not count. [Work’s Language]: The meaning of a communication depends on what it reasonably means to the one receiving the communication

For the exchange to be an offer, it must create reasonable expectations in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.

Analyze the situation from the reasonable person on the receiving end of the purported offer.

Embry v. Hargadine, McKittrick Co: Embry demanded his boss renew his employment contract or he would quit. Boss said, “That’s okay. You’re alright. Go ahead and get your men out.” Held: Boss had objectively manifested assent, even if that had not been his intention. A “reasonable person” would see it this way. “Reasonableness” was decided as a matter of law.

Condition of Parties Dead people can’t enter into contracts To constitute an offer, the offeree must voluntarily assent to the actions that construe the offer.

Moosehead hypo: If you wave Work’s hand for him while he’s asleep, there is no assent. There can be no assent where the party was a “mere mechanical instrument.”

Voluntary intoxication is not enough to create a lack of capacity.o Voluntary intoxication would not provide ‘A’ with a defense, but ‘B’ would

nonetheless have no enforceable claim if ‘A’ were so obviously intoxicated that a reasonably prudent person situated as was ‘B’ ought not to have formed expectations based on her statements.

Family and Social Agreementso Generally not enforceable: Typically the law does not enforce casual contracts between close

family members. The presumption is that legal relations were not intended. Tammy v. Works: Work’s deceives his wife by promising to take her to San Francisco if

she coaches the little league team. Whether there’s a contract depends on how explicitly both parties make clear their intention to be legally bound.

o When can a contract between family members be valid? Look at the context of the relationship, the social nature, and the complexity of the

contract. Works v. Abby: Works and Abby split up, meet in a concourse of the Chicago airport and

divide their belongings. This may be enforceable, because the less amicable the relationship, the more likely the K will be enforced

MUTUAL ASSENT – Offer & Acceptance

The OfferAn offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. For a communication to be an offer, it must create real and reasonable expectations in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.

Offer Defined [R2K § 24] An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

Objective Test: An offer is genuine if the Offeror creates in the offeree the real and reasonable belief that the Offeree could conclude the bargain merely by accepting.

Offers and Counteroffers are Effective on receipt

DEFINITENESS OF TERMSRequirement of definiteness: Offers must be sufficiently definite to be valid. Otherwise, it is difficult to determine what the terms of the K are and whether or not a breach occurred. However, if both parties expressed a willingness to be bound, the courts usually hold that there was a K and do their best to reconstruct the terms.

§ 33 Certainty(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so

as to form a contract unless the terms of the contract are reasonably certain.(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a

breach and for giving an appropriate remedy. (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a

manifestation of intention is not intended to be understood as an offer or as an acceptance.

§ 2-204. Formation in General(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by

both parties which recognizes the existence of such a contract.(2) An agreement to constitute a contract for sale may be found even though the moment of its making is

undetermined.(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties

have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

ADVERTISMENTSRule: Advertisements are generally not treated as offers. Advertisements are generally seen as invitations to treat. Conditions under which Advertisements can be treated as offers:

Where the advertisement is clear, definite and explicit, and leaves nothing open for negotiation…it constitutes an offer.

Look for words of commitment o Ex: 100 men’s jackets at $26 apiece, first come first served starting Saturday – is so specific that

it probably is an offer

o Ex: Send 3 box tops plus $1.95 for your free cotton T-shirt—is an offer b/c the advertiser is committing himself to take certain action in response to the consumer’s action.

Look for words of specificity. Ads can be offers if they are specific enough and invite the Offeree to take specific action in order to accept. They also need to imply that there is a specific quantity available for sale. Language that does this:

o Subject to prior sale, first come first served, while supplies last…

§ 26 comment Advertising: “It is possible to make an offer by advertisement to the general public, but there must be some language of commitment or some invitation to take action without further communication.”

Lefkowitz v. Great Minneapolis Surplus Store: Ad was specific as to price and quantity of coats available to be sold and said “first come first served” which specified mode of acceptance. This was held to be an offer.

Leonard v. Pepsi Co: The Harrier Jet TV ad did not constitute an offer since the TV ad was not sufficiently definite, as it reserved the details of the offer to a separate writing; and was made in jest.

Offer made in JestRule: An offer which the offeree knows or should have known is made in jest is not a valid offer, and even if it is purportedly “accepted,” no contract is created.

Leonard v. Pepsi Co: P should have know that D’s TV ad purporting to offer a $23 million Harrier Jet for $700,000 worth of “Pepsi Points” was a joke, and thus not a valid offer.

RewardsAn offer that can be accepted by performance only.

Soapy car hypo: Works promises to pay the first person who finds the soaping car culprit. Have to accept by performance, promise not enough

AcceptanceThe offeror is the “Master of the Offer” and, as such, has the power to specify all the terms of the offer. If a particular term is not specified, then we gap fill.

Offeror creates the power of acceptance only in the person(s) he invites to accept. Offeror may specify Permissible Modes of Acceptance (PMA)

ASK: Is there an offer? Second question: What are the PMA’s?* If the offer doesn’t explicitly state the PMOA, then it is possible to accept by performance or promise.

R2K § 50 Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise(Not Good Law)

(1) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offeror.

(2) Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise.

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

Commencing Performance First Restatement: commencing performance could operate as a return promise if the offeror learned

what the offeree was doing and should reasonably have understood that to mean that the offeree was undertaking to complete performance.

Second Restatement: commencing performance can operate as acceptance even if the offeror does not know what the offeree was doing unless the offeree has reason to know the offeror will not learn of the commencing of performance.

Offeror Specifies ACCEPTANCE by Performance OnlyR2K § 45 Option Created by Part Performance or Tender

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

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

Comment f: Preparations for Performance. What is begun or tendered must be part of the actual performance invited in order to preclude revocation under this section. Beginning preparations, though they may be essential to carrying out the contract or to accepting the offer, is not enough.

Irrevocable once performance has commenced [§ 45] Mere preparations or detrimental reliance do not count as commencing performance. Section § 45 provides less than full promissory estoppel Implied in law option not available where acceptance by return promise is available

What constitutes “beginning performance”: Commencing performance happens when some benefit is conferred to the other side. [Make sure you say what the “benefit” was.]

Arguably § 87(2) is broad enough to reach [an offer specifying performance as the PMOA] but we should be skeptical about whether it would be applied.”

o § 87(2): “ An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.”

Chicken walking HYPO: Going to Hastings to buy the chicken is not enough to create the option contract. Actually taking a few steps with the chicken on you head is enough to create the Option contract.

R2K § 54 Acceptance by Performance; Necessity of Notification to Offeror(Bad Law)

(1) Where an offer invites offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification.

(2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless

a. The offeree exercises reasonable diligence to notify the offeror of acceptance, orb. The offeror learns of the performance within a reasonable time, orc. The offer indicates that notification of acceptance is not required.

Why a lawyer should care about whether someone has “commenced performance”: 1) The offer may make the commencement of performance a PMOA, either explicitly (Ever-Tite) or

through gap filler [2-206(1)(b)], so that commencing performance is acceptance of the offer. 2) The offer may make performance the only PMOA, so that commencing performance will trigger an

implied in law contract under § 45. 3) The offer may permit acceptance by promise, and commencing performance may operate as a return

promise if:o a) it is known to the offeror and reasonably could be understood that way by the offeror

(Restatement First), oro b) the offeree has no reason to know that the offeror will not receive notice of the

commencement of performance (Restatement Second).

Offeror is unclear whether offeree can ACCEPT via promise or performanceIf offeror didn’t specify PMOA and it’s not clearly performance only or promise only, then either is acceptable [2-206 & § 32]

§ 32 Invitation of Promise of PerformanceIn case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.

§ 2-206. Offer and Acceptance in Formation of Contract[Acceptance by Prompt Shipment] (Limited to orders for prompt shipment of goods)

(1) Unless otherwise unambiguously indicated by the language or circumstancesa. An offer to make a contract shall be construed as inviting acceptance in any manner an by

any medium reasonable in the circumstances

b. An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

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

(3) A definite and seasonable expression of acceptance in a record operates as an acceptance even if it contains terms additional to or different from the offer.

§ 2-206 Comment 1: Any reasonable manner of acceptance is intended to be regarded as available unless the offer has made quite clear that it will not be acceptable. § 2-206 Comment 2: Either shipment or a prompt promise to ship is made a proper means of acceptance of an offer looking to current shipment.

Denicola v. LL Bean hypo: Denicola orders muck-lucks from LL Bean. LL Bean sent an invitation to treat and he sent them an offer. They can accept by shipping nonconforming goods and it constitutes a K

Offeror says offeree can ACCEPT via promise or performanceR2K § 62 Effective of Performance by Offeree Where Offer Invites Either Performance of Promise

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

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

If the offer permits acceptance by promise, Commencing Performance may operate as a return promise if:

First Restatement: it is known to the Offeror and reasonably could be understood that way to the offeror

Second Restatement: The offeree has no reason to know offeror will not receive notice of the Commencing Performance (§ 62)

o § 45 has much greater status as a restatement of the law than § 62 does.

Ever-Tite Roofing Corp. v. Green: Roofers showed up to do work in another town and it was being done by another crew. Held: Green was in breach because his offer (on Ever-Tite standard form) allowed acceptance via signature of officer or upon commencing performance. Court found performance had commenced when the crew put materials in their truck and drove to the house.

Acceptance by Silence or Exercise of Dominion [Yogurt Hypo]Although the offeree cannot be forced to speak under penalty of having his silence treated as an acceptance, if the offeree silently takes offered benefits, the courts will often find an acceptance. This is especially true if prior

dealings between the parties, or trade practice known to both, create a commercially reasonably expectation by the offeror that silence represents an acceptance. [R2K § 69]

R2K § 69 Acceptance by Silence or Exercise of Dominion(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the

following case only:a. Where an offeree takes the benefit of offered services with reasonable opportunity to reject them

and reason to know that they were offered with the expectation of compensation.b. Where the offeror has stated or given the offeree reason to understand that assent may be

manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer

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

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

**Be careful: Silence is acceptance only if the offeree AT THE TIME intends the silence to operate as acceptance; a later decision will not work.

Yogurt Hypo: What did the person do with the yogurt? Was the offer officious?Works delivered customer’s regular order and also left new yogurt and note saying that he hopes they enjoy this sample offered at $1.50 per pint.

a. IF no acceptance by performance (payment) or by return promise (promise to pay), THENb. not liable unless she “takes benefit of offered services with opportunity to reject, knowing of

expectation of compensation” (eats) or “acts inconsistent with offeror’s ownership of offered property” (spits)

Officious BehaviorRequiring someone to do something they wouldn’t ordinarily do in order to reject (avoid liability)

Like the chickenwalking offer that says, “you may accept by not rejecting this offer before midnight” Works has to INTEND to accept by silence §69(1)(b)

Mailbox Rule Rule: Most courts follow the general rule that the acceptance is effective upon proper dispatch, provided that the mail is properly addressed and stamped, unless:

(1) The offer stipulates that acceptance is not effective until received; or(2) An option contract is involved (acceptance under an option contract is effective only upon receipt [R2K

§ 63(b): “an acceptance under an option contract is not operative until received by the offeror”])

Note: Since in most states a revocation is effective only upon receipt, under the mailbox rule if the offeree dispatches an acceptance before he receives a revocation sent by the offeror, a contract is formed. This is true even though the acceptance is dispatched after the revocation is dispatched and received after the revocation is received.

Option Contracts [R2K § 87(1)] & Firm Offers [UCC § 2-205]R2K § 87 Option Contract

(1) An offer is binding as an option contract if ita. Is in writing and signed by the offeror, recites a purported consideration for the making of the

offer, and proposes an exchange on fair terms within a reasonable time; orb. Is made irrevocable by statute

(2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

An irrevocable offer is commonly an option. (An option is itself a contract, sometimes called an option contract to distinguish it from the main contract to be formed on acceptance to the offer.) Like any other offer, an option imposes no duty on the offeree. The offeree has unfettered discretion to accept the offer not.

If no consideration exists, the offeror must be a merchant involved in sale of goods: Merchant status required for a § 2-205 firm offer, but not for the option contemplated by § 87 of R2K based upon recitation of purported consideration in writing signed by the offeror.

o § 2-205 Firm Offer: An offer by a merchant to buy or sell good in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

o Purpose of § 2-205: [Comment 2] To give effect to the deliberate intention of a merchant to make a current firm offer binding.

For non-merchant offerors or non-sale of goods, Option Contract must be supported by consideration—but even nominal consideration is okay: The offeror can make an option contract if the promise not to revoke is supported by consideration. The consideration may consist of promise or performance. Courts have generally tolerated the device of nominal consideration as a means of making an offer irrevocable and, thus, upheld options for which the “peppercorn” is as little as $1. Sham consideration usually not valid. Furthermore, an offer may also be supported consideration other than money.

o R2K § 87: “ An offer is binding as an option contract if it is in writing and signed by the offeror, recited a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time.”

Effects of Firm Offer’s/Option Contract’s Irrevocability If offer is irrevocable, a revocation by the offeror has no effect on the offeree’s power to accept. If the offeror dies or is incapacitated, the option remains. Can accept offer from estate. Offeree’s estate

can accept if he dies. Offeree’s power of acceptance is not terminated by rejection or counteroffer. R2K § 37: …the power of acceptance under an option contract is not terminated by rejection or

counteroffer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty.

Drennan v. Star Paving Co.

o Implied option contracts may be created by detrimental reliance by the offeree if that reliance is substantial and foreseeable.

o 87(2) is arguably broad enough to reach a unilateral contract case but we should be skeptical about whether it would be applied

o Keep Drennan to its facts and maybe to its jurisdiction. This was a case of contractors and sub contractors

o PROBABLY AN ANAMOLY CASE Option contract can be withdrawn if notice reaches the Offeree before the offer does.

Revocation & Rejection

Revocation by OfferorRule: The offeror is free to revoke his offer at any time before it accepted, except in the case of an option contract. Express RejectionCounteroffer as Rejection: A counteroffer is both a rejection of the offeror’s offer, and a new offer by the offeree. Two types

Counteroffer combined with express rejection (Not at that price, but I’ll take it at ___) Acceptance conditional upon additional terms

Effective upon receipt: Revocation not effective until received by other party.

Indirect communication of revocation: If the offeror behaves in a way inconsistent with an intention to enter the contract he has proposed and the offeree learns indirectly that the offeror has taken such an action, there is a revocation, even though the offeror never communicated directly with the offeree.

Where the offeree learns of the offer made to a 3rd party: This is an indirect revocation when the offeree learns of this.

Act not subjectively learned of by the offeree: If the offeror takes an act inconsistent with the outstanding offer (selling land to a 3rd party) and the offeree does not learn of the inconsistent act, his power of acceptance is NOT revoked.

Death or Incapacity of Offeror or Offeree: If either dies or loses legal capacity to enter into a contract, the power to accept is terminated, unless there is an option.

Lost or not-yet-delivered revocation—not effective: If the letter revoking the offer is lost through misdelivery, the revocation never becomes effective.

Exceptions to the general rule allowing revocation: Option contract Firm offers under UCC § 2-205 Irrevocability as the result of the offeree’s part performance or detrimental reliance.

Rejection by OffereeRule: A counteroffer automatically rejects offers, unless there is an option K on the offer.

Not effective until receipt: Counteroffers or rejections not effective until receipt. Must accept within specified or Reasonable time: If he does not then offer expires. What a reasonable

person in the offeree’s position would have assumed. Termination of Offer upon death or Incapacity: Kills offer.

BIDS & BID SHOPPING (Promissory Estoppel in Offer and Acceptance)

R2K § 87 Options Contract (Can be Nominal)(1) An offer is binding as an option contract if it

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

b. Is made irrevocable by statute

(2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

Drennan v. Star Paving Co. Scenario: S (sub-contractor) submits a written offer for paving GC (general contractor). S’s bid is the

lowest, GC relies on it in preparing own bid, and also submits S’s identity as required in the bidding procedure for the general contractor. S then notifies GC that its bid was too low b/c of an error. GC’s bid on the general contract accepted, and S refuses to perform.

Held: B/c GC justifiably and substantially relied upon S’s offer S’s offer was irrevocable until GC had a reasonable chance to notify S of the award and G’s acceptance of S’s bid. Conversely, if GC should have realized, from the low bid that I was probably due to an error, GC’s reliance would not have been “justifiable” and there would have been no recovery.

Drennan marks change from prior law: Older cases would allow promissory estoppel, and justified this by finding no binding promise of an irrevocable offer or consideration.

Some commentators argue Drennan is unfair to sub-contractors: The S is bound but not the GC

OVERVIEW OF BID SHOPPING § 87(2) is promissory estoppel applied to offer/acceptance: Foreseeable detrimental reliance + actual

reliance = temporary irrevocability. (Implied in law option K with reliance as consideration.) Limited to bids between contractors and sub contractors. Abusive GC not protected by Drennan

o GC is not bound under rule so he CAN bid shop, but lose irrevocability o GC has only a reasonable time to accept the S’s offer after award of general contracto If GC submits a counteroffer he doesn’t lose the protection

THIS IS FAR BELOW WHAT IS UNIVERSALLY ACCEPTED

Standard Forms

Invitations to Apply § 211[Often insurance contracts]

THREE APPROACHES TO STANDARD FORMS: All in play, all the time. [small fry hypo]

(1) Steely-Eyed View: Contract is the standard form. Whatever the party signs, the party is bound by those terms.

(2)Doctrine of Reasonable Expectations (DRE) Prong 1: “The objectively reasonable expectations of applicants and intended beneficiaries regarding

the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.

Prong 2: “If the enforcement of a policy provision would defeat the reasonable expectations of the great majority of policyholders to whose claims it is relevant, it will not be enforced even against those who know of its restrictive terms.”

This approach has fallen out of favor, and been abandoned by its original users (CA and ID)

(3) R2K § 211 “Middle Ground” [Standard form Problems Invite you to apply § 211] This is a way of policing against unfair boilerplate terms that are applied to all parties who sign the

Standard Form contract. § 211(1) says when you sign an agreement, you accept all its terms unless something in subsection (3)

gets you out of it. § 211(3) states: “Where the other party has reason to believe that the party manifesting such assent

would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.”

§ 211(2) says all people similarly situated are treated alike, regardless of knowledge or understanding of the writing. [Small Fry Hypo: Works same as other parents, even though he has expertise in contract law.]

o Comment f: not bound to unknown terms which are beyond the range of reasonable expectation.

R2K § 211 Standardized Agreements (1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to

a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.

(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing.

(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

Comment f: Terms Excluded. Although customers typically adhere to standardized agreements and are bound by them without even appearing to know the standard terms in detail, they (customers) are not bound

to unknown terms which are beyond the range of reasonable expectation. A party who adhered to the other party’s standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had know that the agreement contained the particular term. Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances. Reason to believe may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction. The inference is reinforced if the adhering party never had an opportunity to read the term, or if it is illegible or otherwise hidden from view.

Battle of Forms/Written Confirmation [Acceptance form]

Offer at variance from acceptance [§ 2-207]Starting point for Battle of the Forms: “The old common law mirror image rule killed a response with contrary terms. But UCC abolished the common law mirror image rule with 2-207(1). Today most courts would refuse common law rule.

Mirror Image Rule—Old Common Law Rule: The offeree’s response operates as an acceptance only if it is a precise mirror image of the offer, with exceptions of terms which the offer explicitly left open to offeree’s choice. Policy Criticism—Common law rule hindered commercial transactions Favored the “last shot”: Whoever fired the last shot was favored b/c usually after the “counteroffer” was

sent the person would begin performance w/out reading the form.

Functions of § 2-207 To determine whether a contract has been formed at all by the exchange of documents; and If a contract has been formed, to determine what the terms of that contract are.

WHITE: KnockoutSUMMERS: Offeror’s term

UCC § 2-207 Additional Terms in Acceptance of Confirmation(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a

reasonable time operates as an acceptance even though it states terms additional to or different form those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms

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

a. The offer expressly limits acceptance to the terms of the offer;b. They materially alter it; orc. Notification of objection to them has already been given or is given within a reasonable time

after notice of them is received.

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

§ 2-207 Comment 1. This section is intended to deal with two typical situations. One is written confirmation , where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed. The other situation…is the exchange of printed purchase order an acceptance (sometimes called “acknowledgment”) forms. B/c the forms are oriented to the thinking of the respective drafting parties, the terms contained in them often do not correspond. Often the seller’s form contains terms different from or additional to those set forth in the buyer’s form. Nevertheless, the parties proceed with the transaction.

§ 2-207 Comment 3. Whether additional or different terms become part of contract will depend on section (2). If they are not affected by section (2) and if no notice of objection to them has been given or hasn’t been given in a reasonable time, then they become part of the contract.

§ 2-207 Comment 4. Examples of terms that normally would materially alter the contract and so result in surprise or hardship if incorporated without express awareness by the other party are:

a clause negating warranties such as merchantability or fitness for particular purpose in circumstances in which either warranty normally attaches

a clause requiring that complaints be made in time materially shorter than customary or reasonable

§ 2-207 Comment 5. Examples of clauses which involve no element of unreasonable surprise and which therefore are to be incorporated in the contract unless objection is reasonably give are: a cause setting forth an perhaps enlarging slightly upon the seller’s exemption due to supervening causes beyond his control; a clause fixing a reasonable time for complaints within customary limits; a clause providing for interest on overdue invoices or fixing the seller’s standard credit terms; a clause limiting the right of rejection.

ANALYSIS OF UCC § 2-207

** If any written “acknowledgment” or “acceptance” form arises in the fact pattern, apply § 2-207.§ 2-207(1) Applies by its terms to ALL sales of goods

“Definite and Seasonable”: A clear indication of acceptance which is timely A contract is formed if the return form indicates acceptance but has minor variations regarding

nonmaterial things. A return form which has terms materially different from (price, quality, quantity, or delivery terms) the

offer is not an indication of acceptance, but rather a counteroffer.

§ 2-207(2) Applies to merchants for the auto incorporation of terms For deal involving one non-merchant, the additional terms are merely proposals to alter the contract and

no part of the contract Between merchants, it is assumed the additional terms on the return form become part of the contract

unless 2(a),(b), or (c) applies.o 2(a) the offer expressly limits acceptance to the terms of the offer

o 2(b) they materially alter ito 2(c) notification of objection to them has already been given or is given within a reasonable time

after notice of them is received. Merchant (defined): A person who by his occupation holds himself out as having knowledge or skill

peculiar to the goods. Can also be a person who holds himself out as having knowledge or skill peculiar to the practices of the thing in question.

Farmers are generally considered merchants Material: if it is significant enough in the beginning to prevent the buyer from understanding it as a contract,

if someone in buyer’s place of business would think that it matters (price, amount, disclaimer of warranty probably material)

o only goes to additional terms, not different terms

§ 2-207(3) Conduct of the parties When parties commence performance (act as if there were a contract) and there isn’t an agreement

between forms—the court recognizes, as the contract, the terms that the parties agreed upon and any supplementary terms incorporated under 2-207.

Works’ Approach to UCC § 2-207

1. Is there an offer?a. If NO, end. If YES, go to 2.

2. Is there a responsive writing that is a “definite and seasonable expression of acceptance”? [Additional or different terms do not necessarily prevent the response form being a “definite and seasonable expression of acceptance.” However, express language in response making response conditional prevents response form being a “definite and seasonable expression of acceptance.”]

a. If NO, go to 3.b. If YES, there is a K composed of the terms on which writings agree + gap fillers.

3. Is there a K formed by conduct of the parties?a. If NO, end.b. If YES, there is a K composed of terms on which writings agree + gap fillers.

WAY TO ANALYZE BATTLE OF FORMS HYPOS1) Is the transaction a sale of goods?

a. NO No battle of forms problemb. YES Go to 2.

2) Does the acceptance include any different or additional terms?a. NO Does it deal with any issues on which the acceptance is silent?

i. YES Terms of K are those of the OFFERii. NO No Problem

b. YES Go to 3.3) Is the offeree’s response an acceptance?

a. NO Probably a counteroffer (could be additional or different term), next look at if there is any conduct which may recognize a contract.

i. If YES, then a K on term which the writings agree + gap fillers.

ii. If NO, then no Kb. YES Go to 4.

4) Did the offeree expressly make her acceptance conditional on assent to the dickered terms?a. YES Go to 3a.b. NO There is a K, now go to 5 to determine terms of the K.

5) Are the terms Different?a. YES Apply Knockout ruleb. NO Go to 6

6) Are there additional terms?a. YES Are they Merchants?

i. NO Additional terms only become part of K if offeror explicitly agrees to it.ii. YES Apply 2(a),(b), and (c)

1. If NO to all Additional terms automatically become part of K2. If YES to any Additional terms not part of K

b. NO Terms are those which the K agree, plus the different terms that become part of K under the different term analysis.

Additional Terms v. Different Terms A different term is one that directly contradicts either a term in the offer or a term supplied by a gap

filler. 3 ways to deal with different terms:o KNOCKOUT RULE: Majority of court apply this if there are different terms. Conflicting

clauses drop out of the K and UCC gap filler applies if relevant.o Apply the offeror’s terms and not the offeree’so Call this a counteroffer and not a definite and seasonable expression of acceptance. If we do this

then go to sub (3). Additional Terms: If there are additional terms then are they merchants?

o If YES See if exceptions apply. If they don’t the additional term become part of the contract. o If NO Additional terms become part of K only if offeror explicitly agrees to it.

Silence by the offeree on certain terms: The offeree is deemed to have accepted all terms of the offer, not just those addressed by the acceptance if he is silent on certain terms in his acceptance.

Law & Economics Approach to Standard Forms & Battle of the Forms Despite § 2-207, Judge Easterbrook (of the 7th Circuit), for public policy reasons (purposes of market efficiency), delivered some opinions that try to push contract law back towards formalism. ProCD v. Zeidenberg: Defendant bought a copy of Plaintiff’s software and ignored the licensing

agreement. Resold the software at a discounted rate. Defendant maintains that putting the software on the shelf is an offer which he accepted by paying for it. Easterbrook says that Defendant is responsible for terms that were inside the package and on the software “read me” screen even though he wasn’t specifically aware of them.

Hill v. Gateway 2000, Inc.: Hill bought a computer which came with a piece of paper that said he has 30 days to return it or he accepts the terms on the paper which included an arbitration clause. Hill kept it longer than 30 days and when he was dissatisfied, he sued. Is the arbitration clause in effect? Judge Easterbrook said yes.

o some courts would say 2-207 does apply to this rolling-K scenario and that a K is therefore formed at the time of the order. Under this approach the buyer is usually considered to be the offeror, the

seller the offeree who is proposing an additional or different term that never became part of the K unless the buyer expressly agrees to them

The Economic Theory and Anti-formalism Swamp (Not for Sale of Goods)Anti-Formalism: Stevens Machine Salesman HYPO: the contract is based upon those terms that Stevens reasonably expected when he agreed to buy the flight insurance (California Court)

Works and Little Tyke Basketball HYPO: Works goes to sign up his granddaughter, but there is a Non-liability Clause in the Contract: “It is hereby agreed, that the program, its coaches and other representatives, shall in no way be liable for injury or property damage resulting from activity in the program. It is further expressly agreed that the undersigned indemnifies the program from liability, etc.”

Works’ Words: the courts are beginning to recognize that the job of the law of contracts is to determine the bargain in fact and protect the faith that ordinary people have in their government to protect them from falling victim to the contracts

Economic Theory: ProCD and Hill

Carnival Cruise HYPO: Wife slips and is injured. The couple wants to sue Carnival, but their ticket purchase order required them to sue in Florida, and they live in California.

The Supreme Court Held: It’s cheaper to let the form be enforceable, because general society benefits from cheaper cruise tickets if no one sues Carnival because they have to do it all the way across the country!

MISUNDERSTANDING: If the parties have a misunderstanding about what they are agreeing to, this may prevent them from having the required “meeting of the minds,” and thus prevent a contract from existing. No contract will be formed if:

1. the parties each have a different subjective belief about a term of the contract;2. the term is a material one; and3. Neither party knows or has reason to know of the misunderstanding.

THE TORT – CONTRACT – RESTITUTION SWAMPTort T/K Swamp

Promissory Estoppel§ 90

K K/R Swamp § 86

Restitution

Redress Injury Defendant caused the Plaintiff

Redress Injury Defendant' s Promise Caused Plaintiff

Vindicate Reasonable Expectations Defendant's Promise Generated in Plaintiff

Force Defendant to Disgorge Unjust Enrichment

Defendant's promise is binding to extent necessary to avoid injustice, if:1) Defendant had reason to expect promise would induce reliance; and2) (not applicable to charitable subscriptions) Plaintiff really and reasonably relied.3) Enforcement is necessary to avoid injustice.

(1) Promise made in recognition of benefit previously received by promisor from promisee is binding to extent necessary to avoid injustice.(2) But not if:(a) Promisee conferred benefit as gift or promisor not unjustly enriched; or(b) Value of promise disproportionate to benefit.

Defendant can be forced to disgorge benefit, if:1. Plaintiff conferred measurable benefit on Defendant; and2. Plaintiff was not actinga) officiously, orb) gratuitously; and3. Defendant had opportunity to decline benefit but did not decline.

CONSIDERATION

First function of law of consideration is to separate the world of promises into two categories: Bargained for Exchanges = Enforceable

o “Lack of Consideration” = no bargained-for-exchange Gratuitous Promises = Unenforceable

o Can try to recover on restitution or promissory estoppel

Maude Jones hypo: Maude wants to forgive $60k in debt son owns her. Unenforceable because it’s a gratuitous promise with no consideration. Cannot look to past consideration. Cannot say that she expects to derive altruistic pleasure. Best bet is to make a present gift rather than promise to make it in the future (the law of property)

Every promise is either a BFE or a PTMG. You can say a particular fact situation could be either. You can never say both.

Consideration: A contract will not be enforceable unless it is supported by consideration. A promise is supported by consideration if there is a “legal detriment” on both sides. The legal detriment incurred by ‘B’ must be what ‘A’ is bargaining to get, and the legal detriment by ‘A’ must be what ‘B’ is bargaining to get.

------ BFEPromise--------

------PTMG

Hamer v. Sidway: Uncle makes promise to pay money in order to induce nephew to refrain from smoking, drinking, and swearing. Uncle desires that outcome to maintain a good family name, and is willing to spend his money to get the nephew to incur that legal detriment. Nephew desires getting paid, and is willing to refrain from said vices to get that outcome. Therefore, there is consideration on each side.

Works’ Consideration Language: The big issue is whether the promise is part of a BFE. Thus, we ask whether the promise was made in order

to induce the other party to do something that the promisor wants. Hamer tells us that if the promise was made in order to induce the promisee to induce a legal detriment, it

doesn’t matter that the promisor will not be getting any tangible benefit. Intangible benefits (such as a good family name in Hamer) are enough to constitute consideration.

Unenforceable Transactions: The requirement renders unenforceable these main types of transactions (1) Promise to make gifts: which do not satisfy the “bargain” element; and (2) Past Consideration: If something was already given or performed before the promise was made, it will

not satisfy the “bargain” requirement. The courts reason that it was not given in exchange for the promise when made.

Conditions on the gift don’t make it enforceable: Even if the person promising to make a gift requires the promisee to meet certain conditions in order to receive the gift, there will still be no consideration (and the promise will thus be unenforceable) if the meeting of the conditions is not really “bargained for by the promisor.” Example—Kirksey v. Kirksey: ‘A’ promises his widowed sister-in-law, ‘B,’ a place to live “if you come

down to see me.” In response, B travels to see A, thereby incurring expenses. Held: Even though ‘B’ has suffered a “detriment” (the expenses) the “bargain” element is lacking—‘A’ was not promising ‘B’ a place to live b/c he wanted to see her, but was merely imposing a necessary pre-condition for her to get the gift. Therefore, his promise is unenforceable for lack of consideration. However, Kirskey could be framed differently: in return for giving the widow a place to live, one could argue that A gets something in return (home cooking, companionship, labor from the children).

Condition that benefits the promisor (which on the surface may not redound (contribute) directly to promisor’s benefit)—can constitute CONSIDERATION: If the promisor imposes a condition, and the occurrence of this condition is of benefit to him, then the bargain element probably will be present. Hamer v. Sidway: P promises is nephew, D, $5000, if B will refrain from smoking, drinking, and gambling

until age 21. D so abstains. Here, P’s promise was “bargained for” and (thus supported by consideration) because A was attempting to obtain something he regarded as desirable: maintain a good family name.

o Executed gifts are not revocable—Promises to Make a Gift are Revocable.

Adequacy of Consideration NEVER say that consideration is adequate or inadequate The consideration doctrine does not require that performances or promises be of equal value. As long as

a legal detriment has been suffered in exchange for the promise, the court DOES NOT inquire into its value in relation to the promise. § 79(b)

Only look at the inadequacy of consideration if it is so bad that it appears to be nominal or sham but don’t use that language.

Sham & Nominal Consideration Sham consideration isn’t valid. Nominal Consideration

o Not valid consideration unless both parties reasonably believed that the nominal consideration is just a formality and that if they really want to contract a court may then require that both parties honor the contract due to each reasonably relying on the nominal consideration.

Nominal Amount: Where the “consideration” that has been paid is so small as to be nominal the court may conclude that as a factual matter that there is not real “bargain” present at all. Due to the lack of consideration, the promise will not be enforced.

Example: A says to B, his son, “In consideration for $1 paid and received, I promise to give you a car worth $10,000 four years from now.” Even if the $1 is actually paid, the court will probably conclude that A did not “bargain” for the $1, and there is no consideration; A’s promise will therefore be unenforceable.

Mutuality of Obligation; Illusory, Conditional, and Alternative Promises Illusory Promises: If the promise of one party has qualifications or limitations so strong that they negate

the promise, there really is no commitment at all and therefore a contract doesn’t exist.o Both parties must be boundo Implied Promise: Possible in certain situations to imply for a person to promise to use best efforts

to fulfill their obligations. EX: A promises to sell skis to B for $100, on the condition that B obtain a loan of $100. This

is illusory b/c B can decide not to obtain a loan, but courts may imply this obligations of “using their best efforts.”

Past Consideration no good: If the promise is made in return for detriment previously suffered by the promisee, there is no bargain, and thus no consideration. Thus, promises to pay a pre-existing debt, and promises to pay for services already received usually lack consideration. Pre-existing debt: Suppose that A once owed B $1000, but the running of the statute of limitations now

prevents B from collecting this debt. A then promises to pay the debt. What result?o Majority: There is no consideration for A’s promise, because he has not bargained for anything

since he obviously received the original loan before making the promise.o Small Minority: Some courts might hold that this sort of “promise to pay a pre-existing debt” is

enforceable even without consideration. Such courts might say there exists a “moral obligation” to pay the debt, and that is obligation furnishes the consideration.

Promise to pay for past services received: A promise to pay for service received in the past is usually held not to be supported by consideration. But a § 86 claim is a possibility.

Example: D’s son, a 25 year old, becomes ill while traveling, and is nursed by P. As a result, D writes to P, promising to pay P’s expenses. Outcome: D’s promise was not supported by consideration since P’s services were not given at D’s request.

Promisee must be aware of promise for the act performed by him to be consideration: Example is in with rewards. If actor is not aware of reward and performs the act, he cannot recover.

GIVING UP CLAIMS AS CONSIDERATION

Valid Settlement of a Claim = Consideration§ 74 Settlement of Claims(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless

(a) the claim or defense is in fact doubtful because of uncertainty as to the facts of the law, or (b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.

(2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.

Treat Fiege v. Boehm as a general rule, and sub(2) is not that applicable or a main stream rule.

Other substitutes for Consideration—may make a K enforceable Surrendering pending (legal) claims provides the consideration need to make a contract enforceable.

o Fiege v. Boehm: baby-daddy agrees to pay for kid to stay out of bastardy court Claim is valid: All courts agree this is a detriment Claim is invalid: Detriment?

Majority: Consideration if Plaintiff had a bona fide subjective belief they had claim from the standpoint of a reasonable person

o 2 Prong Test: Is it made in good faith (subjective). Is it not patently absurd form the standpoint of a reasonable man (objective).

R2K: Consideration if objectively uncertain or Plaintiff believes it has possible merit. (more liberal)

Agreement to Accept Part Payment of Debto Common Law pre-existing duty rule used to bar full satisfaction in these situations. Only applied

when parties agree as to the amount owed (liquidated). o If disputed, or “unliquidated” then relinquishing the disputed furnishes consideration.

Pre-existing Duty Rule:If a party does or promises to do what he is already legally obligated to do, or if he forbears or promises to forbear from doing something which he is not legally entitled to do, he has not incurred a detriment for purposes of consideration.

Modifications of a Contract

Modification of Contracts—Unenforceable at common law for lack of consideration: This general [pre-existing duty] rule means that if both parties to an existing contract agree to modify the contract for the sole

benefit of one of them, the modification usually will be unenforceable at common law, for lack of consideration. But § 89 and UCC § 2-209 depart from common law.

Common Law “Pre Existing Duty Rule”: Modification requires offer, acceptance, and new consideration. The primary purpose of the preexisting duty rule is to prevent a “hold up game.” Alaska Packers v. Domenico: 21 entered into a written contract and were expected to work as sailors and fishermen

for $50 plus 2 cents for each red salmon caught. While at sea, the workers demanded an additional $50 dollars. The Captain agree to apy the additional $50, thinking he would be protected by the preexisting duty rule. Thus, the second agreement to pay an additional $50 was not enforceable.

R2K § 89: The restatement and most modern courts follow this general rule but they make an exception where the modification is “fair and equitable in view of the circumstances not anticipated by the parties when the contract was made.”

UCC § 2-209(1): “abolishes pre-existing duty rule” for sale of goods: Under § 2-209, modifications untainted by duress and meeting the test of good faith may be enforceable even without consideration. (Same basic philosophy as § 89)

Modifications of a contract must be in writing to satisfy the SOF UCC § 2-209(3) the requirements of the statute of frauds section of this article (§ 2-201) must be satisfied if the contract as modified is within its provisions.

Unforeseen Circumstances: R2K § 89(a) makes a modification binding if it is fair and equitable in view of circumstances not anticipated by the parties when the contract was made. Angel v. Murray: Maher contracts with city to collect garbage. Maher requests an additional $10,000 per

year from the city council, b/c his operating costs have substantially increased due to an unanticipated spurt of new dwelling units. After additional payments are made, a citizen sues to have the additional payments refunded to the city. Held: the modification is enforceable b/c it was fair and equitable, voluntarily entered into and motivated by events which were not anticipated at the time the original contract was created.

§ 89 Modification of Executory ContractA promise modifying a duty under a contract not fully performed on either side is binding:

(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or(b) to the extent provide by statute; or(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise

Another way to understand § 89: Enforces a modification if: (1) the parties voluntarily agree; and (2) The promise modifying the original contract was made before the contract was fully performed on either side, (3) the underlying circumstances which prompted the modification were unanticipated by the parties, AND (4) the modification is fair and equitable.

Comment b. Performance of legal duty. The limitation to a modification which is “fair and equitable” goes beyond absence of coercion and requires an objectively demonstrable reason for seeking a modification. The reason for modification must rest in circumstances not “anticipated” as part of the context in which the contract was made. When such a reason is present, the relative financial strength of the parties, the formality with which the modification is made, the extent to which it is performed or relied on and other circumstances may be relevant to show or negate imposition or unfair surprise.

§ 2-209 Modification, Rescission and Waiver(1) An agreement modifying a contract within this Article needs no consideration to be binding.(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be

otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.

(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions.

(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.

(5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

Comment 1: This section seeks to protect and make effective all necessary and desirable modifications of sales contracts without regard to the technicalities which at present hamper such adjustments.

Comment 2. Subsection (1) provides that an agreement modifying a sales contract needs no consideration to be binding. However, modifications made thereunder must meet the test of good faith imposed by this Act. The effective use of bad faith to escape performance on the original contract terms is barred, and the extortion of “modification” without legitimate commercial reason is ineffective as a violation of the duty of good faith. Nor can a mere technical consideration support a modification made in bad faith.

§73. Performance of Legal DutyPerformance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.

Negotiable Instruments—Payment in FullUnliquidated or Disputed Debts: If a debtor reasonably and in good faith disputes the amount of debt he owes (an unliquidated debt), then a settlement by which the creditor agrees to take less than the creditor thinks he is due is enforceable.

Cashing of a Check Tendered as a SettlementIf the creditor cashes the check, UCC § 3-311 provides that the claim will be discharged by the cashing of the check, if these conditions are met: The check or accompanying written communication contained a conspicuous statement to the effect that the

instrument was tendered as full satisfaction of the claim. The claim was either unliquidated or was subjected to a bona fide dispute. The debtor acted in good faith. If the creditor is an “organization”, the debtor must make an additional showing: he must show that the

agent of the creditor having direct responsibility with respect to the disputed obligation knew that the

instrument was tendered in full satisfaction of the claim, or received the instrument and any accompanying communication.

o Rationale for “organization” rule: To make sure the creditor will be found to have waived its right only when an employee of the creditor with knowledge of the underlying transaction knew that the debtor was proposing an accord and satisfaction. Prevents debtor from “slipping a fast one” past the creditor by allowing a regular employee to cash the check.

[WORKS’ LANGUAGE] Even if person satisfied the good faith and conspicuousness requirements of § 3-311, the other party, whether or not a merchant, still has 90 days during which it can choose to return the payment and avoid being tagged as having accepted the offer for an accord and satisfaction. [§ 3-311(c)(2)]

Vocabulary Accord = Agreement Satisfaction = doing what the agreement requires Accord & Satisfaction are the aspects of the fulfillment of the contract as long as both are accepted Unliquidated = a debt that is not fixed or is uncertain. Liquidated = A fixed or certain debt.

§3-311 Accord and Satisfaction by Use of Instrument(a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument, the following subsections apply.

(b) Unless subsection (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous (clearly visible) statement to the effect that the instrument was tendered as full satisfaction of the claim.

(c) Subject to subsection (d), a claim is not discharged under subsection (b) if either of the following applies:(1) The claimant, if an organization, proves that (i) within a reasonable time before the tender, the

claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place, and (ii) the instrument or accompanying communication was not received by that designated person, office, or place.

(2) The claimant, whether or not an organization, proves that within 90 days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. This paragraph does not apply if the claimant is an organization that sent a statement complying with paragraph (1)(i).

(d) A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim.

Comment 5: Subsection (c)(1) is a limitation on subsection (b) in cases in which the claimant is an organization. It is designed to protect the claimant against inadvertent accord and satisfaction. If the claimant is an organization, payment of the check might be obtained without notice to the personnel of the organization

concerned with the disputed claim. Some business organizations have claims against very large numbers of customers…These claims are normally paid by checks sent by customers to a designated office at which clerks employed by the claimant or a bank acting for the claimant process the checks and record the amounts paid. If the processing office is not designed to deal with communication extraneous to recording the amount of the check and the account number of the customer, payment of a full satisfaction check can easily be obtained without knowledge by the claimant of the existence of the full satisfaction statement.

Implied Promises: Finding consideration through an implied promise.Wood v Lucy Lady Duff-Gordon: Defendant Lucy Lady Duff Gordon is a fashion designer. She makes an agreement with the plaintiff, a businessman, whereby the businessman is to have the right to place the Lucy, Lady Duff Gordon endorsement on fashion designs. Lucy agrees that the plaintiff shall be the only person to have this right, and the plaintiff agrees to give Lucy one-half of any profits derived from the sales of such endorsed designs. Lucy then puts her endorsement on the designs of third persons (without sharing the profits with plaintiff) and plaintiff sues for breach of the agreement. Lucy asserts that the contract failed for lack of consideration, on the grounds that the plaintiff did not bind himself to do anything, since he was not obligated under the contract to sell any endorsed designs at all. Held: The plaintiff can be impliedly found to have promised to use “reasonable efforts” to market Lucy’s designs. This implied promise is a sufficient “detriment” to the plaintiff to constitute consideration for Lucy’s counter-promise that she would not place her endorsement upon anyone else’s designs. Therefore, the contract is binding, and Lucy has breached it. The implied promise furnished the consideration for her promise of exclusivity.

Promises Binding Without ConsiderationPROMISSORY ESTOPPEL [R2K § 90]Elements of Promissory Estoppel: Defendant’s promise is binding to the extent necessary to avoid injustice if:

1) Defendant-Promisor could foresee that the promise would induce reliance; and2) Plaintiff really and reasonably relied3) Enforcement is necessary to avoid injustice

§90 Promise Reasonably Inducing Action or Forbearance(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a 3rd person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

Overview of Promissory Estoppel: Promises which foreseeably induce reliance on the part of the promisee will often be enforceable without consideration under the doctrine of promissory estoppel, for the purpose of redressing the injury defendant’s promise caused the plaintiff. Restatement §90’s definition of promissory estoppel is: “A promise which the promisor should

reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.”

Actual Reliance of Promisee is Required: The promisee must actually rely on the promise, except in charitable subscription cases. Then, §90(2) doesn’t require actual reliance; it only requires that the promisor could reasonably foresee reliance.

Reasonably Foreseeable Reliance of Promisor is Required: The promisee’s reliance must have been reasonably foreseeable to the promisor, even in charitable subscription cases. Ricketts v. Scothorn: man tells granddaughter he doesn’t want her to work anymore. He promises to pay her if she refrains from working. She relies and quits her job. His estate refuses to honor it. Court rules that it’s a gratuitous promise between family members however he still owes her the money because his promise induces her to quit her job and she reasonably detrimentally relied. The promise was not made to induce a legal detriment that resulted in benefit to grandfather (no BFE). The court rules he is estopped from saying no consideration and enforces the promise on the basis of PE (based on promise made by grandfather).

Kirksey v. Kirksey: Could be a case for detrimental reliance by the sister-in-law, because she gave up her land in reliance on the brother-in-law’s PMG to give her a place to stay.

Situations where Promissory Estoppel may apply: Promise to make a gift that induces reasonably foreseeable detrimental reliance.

Was Defendant’s promise to make a charitable subscription, so that no detrimental reliance need be show?

o Rule – For charitable subscriptions: Not necessary to prove actual reliance under 90(2) BE CAREFUL about using § 90 outside of its usual setting.

o Goff-Hamel v. Obstetricians & Gynecologists, notwithstanding.o Conventional wisdom is that you take the distinction between bargained-for-exchange and PMTG

seriously and if it’s not PTMG you shouldn’t be using P/E.

Different Approaches to Promissory Estoppel Remedies: § 90 comment d. recognizes the inexactness given under Promissory Estoppel:

o The same factors which bear on whether any relief should be granted also bear on the character and extent of the remedy. In particular, relief may sometimes be limited to restitution or to damages or specific relief measured by extent of the promisee’s reliance rather than by the terms of the promise.

Williston: Binding to full extent of promise Corbin & R2K: Binding to extent of detrimental reliance

Why do we enforce these promises? borrowed from tort law: if you make a promise and know there are consequences for the other party, you

ought to be responsible for those consequences

Charitable Subscription Stories (2000 exam, Question 2)Starting Point for Charitable Subscription: A charitable subscription story is an invitation to apply §90 and the special charitable subscription rule of §90(2). Under the Special Charitable Subscription Rule of 90(2), those making pledges are bound if it was reasonably foreseeable that there would be detrimental reliance, without any requirement of proof of actual detrimental reliance. No actual reliance necessary in charitable subscription case: Although in most contexts promissory

estoppel will apply only when the promisee relies to his detriment, the courts often do NOT impose such a detrimental reliance requirement where the promise is a charitable subscription (a written promise to make a charitable subscription).

§90(2) states that “a charitable subscription . . . is binding…without proof that the promise induced action or forbearance.” But, even under §90(2), the reliance must still be reasonably foreseeable to the promisor.

Salsbury v. Northwestern Bell Telephone Company: There was a fundraising drive to create a college in Iowa. Many donors filled out pledge cards with the conspicuous language that the cards weren’t intended to be legally binding. Thus their donative promise wasn’t legally binding. The Δ did not send out a card, they sent a letter. The letter from Northwestern Bell Telephone Company (Northwestern) didn’t contain the language of “intention, not binding”, so the court held it to be enforceable as a charitable subscription.

Grandma sends Grandson Back to College: Grandmother promises grandson that she will pay for him to continue law school on the east coast after he tells her that he, “just has to move out there and get married.” Grandmother thought the grandson and girlfriend were pregnant, but wanted grandson to continue his legal education. This may be a BFE, and under the PMG/PE theory:

o Grandma’s promise was foreseeable to create detrimental relianceo The grandson reasonably did actually rely to his detriment

Restitution (“Quasi Contract”) [not really a contract—no promise involved]Defendant can be forced to disgorge benefit, if: [these elements are met]: (1) Plaintiff conferred measurable benefit on Defendant. (2) Plaintiff was not acting

o Officiously or o Gratuitously.

(3) Defendant had opportunity to decline benefit but did not decline. (If unconscious and necessary, acceptance implied by law.)

§86 Promise for Benefit Received(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.(2) A promise is not binding under Subsection (1)

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

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

With § 86 situations always ask first if there would be a restitution claim.

Comment b: Although in general a person who has been unjustly enriched at the expense of another is required to make restitution, restitution is denied in many cases in order to protect persons who have had benefits thrust upon them…In other cases restitution is denied by virtue of rules designed to guard against false claims…In many such cases a subsequent promise to make restitution removes the reason for the denial of relief, and the policy against unjust enrichment then prevails.

Comment d: Emergency Services and Necessaries. The law of restitution in the absence of promise severely limits recovery for necessaries furnished to a person under disability and for emergency services [b/c a necessary element of Restitution is that defendant had opportunity to decline the benefit, but did not—in an emergency situation, the potential defendant usually has no opportunity to decline the benefit]. A subsequent promise in such a case may remove doubt as to the reality of the benefit and as to its value, and may negate any danger of imposition or false claim.

Webb v. McGowin: A saves B’s life in an emergency by following the bale of wood down to save the tycoon, and is totally disabled in so doing. B then promises to pay A $15 every two weeks for the rest of A’s life, and makes these payments regularly for over 8 years until he dies. The estate then refuses to continue the payments,

and A sues on the promise. Held: B’s promise is enforceable, even without consideration, b/c B incurred material benefit from A’s act, even though B did not request the act. (Plus the promise)

If there is still freedom to quit, there is still consideration. Thus § 86 wouldn’t have to apply for promise to be enforceable.

Benefits Previously Received but not requested: Where A renders services to B without B’s having expressly requested the services, and B then promises to pay. (We assume that at the time A renders the services, he is not intending a gift). Restatement view [§ 86]: Follows the modern trend. Receipt of an unrequested material benefit, followed

by the receiver’s promise to pay for the benefit, is enforceable without consideration, but only “to the extent necessary to prevent injustice.” § 86(1)

Enforcement is NOT necessary where promisee conferred the benefit as a gift: § 86(2) Older Cases: Generally hold that B’s promise is unenforceable.

o Harrington, where the woman saves the guy who is going to get axed by his wife, hurts her hand, and he promises to pay for it and doesn’t. Held: She can’t recover.

When to apply § 86? Cases like Webb where you almost have Restitution claim but not quite. Beyond these, be very skeptical.

- You might think of §86 being a substitute for a missing element of a promise attempted to be enforced through restitution

STEPS DETERMINING IF PROMISE IS ENFORCEABLE

I. PMG, Promise for benefit prior conferred, or BFE?A. PMG (§90)

1. Was there a promise?2. Is there reasonably foreseeable detrimental reliance?3. Did they detrimentally rely on it?

B. Promise for benefit previously conferred (§86)1. Was it conferred as a gift?

a. If yes, then you can’t apply §86b. If not a gift, go on…

2. Was it a promise to pay for a benefit previously conferred (not as a gift)?a. If yes, it is enforceable to the extent necessary to prevent injustice under §86

C. BFE1. Was there an offer meant to induce the offeree into a legal detriment?2. Did the promisee accept by one of the PMA’s and incur a legal detriment?

a. This could be by return promise.b. This could be by performance or tendering the beginning of performance.

a. If the only way to accept is by performance, and performance is begun, there would be an option K under §45

II. Is Restitution applicable?

A. Was there a benefit conferred?1. That benefit cannot be officious or gratuitous

B. Did the recipient of the benefit have an opportunity to decline?

STATUTE OF FRAUDS“Within the Statute” = subject to SOF. [Within the Statute means SOF analysis is just beginning]

 Artichoke Digger Problem  |  Diagram

  One-Year

  Suretyship

 Goods over $500

Is the contract "within the statute"?

Would completing performance of either promise within one year be a breach?

Always assume that money can be paid within a year. Thus, a promise to pay $300 per month for the next 3 years is not “within the SOF” and need not be in writing to be enforceable.

Is a promise made

to the creditor?to answer for debt of

debtor?

EXCEPTION: Main Purpose Doctrine

Is the contract a "sale of goods for the price of $500 or more'? (Exactly $500 is enough; you’re within the SOF)

2-201 is the sale of goods statute of frauds, but don't forget 2-209 (Modification of K).

Does the contract "satisfy the statute"?

Section 131: By a writing:

signed by/on behalf of party to be charged, which:

identifies subject matter of k;

indicates k made or signer offered to k; & "states with reasonable certainty the essential terms of the unperformed promises in the contract."

Full performanceby the Plaintiff.

Section 131: By a writing:

signed by/on behalf of party to be charged, which:

identifies subject matter of k;

indicates k made or signer offered to k; & "states with reasonable certainty the essential terms of the unperformed promises in the contract."

2-201:By a writing:

2-201 (1); or

2-201 (2)

NOTE SPECIAL NEBRASKA ADDITION TO 2-201(2)

2-201(3):Other than by writing:

2-201 (3)(a)2-201 (b), 2-201 (c)

Consequences of failure to satisfy the statute.

Restatement 139

Restatement 375

Restatement 139

Restatement 375

Restatement 139Nebraska UCC v. section 90

Restatement 375

Tip for spotting SOF issues on exam: If the fact pattern includes the word “oral agreement” that probably means we’re within the SOF and the agreement won’t work. At the very least, be on heightened awareness.

Statutes of Frauds—Overview SOF: sometimes K’s are not enforceable because of the absence of a writing. Writing must be signed by the ‘person to be bound.’ If a fact pattern is within two or more statutes of frauds, both must be satisfied, not just the easiest one.”

What happens if SOF is not satisfied? (1) Not enforceable as a contract (2) Promissory Estoppel might work in some jurisdictions (NE=No; IL=Yes) (3) Restitution

If you can’t satisfy SOF Restitution is most common remedy [protected by § 375]§ 375: A party who would otherwise have a claim in restitution under a contract is not barred from restitution for the reason that the contract is unenforceable by him because of the Statute of Frauds unless the Statute provides otherwise or its purpose would be frustrated by allowing restitution.

One in / One outIf the K gives one or both parties the choice between two or more performances, the contract is not within the one-year provision if ANY of the alternatives can be performed within one year from the time of the making of the contract

One Year SOFRule: A promise that by its terms cannot be performed within year is within the SOF, and thus must be in writing to be enforceable. Ex: Promise to scoop your walk for each of the next 2 winters.

Contracts Not Within the One-Year SOF: Promise to pay: In most jurisdictions, the promise to pay (even if stretched out over a number of years) is

NOT within the One-Year Statute of Frauds because the obligor could pay the debt immediately, and the obligee would happily accept the payment.

Possibility of Completion Within One Year [Assume Maximum Resources]: If the contract is possible to complete within 1 year, it is not within this provision, even though actual performance may or is likely to extend beyond the one-year period. Thus, such promises need not be in writing to be enforceable.

o Ex: Build 8 pyramids is not within the SOF because, assuming maximum resources, the project could be completed within one year.

o Ex: Crotchet makes the following oral statement to Nellie: “Be my nurse until I recover and I will pay you a small salary now, but leave you a large estate in my will.” The contract need not be in writing since Crotchet could recover within one year.

Lifetime Contracts [Person could die the next day]: A contract measured by a lifetime (e.g. a promise to “employ until I die” or “work until I die”) is not within the SOF because it is capable of performance within a year since the person can die at any time.

ONE-YEAR SOF HYPOs: Build the pyramids—Not within the SOF because it can be performed within a year (assume max

resources) Jean Claude Artiste 3 year birthday photo—within SOF: Can’t be performed within one year. Effect of

death: Jean Claude is unique. He might be excused if he dies, but no court would say he had fully performed.

5-year non-compete employment—Not within the SOF: It can be fully performed with one year. Effect of death: Contract not to compete could be fully performed by dying.

o Unless the promisor has materials that promisee does not want promisor to use.o Effect of death: Possibility of death relevant only if promise is a negative promise because dying

makes it impossible for you to do the thing you weren’t supposed to do. Promise to household in ’05, ’06, ’07 within the SOF. If it’s one K for 3 years, then it is “within the statute”

but if it’s three individual K’s, then it’s not.

Always assume you can pay Early: So a promise to pay doesn’t trigger 1yr. SOF. A party’s promise to pay money [for more than one year] might not bring the contract within the statute

because the party might well be able to fully perform those promises by paying all the money within the first 12 months.

TERMINATION as performance: Courts are split about whether the existence of a termination clause that permits termination in less than a year will remove a more-than-one-year contract from the one-year provision. R2K – The giving of a way to terminate (60 days to terminate clause) would be a form of performance so

that the contract will be enforceable even though oral.

Plaintiff’s Full Performance Satisfies SOF: Full performance by Plaintiff is a way of “satisfying” the SOF, or alternatively, of not being “within” the SOF.

Full performance on either side removes the contract from the one-year provision. This is true even if it actually takes that party more than one year to perform.

§ 130. Contract Not to be Performed Within a Year.(1) Where any promise in a contract cannot be fully performed within a year from the time the contract is

made, all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance.

(2) When one party to a contract has completed his performance, the One-year provision of the Statute does not prevent enforcement of the promises of other parties.

Sale of Goods SOF [$500 or over]Is the contract a sale of goods for the price of $500 or more? Rule: A promise for the sale of goods of $500 or more is within the Statute of Frauds and, thus, not enforceable unless evidences by a writing signed by the party to be charged.

Exceptions to Sale of Goods SOF—making certain Oral Contracts Enforceable:UCC permits enforcement of an oral contract for the sale of goods of $500 or more in the following situations: Specially Manufactured Goods: If good are specifically manufactured for the buyer and are not suitable

for sale to others by the seller in the ordinary course of his business, and the seller has made either a substantial beginning on their manufacture or commitments for their procurement before notice of repudiation is received, the oral contract may be enforced.

Partial Performance Exception: We don’t allow a party to hide behind the SOF when some unjust enrichment has occurred. Thus, when payment has been made and accepted, the contract is enforceable to the extent of the payment received and accepted. Similarly, when delivery has been made and accepted, the contract is enforceable to the extent of the goods received and accepted.

Written Confirmation Between Merchants: Between merchants, a writing in confirmation of the contract that is sufficient against the sender and received by the other merchant who has reason to know of its contents satisfies the requirements of the SOF against the recipient unless written notice of objection to the writings contents is given within 10 days after the writing is received. [UCC § 2-201(2)]

Admissions in Pleadings or Court: If the party against whom enforcement is sough admits in pleadings, testimony, or otherwise in court that the contract for the sale was made, the contract is enforceable (but in such a case the contract is not enforced beyond the quantity of goods admitted).

Interpreting the Sale of Goods SOF: § 2-201(1) requires signature + quantity term

o “All my corn” is a quantity term for purposes of § 2-201 § 2-201(2) written confirmation of the contract given within a reasonable time satisfies the SOF, unless

written notice of objection to its contents is given within 10 days after receipt. § 2-201(3)(b) [Judicial Admissions] An actual contract can still be enforceable unless the party to be

charged is willing to lie in judicial proceedings.o § 2-201(3)(b): A contract which does not satisfy the requirement of subsection (1) but which is valid in other

respects is enforceable if the party against whom enforcement is sough admits in his pleading, testimony, or otherwise in court that a contract for sale was made.”

§ 2-203(3)(c) [Part Performance] An actual contract can still be enforceable “with respect to goods for which payment has been made and accepted or which have been received and accepted.”

§2-201. Formal Requirements; Statute of Frauds.(1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written objection to its contents is given within 10 days after it is received.(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture of commitments for their procurement; or

(b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or

(c) with respect to goods for which payment has been made and accepted or which have been received and accepted.

§2-201 Comment 1: The only term which must appear is the quantity term which need not be accurately stated but recovery is limited to the amount stated.

UCC § 2-209 May have some applications with this section.

NE Statute of Frauds §2-201(2)(b) [Grain Farmer Provision]:(b) Between a merchant and a buyer or seller of grain not a merchant, if

(i) the contract is on oral contract for the sale of grain, (ii) within a reasonable time a writing in confirmation of the contract and sufficient against the sender is receiver, (iii) the party receiving it has reason to know its contents, (iv) it contains a statement of the kind of grain, quantity of grain, and (v) notice appears on the face of the written confirmation stating that the contract will be enforceable according to

the terms contained in the confirmation unless written notice of objection is given within 10 days, the writing satisfies the

requirements of subsection (1) of this section against the party receiving it unless written notice of objection to its contents is given within 10 days after it is received.

Suretyship SOFPromise to pay debt of another [suretyship promises]: A promise for the debt or default of another must be in writing. The promise may arise as a result of a tort or contract, but it must be collateral to another person’s promise to pay, and not a primary promise to pay.

EX: Teenage son endeavors to buy new car. Father promises to dealership if son can’t make the requisite payments, he will. Dad’s promise is “within the SOF.” Thus, the promise must be in writing for it to be enforceable.

EXCEPTION of Main Purpose Doctrine: Where the main purpose or leading object of the promisor is to serve an economic interest of his own, the contract is not within the Statute of Frauds even though the effect is still to pay for the debt of another. Ex of Main Purpose Doctrine—thus not within SOF: Contractor contacts to build a house for Owner. In

order to obtain the necessary supplies, Contractor seeks to procure them on credit from Supplier. Supplier, however, is unwilling to look solely to Contractor’s credit, and tells Owner that he will not give Contractor credit unless Owner agrees to guarantee payment. Owner, in order to get the house built, gives such an oral agreement guaranteeing payment. Because Owner’s main purpose in giving the guaranty is to further his own economic interest (getting the house built), his promise does not fall within the suretyship provision, and is therefore not required to meet the SOF.

Williston/Corbin hypo: X wants to open a fried carp emporium. Y agrees to stand surety. Z says if Y agrees to stand surety, he’ll make sure he doesn’t suffer any loss. X&Y signed the papers. It blows up. Williston loves SOF’s. Z is making promise to creditor and so is within the SOF. Corbin hates SOF’s. Since Z’s promise is to Y and not to the bank, it’s not within the suretyship SOF. Also keep in mind the surety always gets an implied in law restitution claim against the debtor.

SUFFICIENT WRITING Can use multiple writings that, insufficient by themselves, but together can constitute a sufficient writing. Types:

o A check, typed memorandum, writing on a napkin, etc… Must be singed by party to be charged, identifies subject matter of K, and states with reasonable certainty

the essential terms of the unperformed promises. Sale of goods states all essential terms for purposes of SOF f it states the quantity of goods. (Indicates a

contract for sale has been made.)

RECISSION & RESTITUTION

Does one party want to get out of the contract? Rescission discharges contractual duties.

Rescission: A party’s unilateral unmaking of a contract for a legally sufficient reason. Rescission is generally available as a remedy or defense for a non-defaulting party and is accompanied by Restitution of any partial performance, thus restoring the parties to their Precontractual positions.

Misrepresentation [F 4.9 – 4.15]R&R for Misrepresentation if: (all 5 elements are met)1. Defendant made statement of past or present fact2. Statement was false 3. Falsity was material or fraudulent (material is most important element)4. Reasonable for Plaintiff to rely5. Plaintiff did relySTATE OF MIND IS IMPORTANT

(1) Defendant made statement of past or present fact [not mere puffery or opinion]

Statement can’t be pertaining to the future: cannot be a reference to a future event (i.e., “I will put this machine in running order”) to qualify as a statement of past or present fact.

o Must be determined true/false at the time the statement is made For statement within Defendant’s subjective state of mind to constitute a misrepresentation—requires

showing contrary intent, which leads to subjective analysis based on inferential evidence. Disputing subjective state of mind is difficult: Must rely on inferential evidence to prove that somebody

thought that somebody thought something different than what they say they thought. It is unlikely that a party can prove that Defendant’s present intent at the time of the statement was different from what he represented.

o The statement “I’m in good health” means that, presently in my head I believe that I’m in good health. The same goes for “The ship will sail with straw.”

If a layperson gives a statement on a medical opinion, that is take to mean, “I think I’m in good health.”

Opinion: Must show what is going on in the persons head.

(2) Statement was false: Some tough cases Is embezzler a bank employee? Probably yes here, but no in England where they have a duty to disclose. Missed work on account of illness in last 6 months? No. But record shows called in sick. Counterargument:

I might’ve called in sick, but that wasn’t the real reason I missed work. I went golfing. Hence, I didn’t actually miss work on account of illness in the last 6 months.

Consulted doctor in last 6 months? (Viagra? Flu shot?)

(3)Falsity was material/fraudulent “Materiality” The requirement of materiality is usually met: if it would be likely to induce a reasonable person to manifest

his assent, or if the maker knows that it would be likely to induce the recipient to do so. [§162(2)] If this cannot be show, it may still be possible to meet the requirement by showing that the maker knew that, for some special reason, the misrepresentation was likely to induce the particular recipient to make the contract.

Or, whether or not the fact, if known, would have significantly affected the decision to enter in the contract and the fact would’ve been bargained for.

FRAUDULENT: Use if can’t find materiality, but it is difficult to prove and not common

(4)Reasonable for Plaintiff to rely (Objective Standard) The plaintiff must show that the reliance was reasonably justified. If the statement didn’t affect the decision

to contract that probably not reasonable to rely.

Whether plaintiff should be penalized for taking defendant at his word without investigation: F’s general rule: Failure to investigate has been excused on the ground that “one who deceives another to his

prejudice ought not to be heard to say in defense that the other party was negligent in taking him at his word.”

§168. Reliance on Assertions of Opinion(1) An assertion is one of opinion if it expresses only a belief, without certainty, as to the existence of a fact or

expresses only a judgement as to quality, value, authenticity, or similar matters.(2) If it is reasonable to do so, the recipient of an assertion of a person’s opinion as to facts not disclosed and not

otherwise known to the recipient may properly interpret it as assertion

(a) that the facts known to that person are not incompatible with his opinion, or(b) that he knows facts sufficient to justify him in forming it.

§169. When Reliance on an Assertion of Opinion is Not JustifiedTo the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless the recipient (a) stands in such relation of trust and confidence to the person whose opinion is asserted that the recipient is

reasonable in relying on it, or (b) reasonably believes that, as compared with himself, the person whose opinion is asserted has special skill,

judgment or objectivity with respect to the subject matter, or (c) is for some other special reason particulary susceptiable to a misrepresentation of the type involved

(5)Plaintiff did rely (question of fact) If it’s material, pretty much a non-issue as Plaintiff relies on all material statements of fact.

Did the plaintiff really rely? What if there were medical exams, databases, etc.?

NondisclosureR&R for Nondisclosure:1. Defendant had a duty to disclose information (based on pre-existing relationship)2. Defendant remained silent3. Silence was material*4. Reasonable for Plaintiff to rely*5. Plaintiff did rely*

*See analysis of these elements in misrepresentation above.

(1)Duty to disclose: The pre-req for the duty to disclose is some form of a pre-existing duty relationship between P and D, which may cause the parties to relax their standards.

General Rule: Contrary to England’s uberrimae fide ii requirement, the defendant doesn’t have any duty to disclose info before making a standard arm’s length transaction.

Arms length transaction v. Not at arms length?

Special relationship creating a duty to disclose: expectation created by preexisting relationship of some kind that creates expectation that there will be more than arms length bargaining. Thus, a duty to warn where: Fiduciaries? Yes Spouse? Probably

Friendship? Maybe Father/child, priests, accountants, doctor/patient? Maybe, if the deal is relevant to relationship In some jurisdictions, consumer purchase of real property in some jurisdictions.

o Simmons v. Evans: The water gets shut off at night. Held: duty to disclose (more so property principles involved)

Organ v. LaidlawTobacco purchase at 5:30 AM, Treaty of Ghent case that ends blockade of New Orleans (end of war of 1812). This resulted in tobacco prices going up and the seller did not know this so he sold them for cheap to the buyer who knew about the treaty. Held: No duty to disclose information, but if asked “anything new” etc… then must be careful how to answer to avoid misrepresentation.Economic Analysis: this reflects support for the entrepreneurial spirit. The guy in Organ was out there developing/gathering information while everyone was sleeping.

Effectiveness of Nondisclosure: Generally, nondisclosure is a long shot compared to misrepresentation. Rarely does a jurisdiction have a body of nondisclosure law that can be invoked. This is because our contractual system is premised on the notion that the transactions are done at arm’s length. In such instances, people always think they’re smarter than each other. The exception is selling a house without mentioning that municipal water doesn’t supply doesn’t run from 7 AM to 7 PM.

Mistake R&R for mistake if: (Easier to prove than nondisclosure, harder than misrepresentation.)1. Plaintiff made a material mistake of past or present fact2. Plaintiff did not assume the risk of mistakes of that kind (Is the risk foreseeable?)3. Possible to get Defendant back to the status quo ante (no detrimental reliance by defendant)4. Either:

a. Defendant knew or had reason to know of Plaintiff’s mistake, ORb. Failure to give R&R would result in an unconscionable “gross disparity of exchange”

(the gross disparity must be a mirror image of one another)

(1)“Material mistake of past or present fact”Rabin protects requirement of mistake being mutual. Unilateral Mistake: Harder to get R&R with this. Mutual Mistake:

(2)Assumption of Risk Almost always said to assume risks; the market is inherently uncertain There’s an array of difference in:

o Sophistication of parties.

o Kind of mistake, etc. Flea market will never get rescission for mistake because we understand it to be battle of

wits kind of game. Antique stores are usually like flea market, but some could be otherwise. Some judges will hold these people to these promises, but others will see a spectrum of

mistakes that matter between errors of fact and judgment. Fight often goes to your judgment about who you hired in these situations.

(3)Possible to get defendant back to Status Quo ante

(4)Defendant knew or had reason to know of Plaintiff’s mistake, OR Failure to give R&R would result in “gross disparity of exchange.” … _/T\_

Sherwood v. WalkerRose Second of Aberlone is a valuable breeding cow. But the last few times her owners attempted to breed her, nothing happened. As a result, the owner decided to sell her for hamburger meat. A deal was done (offer, acceptance, consideration). As Rose Second of Aberlone is standing around waiting for the hammer to fall, it turns out she is pregnant. This information becomes available to both seller and buyer. Seller said he wants to invoke Recision & Restitution because he made a mistake. The court held: both buyer and seller were operating under a fundamental mistaken assumption. This was a mistake that went to the core of the deal: They were selling and buying a hamburger cow; when in reality Rose Second of Aberlone was a valuable breeding cow. Result: Rose Second of Aberlone went back to her original owner.

Works’ dead daughter’s wedding dress HYPO: Can works rescind for mistake if she had already died before he bought the dress? Rabin says not b/c there must be a “gross disparity of exchange.” There must be loss on one side and commensurate gain on the other side.

Gravel/Gem Stone Hypo: Works has some land, he sells loads of gravel for $50 a scoop. He sells to scoops to buyer, and buyer subsequently finds a valuable gem stone in the gravel. Can Works get R&R? Element 2 & 4 is very important in this hypo. “Gross disparity of exchange?” “Assume the

risk of mistakes of this kind?” o Important question is, what is the nature of the gem stone in determining did Works

assume the risk. Natural or Not.

§151. Mistake DefinedA mistake is a belief that is not in accord with the facts.

§152. When Mistake of Both Parties Makes a Contract Voidable(1) Where a mistake of both parties at the time a contact was made as to a basic assumption on which the contract was made has a material effect on the agreed exchanges of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in §154.

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

Comment b. Basic Assumption: A mistake of both parties does not make the contract voidable unless it is one as to a basic assumption on which both parties made the contract…Mistakes as to market conditions or financial ability do not justify avoidance under the roles governing mistake. Where, for example, a party purchases an annuity on the life of another person, it can be said that it was a basic assumption that the other person was alive at the time, even though the parties never consciously addressed themselves to the possibility that he was dead.

Comment h. Mistakes as to different assumptions: The rule stated in §152 applies only where both parties are mistaken as to the same basic assumption. If the parties are mistaken as to different assumptions, the rule stated in §153 applies.

§153. When Mistake of One Party Makes a Contract Voidable.Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in §154, and

(a)the effect of the mistake is such that enforcement of the contract would be unconscionable, OR(b)the other party had reason to know of the mistake or his fault caused the mistake.

§154. When a Party Bears the Risk of a MistakeA party bears the risk of a mistake when

(a)the risk is allocated to him by agreement of the parties, or(b)he is aware, at the time the contract is made, that he has only limited knowledge with respect to the

facts to which the mistake relates but treats his limited knowledge as sufficient(c)the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do

so.

DuressDuress Elements:1. Threat against plaintiff2. Threat was improper3. Threat induced plaintiff’s assent4. Threat left Plaintiff no reasonable alternative

Types of Duress: Threatening to blow out brains obviously constitutes duress. Other kinds of threats that may overbear will: Economic Duress Foreclose on mother’s farm

Evict mom from assisted living facility Bastardy court (Fiege v.Boehm) Any economic threat is so severe that a reasonable person will be overwhelmed by it. Fighting Issue: Whether the threat was wrongful and sufficient to overbear someone’s will.

§175. When Duress by Threat Makes a Contract Voidable(1) If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.(2) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.

§176. When a Threat Is Improper(1) A threat is improper if

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

(b) What is threatened is a criminal prosecution(c) What is threatened is the use of civil process and the threat is made in bad faith(d) The threat is a breach of the duty of good faith and fair dealing under a K with the recipient.

(2) A threat is improper if the resulting exchange is not on fair terms, and (a) the threatened act would harm the recipient and would not significantly benefit the party making the

threat(b) the effectiveness of the threat inducing the manifestation of assent is significantly increased by prior

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

Undue Influence elements: [undue influence is like “duress lite”]1. Persuasion of Plaintiff (persuasion is different than threat)2. Persuasion unfair given relationship of persuader and persuaded (must be someone

with special relationship) 3. Persuasion induced plaintiff’s assent4. Circumstances make it reasonable for plaintiff to be persuaded

Special Relationships: Parent - child Lawyer - client

Ordorizzi Factors showing excessive persuasion: The presence of a few of which usually characterize unfair persuasion. Discussion of transaction at an unusual or inappropriate time Consummation of transaction in an unusual place Insistent demand that the business be finished at once Extreme emphasis on untoward consequences of delay Use of multiple persuaders by dominant side, against single servient party Absence of third party advisers to the servient party Statements that there is no time to consult financial advisers or attorneys.

Situation of undue influence: Principle and superintendent talking to teacher at home story. Think of this as at the bottom of you quiver.

§177. When Undue Influence Makes a Contract Voidable(1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.(2) If a party’s manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.(3) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.

Unconscionability (the worst arrow in the quiver) [UCC §2-302, §208]“Shocking, shocking, shouldn’t be allowed” = UnconscionabilityIf a K or a term is unconscionable at the time the contract is made, a court may refuse to enforce the K, or may enforce the remainder of the K without the unconscionable term. Oppressive conditions at the time the K was made. The court can find the entire K unconscionable and not enforce the entire deal. Alternatively,

the court might find that only part of the K was unconscionable—and not enforce just part of the deal.

** Important aspect is the reasonableness of the term. When looking at this don’t forget the economic and policy implications in validating or prohibiting a term in a K.

o E.g., bank charges for overdrafts. It probably is an unfair surprise, but it may not be an unfair exchange b/c the bank could argue that it allows them to have more banks and gives customers more access. Similar reasoning at Carnival Cruise Lines case, makes tickets cheaper.

§208 Unconscionable Contract or TermIf a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result. Comment a: The determination that a contract or term is unconscionable is made in light of its setting, purpose and effect. Relevant factors include weaknesses in the contracting process…”

UCC 2-302—applies to ALL contracts, not just sale of goods. (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

Unconscionability: The worst arrow in the quiver –gives judges incredible latitude Ask NE, MO, KS judges—they’ll say that unconscionability is not relevant. These judges argue that

unconscionability is code for not having a case. If it can’t be fitted into mistake, nondisclosure, and duress, then you don’t have a case. Last chance argument. Avoid if at all possible.

§ 208 and § 2-302 are really placeholders for the fact that sometimes courts would just say “I’m not enforcing that because it shocks my conscience.”

If it works, isn’t automatically R&R. Court can strike unconscionable clauses and enforce K. Only places Works thinks unconscionability might work: Kingdom for glass of water and transactional

incapacity.

Professor Eisenberg: Suggest 4 kinds of potential unconscionability claims: DISTRESS: (1) “My kingdom for a glass of water.” Or (2) “My kingdom for brain surgery.” Analysis: We

are less willing to hold unconscionability in the second scenario because the brain surgeon made investment and people shouldn’t be deterred form specialization. However, the next-door neighbor had worked hard to buy a 4-wheel drive vehicle, he had stayed at home rather than being at work or on vacation. Is this a case of stuff happens; or a case of this stuff happens in the market and we want financial incentives in place.

UNFAIR PERSUASION: (1) Odorizzi: Jr. High teacher who resigned under pressure of potential sexual molestation charges. Prof. Eisenberg argues that there a lot of similar stories where people don’t understand the risk trade-offs because they’re under mental pressure, or the people they trust don’t fully explain the problem. (2) Promising to pay dead son’s debt. At funeral someone tells mother that son owed him $800. Here, you have context indicating that mom might not be rationale bargainer.

PRICE IGNORANCE: (1) Tree trimmers: Big snow storm in NE came while leaves were still on trees. People went door-to-door offering to do tree removal. Many people agreed to pay $2,500 to $3,000. Among discussion of neighbors, it was realized that some people paid $2500 whereas others paid $1200. (2) Toker:

The other line of price ignorance. During the 1960s war on poverty movement, poor person bought home appliance in their neighborhood charged substantially more than stores in the suburbs. What characterized the inner-city market? Harder to get delivery trucks down there, purchasers have poor credit.

TRANSACTIONAL INCAPACITY: 22 year old HS grad is left in will. She makes a bad deal based on her lack of knowledge in the area.

Unconscionability and Arbitration clauses: More often courts find unconscionability in arbitration clauses.

SUBSTANTIVE v. PROCEDURAL aspect: Substantive: Unfair exchange Procedural: Unfair surprise or unfair pressure

o Think of unconscionability as needing either unfair surprise and unfair exchange, or unfair pressure and unfair exchange. Then the four areas in which it applies.

o Substantive: Is that you can’t really put your finger on one thing, but overall the contract results in an unfair exchange.

C & J Fertilizer, Inc. v. Allied Mutual Ins. Co.* Contract provision about theft substantively unfair. ON ONE EXTREME: DESERT WATER (NO MARKET OVERSIGHT)ON THE OTHER: HIGH PRICED SURGERY (MARKET OVERSIGHT)

Reformation:

I am entitled to REFORM if I can show:- Clear and convincing evidence- That the paper doesn’t embody the terms of the deal

1. REFORMATION Special K: it is rare.a. Go through equity first, by reformingb. Then re-apply it to the law

Mutual Mistake is the standard entitlement to Reformation

INTERPRETATION & CONSTRUCTION

 A Guide to Interpretation & Construction

When the parties to a contract dispute the meaning of a term, ask:

1. At the time of contracting, did the parties have the same subjective understanding of the meaning of the term now in dispute?

 

 If " yes," go to section 201(1): that meaning prevails over other, even more "objective," meanings.

 

If "no," go to # 2     

2. At the time of contracting, did the parties have different subjective understandings of the meaning of the term now in dispute?

If "yes," go to sections 20 and 201(2): the meaning of party least well situated to prevent the misunderstanding prevails; if parties are equally responsible, then 201(3) contract fails for lack of definiteness. If "no," go to # 3

 

3. Does the term have a "plain meaning"?

   If "yes," give the term its plain meaning.

 If "no," go to # 4

 

4. Does the "vagueness" of the term yield to the aids to interpretation in sections 202 203 204?

  If "yes," give the term that interpretation.  

If "no," go to # 5 

5. Is the term "ambiguous"?

Be careful; often context will tell you which of several possible meanings to indulge. E.g., what do you understand when I tell you my brother is a criminal lawyer?

 

"yes," go to section 206; break tie between competing alternative meanings by choosing the meaning the profferor does NOT want.

 

If "no," go to # 6 

6. Resolve the dispute by either A) deciding against the party who bears the burden of proof; or B) declaring the contract void for vagueness and using restitution to return the parties to the status quo ante.

5 Categories in which you can stick disputes based on meaning of disputed terms:1. Ambiguity2. Vagueness3. Trade Usage (Find more on this)4. Equivocation5. Plain Meaning

Contra preferendum: (profferor of language) is only available if term is ambiguous. If not ambiguous, then try trade usage, plain meaning, etc…

Types of Ambiguity Semantic Ambiguity: ex is “light object” Syntactic Ambiguity: confusing statement when strung together; EX: 3 pizzas: Sausage, Green Pepper, &

Onion Structural Ambiguity: person looking at thick packet of pages. Be skeptical about structural ambiguity.

This remedy is stretching it. (ex: Flight Insurance but not on unscheduled flights).

[1] At the time of contracting, did the parties have the same subjective understanding of the meaning of the term now in dispute?

If yes: R2K § 201(1): then “it is interpreted in accordance with that meaning.” That meaning prevails over other, even more objective, meanings.

If no, go to #2

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

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

(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.(3) Except as stated in this Section, neither party is bound by the meaning attached by other, even though the result may be a failure of mutual assent.

[2] At the time of contracting, did the parties have different subjective understandings of the meaning of the term now in dispute?

If yes, go to sections 20 and 201(2): the meaning of party least well situated to prevent the misunderstanding prevails. If parties are equally responsible, then 201(3) contract fails for lack of definiteness.

o §201(2) places the responsibility with the party more at fault.o Pizza Store HYPO: Works would lose based on contra proferentem; he should’ve realized his order could lead to

confusion. But he could argue that pizza joint, as a repeat player, is more at fault and, thus, better suited to prevent the mistake. The pizza provider is probably best situated to avoid a misunderstanding. If ambiguous then pizza place wins, but if different subjective understandings under § 201, then Works wins.

If no, go to #3

[3] Does the term have a “plain meaning?” If yes: Give the term its plain meaning.

o Judge Traynor says there can never be plain meaning. (Restatement rejects plain meaning rule)o Trident Center emphatically disagrees.

Most Judges like to “assign” plain meaning. If no, go to #4

[4] Does the “vagueness” of the term yield to tools in § 202-204? This is an attempt to ascribe meaning/purpose to the language. [Context is relevant]

§ 202. Rules in Aid of Interpretation: (1) Words and other conduct are interpreted in light of all the circumstances, and if the principal purpose of parties is ascertainable, it is given great weight. (2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together. (3) Unless a different intention is manifested,

(a) Where language has a generally prevailing meaning, interpret it in accordance with that meaning; (b) Technical terms and words of art are given their technical meaning when used in a transaction within their

technical field. (4) Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement. [TIP: This could be used against repeat players] (5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.

§203. Standards of Preference in Interpretation:

In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable:(a) Reasonable, lawful and effective meaning to all terms preferred.(b) Hierarchy of precedence:

i. Express termsii. Course of performanceiii. Course of dealingiv. Usage of trade

(c) Specific and exact controls over general.(d) Separately negotiated or added terms control over standardized terms.

§ 204. Supplying an Omitted Essential Term: When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

Comment d. Supplying a term: The court should supply a term which comports with community standards of fairness and policy.

Implied Warranties:o UCC 2-314: Implied Warranty of Merchantability. Goods must be “fit for ordinary purposes” under the K

description.o Common Law Implied warranty of “Workman like performance” “quality in the provision of services,”

etc. If no, go to #5.

[5] Is the term “ambiguous?” Ambiguous means that term could have multiple meanings. If yes, go to §206 to break the tie between competing alternative meanings by choosing the meaning the

profferor (draftsman) does NOT want. (Contra Proferentum)o §206. Interpretation Against the Draftsman: In choosing among the reasonable meanings of a promise or

agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds.

o Semantic ambiguity: one word that has multiple meaningso Syntactic (Syntax) ambiguity: All the words taken together could have multiple meanings.

Ex: I’ll take three pizzas with pepper, onions, and sausage. This could mean three pizzas with 3 toppings each; or three pizzas, each with one separate topping.

If no, go to #6.

[6] Resolve the dispute by either: (a) deciding against the party who bears the burden of proof; or (b) declaring the contract void for vagueness and using restitution to return the parties to the status quo

ante.

Frigaliment Importing Co. v BNS Int’s Sales Corp Scenario: D, an American corporation, agrees to export to P, a Swiss corporation, a certain quantity of

eviscerated “chickens.” D ships “stewing” chickens (older, heavier, birds) which P rejects claiming that the contract contemplated young “broilers” or “fryers.” P argues that there is a trade usage by which “chickens” means “young chicken.”

Held: Court went to step 6. P has failed to sustain its burden of showing that the stewing chickens are not “chicken.” Trade usage is binding on D only if it had “actual knowledge” of the usage, or the usage is “so

generally known in the community that D’s actual individual knowledge of it may be inferred.” Here, D was quite new to the poultry business, and P did not prove that the alleged trade usage was sufficiently well established; on the contrary, witnesses testified that they were careful to say specifically “broilers” rather than merely “chicken” when they wanted young chickens. Furthermore, USDA regulations in force at the time included “stewing chickens” among the various classes of chickens. D was entitled to use the meaning included in these regulations, particularly since P’s first inquiry referred to “grade A government inspected” chickens, as did the contract. Since D has proved that is subjective understanding of the word “chicken” (stewing chickens) coincided with at least objective meaning of that word (as shown by the gov’t regulations and realities of the marketplace) P has not sustained the burden of showing that both parties intended only the narrower use of the word. [E, 187]

Hooters HYPO—Hooters waitress wins contest of selling the most beer to win a Toyota. Instead they give her a Star Wars “Yoda.” This is a potential 201 story. You’ve got the manager saying: “Toyoda” (smirk, smirk); and the waitress thinking she has a chance to win the car of her dreams—a Toyota. Restatement (Second) 201(2) for subjective disagreements states: “Where the parties have attached different

meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

Shopping Mall’s Lease with Panera Bread: The contract included: “Landlord agrees not to enter into an arrangement with a competitor of Panera’s, who might do 10% of their business in “sandwiches”. Qdoba’s moved in; they sells tacos, burritos, and quesadillas. The fighting issue: whether a burrito/taco/quesadilla is a sandwich. This is likely a problem of vagueness. (This story is not amenable to treatment from 201 as equivocation; or treatment from ambiguous term which can be treated from 206.) Held: Given that the “term” sandwiches is not ambiguous and the Lease does not provide a definition of it, the court applies the ordinary meaning of the word. The Dictionary describes a “sandwich” as “two thin pieces of bread, usually buttered, with a thin layer (as of meat, cheese, or savory mixture) spread between them.” Under this definition and as dictated by common sense, this court finds that the term “sandwich” is not commonly understood to include burritos, tacos, and quesadillas, which are typically made with a single tortilla and stuffed with a filling of meat, rice, and beans. Also, when arguing for Panera it would be smart to argue PURPOSE in terms of the contract.

PAROL EVIDENCE RULEThe Rule: More of an attitude than an actual rule pertaining to the sanctity of a piece of paper, and to what extent that paper represents the enforceable terms of a contract. Difficult Rule to apply. What it Does: Limits the extent to which a party may establish that discussions or writings prior to the signed written contract should be taken as part of the agreement. In some circumstances, the rule bars the fact-finder from considering any evidence of certain preliminary agreements that are not contained in the final writing, even though this evidence might show that the preliminary agreement did in fact take place and that the parties intended it to remain part of their deal despite its absence from the writing.

What the PER does   What the PER does not doThe PER is found in Restatement section 213: "A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them."

Everything else is just definitional:

An "integrated agreement" is "a writing or writings constituting a final expression of one or more terms of an agreement." 209

If the "integrated agreement" is a final expression of all of the terms of the agreement, we say the agreement is "completely integrated." If the "integrated agreement" is a final expression of only some of the terms of the agreement, we say the agreement is "partially integrated." 210

The parol evidence rule should not affect efforts to:

interpret or explain the terms of an agreement *

supplement a less-than-fully-integrated agreement with evidence of consistent additional terms or course of dealing or usage of trade or course of performance

enforce a subsequent agreement

attack the validity of an agreement

Wanna see an "integration (merger) clause"?

Wanna see a "no oral modifications" clause? Remember 2-209?

As we already know, standardized agreements can be integrated. 211

reform the agreement

establish that a condition precedent to formation of an agreement was not satisfied

enforce an implied or express warranty of quality *

defend against attacks on the validity of an agreement

pursue tort remedies, including remedies for "promisssory fraud"

* Often misunderstood! 

Contra Proferentem Defanged?An alternative statement of the PER -- for sales of goods -- is found in UCC 2-202. UCC 2-202 tends to highlight the "weasel words"

upon which PER disputes will turn: "Terms . . . in a writing intended by the parties as a final expression . . . with respect to such terms . . . may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement but may be explained or supplemented . . . ."

Compare Traynor's "extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract" with Kozinski's "extrinsic evidence is inadmissible to interpret, vary or add to the terms of an unambiguous integrated written instrument."

OVERVIEW [insert chart from online Clint] If it is an integrated agreement, and another party wants to introduce parol evidence that is inconsistent with

a term(s) in the contract, the evidence wont’ be allowed. Merger Clauses make it more likely that a court will find the writing to have been intended as a total

integration. INTEGRATION

o Partial Integration: A partial integration is a document that is intended to be final, but that is not intended to include all details of the parties agreement

RULE: When a writing is a partial integration, no evidence of prior or contemporaneous agreements or negotiations (oral or written) may be admitted if this evidence would contradict a term of the writing.

o Total Integration: A total integration is a document that is not only a final expression of agreement, but that is also intended to include all details of the agreement.

RULE: When a document is a total integration, no evidence of prior or contemporaneous agreements or negotiations may be admitted which would either contradict or add to the writing.

The PER should not affect efforts to: Ambiguous Term Exception: Interpret or explain the terms of an agreement Additional Term Exception: Supplement a less-than-full-integrated agreement with evidence of consistent

additional terms or course dealings or usage of trade or course of performance Enforce a subsequent agreement

o PER only prevents previous agreementso § 2-209; (4) (5) – Waivers: You can make no oral modifications clause, but you can also waive the

clause. Need no consideration to modify. Statute of Frauds must be satisfied.

Establishing a Defense Exception: Attack the validity of an agreemento E.g., based on misrepresentation, nondisclosure, fraud, etc…

Reform the agreement: Mistake about whether the document properly incorporated terms of the deal. High standard for reformation (clear and convincing). Basically this is for when it’s obvious the K didn’t get the real terms in.

Establish that a condition precedent to formation of an agreement was not satisfied Enforce an implied or express warranty of quality [§2-313] [§2-316]

o This is often misunderstood. Once the express warranty has been created it might be difficult to make the person waive based on §2-316(1)

o This one is a mess, recognize the argument but who knows how it will come out Defend against attacks on the validity of an agreement

o EX: the Works hypo where he gets oral cancer and they attack the validity of the insurance contract. Works’ wife was listening and has evidence he said that he had missed work on account of being sick. Her evidence is not barred.

5 Main Features:

1) Only applies when a written agreement has been executed. The more complete the written memorandum, the more rigorous the application of the rule.

2) The writing must have been adopted by both parties. It need not be signed by them as long as it is shown to be a mutual document.

3) The word ‘parol’ suggests that the rule is primarily concerned with oral communications between the parties before or at the time of execution of the writing. However, the rule is not confined to oral communications, and it also covers prior written communications.

4) The rule does not absolutely bar all parol evidence. The purpose of the rule is to exclude presumptively irrelevant or concocted testimony, but not honest and pertinent evidence of what was actually agreed.

5) The rule contemplates a two-stage process. The judge must make and initial finding of admissibility. If judge finds that the evidence is admissible, it is presented to the fact finder.

[ Works’ Language ] Was the written agreement fully integrated (so that it discharged any earlier agreement and can’t be added to or supplemented) or only partially integrated (so that it could be supplemented but not contradicted by such an agreement)?

Different Approaches to the PER: Traynor v. Kosinski Traynor: Liberal approach rejecting the highly restrictive limitations applied to integration and

interpretation cases. Allows using extrinsic evidence to interpret. Kozinski: Strict approach to PER forbidding interpretation of the terms in a contract. “Extrinsic evidence is

inadmissible to interpret, vary or add to the terms of an unambiguous integrated written instrument.”

CONFLICTING VIEWS ON RULE Four Corners Rule: The judge decides whether there is an integration , and whether it is total or partial, by

looking solely at the document Corbin View: Look at all available evidence, including testimony, to determine the actual intention of the

parties

RESTATMENT§213 Effect of Integrated Agreement on Prior Agreements(1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.(2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.(3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which whould have been part of the agreement if it had not been integrated.

§214 Evidence of Prior or Contemporaneous Agreements and NegotationsAgreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish:

(a) that the writing is or is not an integrated agreement(b) that the integrated agreement, if any, is completely or partially integrated(c) the meaning of the writing, whether or not integrated(d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause(e) ground for granting or denying rescission, reformation, specific performance, or other remedy.

§2-202. Final Expression in a Record: Parol or Extrinsic Evidence(1) Terms with respect to which the confirmatory records of the parties agree or which are otherwise set forth in a record intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not

be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be supplemented by evidence of:

(a) course of performance, course of dealing, or usage of trade(b) consistent additional terms unless the court finds the record to have been intended also as a complete and

exclusive statement of the terms of the agreement.(2) Terms in a record may be explained by evidence of course of performance, course of dealing, or usage of trade without a preliminary determination by the court that the language used is ambiguous.

Restatement (Second) of Contracts § 211 (Standardized agreements can be integrated)(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the agreement

 (2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing.

 (3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not a part of the agreement. (to make sense of this see 211 Comment f)

211 Comment fTerms excluded. Subsection (3) applies to standardized agreements the general principles [governing interpretation of contracts]. Although customers typically adhere to standardized agreements and are bound by them without even appearing to know the standard terms in detail, they are not bound to unknown terms which are beyond the range of reasonable expectation. . . . [A] party who adheres to the other party`s standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term. Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances. Reason to believe may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction.

REMEDIES/DAMAGES

Three Inquires when there is a breach:(1)Nature and extent of the loss of the non-breach party.(2)Which means of remedy best compensate (i.e., mainstream, restitution, reliance, etc…)(3)Policy or Principle limiting defendant’s liability

Holmes: perform the promised action or pay damagesLlewellyn: rights are a poor substitute for goods

Which Interest Do We Protect? [Damage for Breach of Contract Duty] Expectation (R2K §347): Damages = Pl’s expectation position ex post – Pl’s actual

position ex posto Puts person in a position they would have been had the contract been carried through. o Interpreted objectively; must be in accordance with what a reasonable person in her position would

have expected as the benefit of the transaction, given the language of the contract and underlining circumstances

Enforce by specific performance of the contract or (the usual preference) monetary relief Reliance (R2K §349): Damages = Pl’s status quo ante – Pl’s actual position ex post Restitution (R2k §371): Damages = D’s actual position ex post – D’s status quo ante

[Wording for Exam] Defendant breached his contractual obligation, thus making himself liable for damages caused by the breach if those damages satisfy the certainty, foreseeability, and unavoidability constraints.

OVERVIEW: Constraints on Expectation Damages Calculability [§352]: Court must refrain from submitting to the jury the issue of damages where the

evidence is such that it cannot determine that issue without indulging in speculation and conjecture. Foreseeability [§351] [Hadley’s 2-Prong Test]: Where two parties have made a K which one of

them has broken, the damages which the other party ought to receive in respect of such breach of K should be (1) such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things . . . or (2) such as may reasonably be supposed to have been in contemplation of both parties, at the time they made the K.

o Foreseeability test operates at the time K is made. Avoidability [§ 350]: General rule is that the measure of recovery by a wrongfully discharged employee

is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. However, before projected earnings from other employment opportunities not sought or accepted by the discharged employee can be applied in mitigation, the employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived. [Parker Test]

Two Types of Damages General Damages: Direct and or obvious consequential damages Special Damages: Unique, unforeseen consequential damages. Reasonable contemplation principle:

o Requires that a loss of that nature and approximate extent could be conceived of as a probability.

CALCULABILITY OF DAMAGESRule: Damages can’t be speculative or uncertain [El Fredo case]. Evidence must be sufficient to persuade the factfinder that the loss is more likely to have occurred than not, and must give the factfinder enough basis for calculating a monetary award.

§352 Uncertainty as a Limitation on DamagesDamages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. Plaintiff has the burden to show what the “reasonable damages” are between plaintiff’s expected ex post and

actual ex post.

Application of §352:A plaintiff who claims that he would have made profits had the defendant not breached must show: (1) That there would have been profits (2) The likely amount of those profits (to a reasonable certainty)

Profits form a New Business: Where the plaintiff claims profits from a business or venture which at the time of breach was not yet in actual operation, the courts are reluctant to award such lost profits, due to their speculative nature, unless: Old business used for estimation: Courts may be willing to allow recovery of prospective profits from a

new venture if the plaintiff can show that he ran a previous operation of a similar nature, or had experience in that particular industry.

FORSEEABILITY OF DAMAGES The Hadley Test for Forseeability : A plaintiff suing for a breach of contract may recover damages only if the damages: Prong 1: Arise naturally out of the usual course of things, from the breach of contract itself; OR Prong 2: May have been in the contemplation of both parties (Forseeability) at the time the contract

was made ! o Prong 2 allows Plaintiff to get greater special recovery if he discloses the special circumstances. However, this isn’t

always available, especially when dealing with low-level members of a bureaucracy. o EXCEPTION: Insurance cases where you may be able to look at the foreseeability from the time of breach/accident

NOTE: You only need to satisfy one of the two Hadley prongs. Damages recoverable only if:

o Either the loss must be one that may fairly and reasonably be considered to arise naturally—in the ordinary course of things—from the breach, or

o It must be one that may reasonably be supposed to have been contemplated by the parties at the time of contract as a reasonable consequence of breach.

Explanation for Hadley Forseeability Test as the default rule: The most efficient default rule places the consequences on the person best situated to deal with them; that is, the person with knowledge of the situation. Hadley leaves the risk of idiosyncratic damages (the odd case) on the party responsible for the idiosyncrasy. Idea of diversifying your risk.

Wildlife Photographer HYPO: Despite the value of the wildlife photographs that were destroyed by the Photo Shop’s breach, the damages to which the photographer is entitled are thus which are forseeable under Prongs 1 or 2 of Hadley’s forseeability test.

§351. Unforseeability and Related Limitations on Damages(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.(2) Loss may be forseeable as a probable result of a breach because it follows from the breach

(a) in the ordinary course of events, or(b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason

to know.(3) A court may limit damages for forseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.

§351 Comment a: A contracting party is generally expected to take account of those risks that are forseeable at the time he makes the contract. He is not, however, liable in the event of breach for loss that he did not at the time of contracting have reason to foresee as a probable result o fsuch a breach. The mere circumstances that some loss was forseeable, or even that some loss of the same general kind was forseeable, will not suffice if the loss that actually occurred was not forseeable…The test is an objective one based on what the breaching party had reason to foresee. There is no requirement of forseeability with respect to the injured party.

AVOIDABILITY OF DAMAGES: The Parker Test—Avoidability Duty to mitigate The rule preventing recovery for avoidable damages is often called the “Duty to

Mitigate.” If the plaintiff does not avoid his avoidable damages, he simply loses his ability to recover for them and nothing further happens. [R2K §350, Comment b].

Standard of reasonableness: The avoidable damages doctrine merely requires the plaintiff to make reasonable efforts to mitigate damages. The plaintiff is not expected to enter into dubious contracts, incur considerable expense or inconvenience, disorganize his business, damage his reputation, or break any other contracts, in order to mitigate the damages done by the defendant’s breach. [R2K §350, Comment g]

Highly Specialized Professional Type Employment—Requires Plaintiff only to do things that are comparable or substantially similar: Where the plaintiff is highly specialized, courts are especially lenient toward the plaintiff, and do not require him to accept any position that is substantially different from, or inferior to, the one contracted for. This is applicable when job choice may impact one’s career trajectory.

2 parts of the world—Impacting nature of Duty to Mitigate:

o Common garbage worker likely will have to accept highest paying jobo If you’re highly specialized, you only have to take work that is comparable. [Parker]

Parker v Twentieth Century Film Corp: Plaintiff (actress Shirley MacLaine) contracts to perform in a movie musical to be made by D, called “Bloomer Girl.” She is to be paid a salary of $750,000 and her contract provides that she has approval rights over the director and the screenplay. D then cancels the contract, but offers to pay the same salary for a different movie, “Big Man.” In this movie, she would not have approval over director or screenplay; also, the movie is a “Western Type” rather than a musical, and will not show P’s dancing talents as the other one would have. Held: The second movie constituted a “different and inferior” employment from the first, and P was not required to

accept it in order to mitigate damages. It was different in that it was a western rather than a musical, and did not involve P’s dancing and singing talent. It was inferior in that it lacked director and screenplay approvals. The court will not inquire whether P acted reasonably in rejecting the 2nd offer; the sole question is whether she made reasonable efforts to procure employment that was substantially the same as the cancelled work.

Dissent: Two employments did not have to be identical for P to be required to accept the second one; it would be enough if they were of substantially the same kind, and there was no showing that this was not so. Otherwise, a dismissed employee would never be forced to mitigate unless he were offered precisely his old job back by his old boss.

§350. Avoidability as a Limitation on Damages(1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.(2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.

Law Student’s Summer Job HYPO—Offered job with Omaha firm. Omaha firm blatantly reneged their offer. Firm admits that they reneged on their contract. Does the student have a duty to mitigate? Yes What does the duty to mitigate require? Do things that are comparable or substantially similar (i.e., look for

work with other law firms), but that probably doesn’t include accepting job as a garbage collector.

**If you can’t get past foreseeability, avoidability, and certainty, you may still be able to recover under reliance or restitution.

Liquidated Damages

To be enforceable, the liquidated damages must be “reasonable” compensation at the time the contract was formed OR ex post. Damages construed as a “penalty” will be unenforceable on public policy grounds. Fighting Issue: Argument over whether it’s “reasonable” as an acceptable liquidated damage clause, or a

penalty clause and thus, unenforceable on grounds of public policy.

UCC §2-718(1) & §356: allow damages reasonable at the time contract was made, OR reasonable after the fact: The UCC allows a court to consider actual damages to validate a liquidated damages clause. Even if the clause was not a reasonable forecast of damages at the time of the contract formation, it will be valid if it was reasonable in light of the subsequent actual damages. §356 Liquidated Damages and Penalties

(1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on ground of public policy as a penalty.

(2) A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence.

Comment a: The liquidated damages must be used to compensate—not penalize the breacher. A penalty is unenforceable on grounds of public policy.

UCC §2-718. Liquidation or Limitation of Damages; Deposits(1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is

reasonable in light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.

Policy Against Penalties: These two requirements reflect a long-standing judicial policy against the enforcement of penalties for breach of contract. The purpose of damages is to put the plaintiff in the same position he would have been in had the contract been fulfilled, not a better one. Where a provision that is labeled a “liquidated damages” clause really serves to penalize a party for breach in an amount far beyond the loss suffered by the plaintiff, the courts simply refuse to enforce the provision, and award ordinary damages. Intent [Penalty or Compensatory] is Irrelevant: If the amount stipulated in the liquidated damages clause

is unreasonable, it is irrelevant whether the parties subjectively attempted to provide for liquidated damages rather than a penalty. Nor does the fact that the contract refers to the clause as “liquidated damages” rather than as a “penalty” save the clause in this situation.

PEEVYHOUSE: the court may also limit damages if they see them (even unliquidated) as economic waste.

o Here, the court refused to force the coal company to fix a worthless piece of propertyo It is a public policy reason – outside of foreseeability, avoidability, and calculability – to limit

damages where they are perceived as “economic waste”

Liquidated damages are only enforced if the amount is reasonable: All courts agree that a liquidated damages clause will be upheld, rather than being struck down as a penalty, only if it provides for a “reasonable” amount. Time for measuring reasonableness: There is dispute as to the time for ascertaining the reasonableness of

the amount: is the issue whether the amount was reasonable one as of the time contracting (i.e., reasonable forecast of likely damages from breach), or is it whether the amount is reasonable when views as of the time of breach or trial (i.e., reasonable compated with the actual damages)?

o Traditional View: The reasonableness of the clause is to be viewed solely as of the time of contracting.

First, if the clause is a reasonable forecast viewed as of this time, the clause will be enforceable even though it turns out that the plaintiff has actually suffered much less damage than the liquidated amount.

Second, if the clause sets an amount which is, viewed as of the contracting, unreasonably large, the clause will not be saved by the fact the plaintiff’s actual damages have fortuitously turned out to be extraordinarily large.

o Modern View—UCC & R2K: The modern view is that the clause should be enforced if it is the case that either:

(1) The clause is a reasonable forecast when viewed as of the time of contracting, or (2) The clause is reasonable in light of the actual damages which have occurred.

Liquidated Damages vs. Penalties“To be valid under Illinois law a liquidation of damages must be a reasonable estimate at the time of contracting of the likely damages from breach, and the need for estimation at that time must be shown by reference to the likely difficulty of measuring the actual damages from a breach of contract after the breach occurs. If damages would be easy to determine then, or if the estimate greatly exceeds a reasonable upper estimate of what the damages are likely to be, it is a penalty.” –Posner in Carborundum

Efficient Breach : Defendant’s cost to perform would exceed the benefit that performance would give to both parties.

Posner on Efficient Breach (Law & Economics Approach)“Even if the breach is deliberate, it is not necessarily blameworthy. The promisor may simply have discovered that his performance is worth more to someone else. If so, efficiency is promoted by allowing him to break his promise, provided he makes good the promisee’s actual losses. If he is forced to pay more than that, an efficient breach may be deterred, and the law doesn’t want to bring about such a result.”EXAMPLE“Suppose I sign a contract to deliver 100,000 custom-ground widgets at 10¢ apiece to A for use in his boiler factory. After I have delivered 10,000, B comes to me, explains that he desperately needs 25,000 custom-ground widgets at once since otherwise he will be forced to close his pianola factory at great cost, and offers me 15¢ apiece for them. I sell him the widgets and as a result do not complete timely delivery to A, causing him to

lose $1,000 in profits. Having obtained an additional profit of $1,250 on the sale to B, I am better off even after reimbursing A for his loss, and B is also better off. The breach is Pareto superior.” Works’ Synopsis: these folks see the world in market-driven responses to everything. You should be

completely untrammeled by the law to make the most economically rationale decision, taking into account that you’ll have to account Fulton for his dashed expectations.

Works’ Objection to this Approach: Lyford promises to pay $125. Seller breaches because somebody else offers to pay $200. Posner says that Lyford will be made whole because he can find another horse for $125, but this is only valid reasoning if there is an inherent assumption that another horse will be available.

Works sees this approach as an academic approach. It shouldn’t be seen as a real-world approach. A problem is that the damages don’t always fully compensate the damaged party.

Perillo on Efficient Breach (Right to get what one Bargained For Approach) “Whatever value the theory of efficient breach may have as a construct for economic analysis, at most it

should be a limited tool for making normative decisions. Proponents of the efficient breach theory worry that ‘an efficient breach may be deterred,’ by a rule of law, ‘and the law doesn’t want to bring about such a result.’ The law, however, does want to discourage breaches, efficient or otherwise.”

“The law seeks to protect reliance and expectancies, and to preserve peace and tranquility. Breaches–even efficient breaches–tend not only to disappoint expectations, but also to precipitate private disputes. The legal system knows what economic science does not know: damages and other legal remedies are substitutes for private warfare. While economics claims to be a value-free science; the law is most distinctly not value free. On the contrary, it is an embodiment of community values, only one of which happens to be economic efficiency.”

Friedman on Efficient BreachA. EFFICIENT BREACH: Friedmann

1. A promises to sell machine to B for 10K, B values it for 12K, and A sells to C for 18K.2. B owns machine for which he paid 10K and values it at 12K, A steals it, sells it to C for 18K3. Works and Glaser

a. Has Works sold the potential of a breach to Glaser?4. Works: he agrees with Friedmann

B. Efficient Breach and the Penalty Doctrine1. If you agree with Posner, then you are concerned about the penalty doctrine2. Back to §2-718

a. The dispute between a penalty and liquidated damages provision is essentially a dispute about whether efficient breach should shift the common law away from disallowing penalty clauses

b. We’re going to enforce the clause if:i. Setting amount reasonable in light of anticipated harm or the actual harm at the breach

If one of these standards is not met, then it is unenforceablei. Explanation: “the real issue in both the conversion and the breach situation is who should benefit from C’s

willingness to pay a high price for the goods owned by B or promised to him. In principle, there should be in both situations only one transaction; in my view it should be between C & B.”

CONSTRUCTIVE CONDITIONS Constructive ConditionsA party to a contract only has a present active duty to so something when all the conditions precedent to that duty have been satisfied. Some of those conditions are express; some conditions are constructive. When promises are exchanged, we assume they are dependent. Failure to satisfy a constructive condition has the same effect as failure to satisfy an express condition (except in a few circumstances such as substantial performance) and excuses a party’s duty to perform.

2 Forms of Conditions* Express (created by the parties) and Constructive (constructed by the court to fill gaps left by the parties)

§226 How an Event May Be Made a ConditionAn event may be made a condition either by the agreement of the parties or by a term supplied by the court.

Comment c. By a term supplied by court. When the parties have omitted a term that is essential to a determination of their rights and duties, the court may supply a term which is reasonable in the circumstances. [§204]

Effects of Nonoccurrence of a condition [F §8.3]The non occurrence of a condition of an obligor’s duty may have 2 distinct effects:[1] The obligor is entitled to suspend performance on the ground that the performance is not due as long as the condition has not occurred. [2] If time comes when it is too late for the condition to occur, the obligor is entitled to treat its duty as discharged and the contract as terminated. --Explanation: There is usually some period of time within which the condition must occur if it is to occur at all. This may be stated in a provision of the agreement or it may be reasonable time under an implied term. Once the period has passed, it is too late for the condition to occur, and the party whose duty was originally conditional may choose to treat that duty as discharged—as no longer enforceable.

SALE OF GOODS—Perfect Tender RuleUCC §2-601 Buyer’s Rights on Improper Delivery…If the goods or the tender fail in any respect to conform to the contract, the buyer may

(a) Reject the whole; or(b) Accept the whole; or(c) Accept any commercial unit or units and reject the rest

Use of § 2-601: Improper delivery gives the buyer the right to reject. Then, under § 2-509 and § 2-510, the risk of loss remains with the merchant seller until cure.

If buyer accepts delivery, we are no longer under 2-601. If delivery accepted, then § 2-608 applies, which establishes a “substantial performance” gap filler if the issue is whether the buyer has a right to revoke an acceptance of goods (and a right to refuse to pay) after they are in the possession of the buyer.

Explanation: Once a buyer accepts the goods, §2-608 gives us a Jacobs & Young type analysis. This reflects the distinction in §237 and §241. The law says we need a different gap-filler if one party has the goods and the money because the power relationship is out of whack.

§2-608. Revocation of Acceptance in Whole or in Part [Triggered by Acceptance of Goods](1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it

(a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or

(b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances.(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

NON-SALE OF GOODS§237 Effect on Other Party’s Duties of a Failure to Render PerformanceExcepted as stated in §240, it is a condition of each party’s remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time.

Comment a. Effect of non-occurrence of condition. A material failure of performance has, under this Section, these effects on the party’s remaining duties of performance with respect to the exchange. [1] It prevents performance of those duties from becoming due, at least temporarily, and it discharges those duties if it has not been cured during the time in which performance can occur. Such conditions are sometimes referred to as “constructive conditions.”

§241 Circumstances Significant in Determining Whether a Failure is MaterialIn determining whether a failure to render or to offer performance is material, the following circumstances are significant:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he

will be deprived.(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all

the circumstances including any reasonable assurances.(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards

of good faith and fair dealing.

A duty of immediate performance with respect to a conditional promise does not become absolute until the conditions (i) have been performed, or (ii) have been legally excused because of failure to satisfy a condition. Examples of failure to satisfy a constructive condition include: o Failure to Satisfy (Constructive) Condition by Hindrance or Failure to Cooperate [involve Insurance]o Failure to Satisfy (Constructive) Condition by Actual Breacho Failure to Satisfy (Constructive) Condition by Anticipatory Repudiation o Failure to Satisfy (Constructive) Condition by Prospective Inability to Performo Failure to Satisfy (Constructive) Condition by Substantial Performance: Courts only apply the doctrine of substantial

performance where a constructive condition is involved.

Substantial Performance Doctrine: "The focus is on avoiding disproportionate forfeitures that were not among the risks allocated by the parties. The potential for disproportionate forfeitures is more likely, says Cardozo, when we are confronted with circumstances in the right-hand column.

Simple and uniform / Multifarious and intricate

Chattels (easy to fix) / Skyscraper(impossible to re-do once built)

Can be returned / United with the land and not returnable

Field of art (uniqueness is honored) / Field of Utility(ex: plumbing, so we ask does it work just as well)

Willful breach / Unintentional breach

Overview: None of the above factors are determinative. "We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether literal enforcement is to be implied by law as a condition." The Restatement effort to capture J&Y is found in 237 and 241. 237 suggests as the standard constructive condition default "that there be no uncured material failure by the other party to render any such performance due at an earlier time." 241 provides a laundry list of "circumstances significant in determining whether a failure is material."

ANTICIPATORY REPUDIATION A party may make it unmistakably clear, even before his performance under a contract is due [before he has a present active duty to perform], that he does not intend to perform. When he does so, he is said to have anticipatorily repudiated the contract. Such repudiation allows the other party to suspend, and perhaps to cancel, his own performance.

Hochster v De La Tour provided the foundation of doctrine of anticipatory repudiation. Facts of Hochster: Involved a contract for services made between an employer and his employee. The

contract was executed in April 1852, and provided that the employment was to begin on June 1, 1852. On May 11, the employer stated that he would not perform the contract. On May 22, the employee instituted an action for breach of contract. The employer asserted that as of the day suit was commenced, no breach had yet occurred.

Suit allowed: The court held that the action was not premature. The court’s reasoning, universally criticized today, was that if an immediate suit were not allowed, the plaintiff would either have to cancel the

contract, giving up all his rights under it, or else ignore the repudiation completely, holding himself in readiness to perform until June 1 (and therefore not procuring another job), meaning the wheels of the economy would’ve been standing still.

What constitutes repudiation: Sometimes a party will make it perfectly clear that he has no intention of performing the contract. Such a statement clearly constitutes an anticipatory breach. But in other situations a party’s statement regarding his intention or ability to perform will be more ambiguous. (Like Works’ ex: “I may need you, but I may not need you. The winds of the economy are changing. Just wanted to make you aware.”) Traditional view: Older cases often held that as long as the promisor left any chance open that he would

perform, there was no repudiation. Modern view: Modern courts have generally held that a repudiation can be less clear than this. One

commentator defines a repudiation as being any “positive statement by the obligor to the obligee which is reasonably interpreted by the obligee to mean that the obligor will not or cannot perform his contractual duty. [See Rest §250, Comment b]

“MILK RULE” – Technical Exception [Rule of Substantive K Law]: Repudiation in a contract setting where one side has already performed and the other side has a sequence of performances = injured party has to wait to sue them. This is a pitfall of commercial litigation: If one side has fully performed and the other side has a sequence of performances, there is no such thing as an anticipatory repudiation that will give rise to present claim for damages.

UCC §2-609 Right to Adequate Assurance of Performance

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

(2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.

(3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.

(4) After receipt of a justified demand, failure to provide within a reasonable time, not exceeding thirty days, such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.

UCC §2-610 Anticipatory RepudiationWhen either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may

Adequate Assurance is available in Sale of Goods and Common Law: UCC §2-609 and §251 both enable a party to request adequate assurance of performance. If adequate assurance is not given, the aprty may suspend performance.

(a) for a commercially reasonable time await performance by the repudiating party; or

(b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and

(c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).

UCC §2-611 Retraction of Anticipatory Repudiation(1) Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.

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

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

§250. When a Statement or an Act is a RepudiationA repudiation is:

(a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach under §243, or

(b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach.

Comment a: Even if it occurs before any breach by non-performance, it may give rise to a claim for damages for total breach [§253(1)], discharge the other party’s duties [§253(2)], or excuse the non-occurrence of a condition [§255].

Comment b Nature of statement. In order to constitute repudiation, a party’s language must be sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform. Mere expression of doubt as to his willingness or ability to perform is not enough to constitute a repudiation, although such an expression may give an obligee reasonable grounds to believe that the obligor will commit a serious breach and may ultimately result in a repudiation under the rule stated in §251.

§251. When a Failure to Give Assurance May Be Treated as a Repudiation(1) Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach under §243, the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance. (2) The obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case.

Comment a Rationale. Ordinarily an obligee has no right to demand reassurance by the obligor that the latter will perform when his performance is due. However, a contract “imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired.” UCC §2-609(1). When, therefore, an obligee reasonably believes that the obligor will commit a breach by non-performance that would of itself give him a claim for damages for total breach (§243), he may, under the rule stated in this Section, be entitled to demand assurance of performance.Comment c Reasonable grounds for belief. Conduct by a party that indicates his doubt as to his willingness or ability to perform but that is not sufficiently positive to amount to a repudiation…may give reasonable grounds for an obligee’s belief that there will be a breach. And events that indicate a party’s apparent inability, but do not amount to a repudiation because they are not voluntary acts, may also give reasonable grounds for such a belief.

§253. Effect of Repudiation as a Breach and on Other Party’s Duties(1) Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.(2) Where performances are to be exchanged under an exchange of promises, one party’s repudiation of a duty to render performances discharges the other party’s remaining duties to render performance.

§257. Effect of Urging Performance in Spite of RepudiationThe injured party does not change the effect of a repudiation by urging the repudiator to perform in spite of his repudiation or to retract his repudiation.

Installment Contracts UCC §2-612 finds an installment contract whenever possible, as opposed to a series of individual contracts. Where the contract authorizes or requires deliveries in separate lots, it is an installment contract. (The UCC assumes that all goods called for by a single contract must be tendered in a single delivery unless circumstances clearly point to a contrary intent, e.g., there are not enough railroad cars on the date of delivery. [§2-307])

Two-Prong test for determining whether Substantial Impairment of the Installment Relationship Exists: In a business context, a failure to pay substantially impairs the value if: (1) You need the money to keep business afloat; or (2) Signal that you’ll never be able to pay again in the future. If the situation does “substantially impair the value” of the relationship, then §2-612 gives the injured party

the right to terminate the whole contract

Be careful with Non-conforming 1st Installment:

If we are dealing with the first installment in an "Installment Contract," the "Perfect Tender" rule of 2-601 probably is not applicable even to an attempt to reject a nonconforming tender of the first installment; 2-612(1) &   (2) trump it with the "Substantially Impairs" standard for Installment Contracts!

Non-conforming 2nd or 3rd Installments: The only scenario capable of breaching a constructive condition to perform in an installment contract, is if

that breach “substantially impaired” the value of that breach as a whole. See the 2-Pronged Test above. If the situation does “substantially impair the value” of the contract, then §2-612 gives the injured party the right to terminate the whole contract.

Non-Sale of Goods Installment Contracts [Common Law] Key Question: “Does the failure to satisfy a condition substantially impair the value of the

contract/relatonship?” That is, “Is the failure to satisfy a condition material when judged against not just the installment where performance is defective but also against the value of the entire contract?”

In employment situation: You can only stop working if the failure to get paid on time substantially impaired your expectation that you would ultimately get paid.

Courts desire to maintain Installment Contracts: Good Idea to let it RipenIt is not in society’s interest to permit a party to use an insignificant breach as a pretext for evading its contractual obligations. Courts encourage deals to be kept together by allowing the injured party to suspend performance only if the breach was material. An injured party that chooses to exercise a right of self-help by suspending or electing to terminate the contract takes the risk that a court may later regard the exercise as precipitous. To avoid this risk, the injured party can choose instead to continue performance and claim damages for partial breach. The UCC gives a buyer the right, on notifying the seller, to deduct damages for partial breach from the balance due on the price. [§2-717]

§2-612 “Installment Contract”; Breach(1) An “installment contract” is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause “each delivery is a separate contract” or its equivalent.(2) The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.(3) Wherever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract [Works’ language: “relationship”] there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments.

§227 Standards of Preference With Regard to Conditions(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk.

(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether(a) a duty is imposed on an obligee that an event occur, or(b) the event is made a condition of the obligor's duty, or(c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur,

the first interpretation is preferred if the event is within the obligee's control.

(3) In case of doubt, an interpretation under which an event is a condition of an obligor's duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it has become a duty to perform.

§228 Satisfaction of the Obligor as a ConditionWhen it is a condition of an obligor’s duty that he be satisfied with respect to the obligee’s performance or with respect to something else, and it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied, an interpretation is preferred under which the condition occurs if such a reasonable person in the position of the obligor would be satisfied.

LAURA’S CONSTRUCTIVE CONDITIONSConditions

I. Introduction to ConditionsA. Farmer Leonard hypo: insurer and insured 1 (father), insured 2 (first son) and insured 3 (second son). K

between insurer and each of these three people. Insurer: “I promise to pay if wheat damaged by hail.” Insured: “I promise to pay for the insurance.” One of these promises is conditional- the promise to pay if wheat is damaged by hail is conditional on whether insured’s pay for the insurance. The insureds’ promises are not conditional. If there is a storm and the wheat is damaged, is there a present active duty to pay if the conditions are satisfied? Yes, but all conditions have to be satisfied. Conditions will be: payment, written notice received within 10 days of the storm, etc. the youngest son accidentally forgot

Provision

Promise Express Condition

Court builds constructive conditions: (2-601, 608, 612,

perfect tender, substantial performance, etc.)

Interpretation & Construction (Law) and Excuse (Equity)

to mail the father’s form, so the insurance company gets the sons’ on the 5 th day and the father’s on the 11th day. There is not a present active duty to pay for the father because the notice did not get there within 10 days. This is a condition, not a promise- the father didn’t promise that he would give notice within 10 days so they cannot sue him for breach of promise. Condition= an event which must occur before a particular promise is due is a “condition” of that performance. He’ll give notice IF wheat is damaged.

II. Constructive Conditions

A. Definition: conditions that go without saying, automatic gap-filling, constructive conditions implied in law1. assuming what rational parties would build in their own K’s to make them full if they thought about

it and expressed the relationship between their promises2. general rule: where one party makes one or more promises to the other, each party’s substantial

performance of his promise is generally a constructive condition to the performance of any subsequent duties by the other party

B. Concurrent Exchange1. concurrent condition: a condition precedent which exists only when the parties to a K are to

exchange performances at the same time2. in a goods (or land) for money transaction, we expect it to replicate the spy exchange movies3. horse trading hypo: neither party has to take the risk because the exchange happens simultaneously

(R2K §234(1))a. comment b: for when simultaneous performance possible under agreementb. UCC 2-507, 2-511, 2-601 for other formulations of the idea that neither party should be saddled

with the burden of going first4. sometimes the nature of the K is such that someone has to take the risk of going first. When

that happens:a. R2K §234(2): where the performance of only one party requires a period of time his

performance is due at an earlier time than that of the other party, unless the language or circumstances indicate the contrary. 2 kinds of service K’s: i. §234(2) service K: promise to paint house in exchange for $ (painting comes first because

performance takes time and comes before the payment- parties can change this if they want)

ii. §234(2) non-service K: promise to fly you to NY in exchange for $ (circumstances indicate the custom is to pay first)

iii. Negotiating power usually drives custom in the non-234 circumstances

5. Mansfield’s 3 possibilities on what the relationship between promises can be (from Kingston v. Preston)a. no relationship beyond what is necessary to establish consideration (independent promises). Be

skeptical of this- not encountered in real world often.b. One or other party goes first (see 234 above)c. Both go simultaneously (concurrent conditions above)d. Between b&c, draw a distinction. If it’s a sale of goods, assume c, if it’s a sale of services,

assume b. (in terms of which gap-filler to use)C. substantial performance (services)

1. when close enough is good enough2. Jacob & Youngs v. Kent: Using Constructive Conditions to Avoid Forfeiture

a. J&Y construction co. promises to build a mansion for Kent according to his specifications and he promises to pay. One of the specs is that Reading Pipe be used. Kent does an inspection and then moves in. The architect later finds out that they used Cohoes Pipe instead. Kent brings a claim for expectation damages (where he expected to be ex post minus where he actually is). To replace the pipes might cost more than the actual construction of the house. Kent characterizes the pipe requirement as an express condition precedent to his duty to pay. Cardozo holds the pipe condition was satisfied by substantial performance- he creates a factor analysis to aid in deciding how to construct the new condition. Choice of characterization is whether the language is a promise (getting damages, but not a windfall) or an express condition (on/off switch). Majority holds that the use of the wrong kind of pipe is a breach of promise, but not failure of condition precedent.

b. “I promise to build a mansion using Reading Pipe” and “I promise to pay $70,000 IF you build a mansion using Reading Pipe”

c. J&Y says it’s this way: “I promise to build a mansion using Reading Pipe” and “I promise to pay $70,000 IF you build a mansion using Reading Pipe or functional equivalent”

d. Cardozo says to use constructive conditions to avoid forfeituree. He says there are no express conditions, the parties didn’t specify, and that means there’s an

empty playing field upon which to work and Cardozo decides how to gap-fillf. The evidence shows the pipe was insignificant in its relation to the overall building project

g. An omission that is trivial and innocent can be atoned for by the award of damages- does not have to be treated as a breach of condition to be followed by forfeiture

h. “From the conclusion that promises may not be treated as dependent to the extent of their uttermost minutiae without a sacrifice of justice, the progress is a short one to the conclusion that they may not be so treated without a perversion of intention. Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probable. If something else is in view, it must not be left to implication. There will be no assumption of a purpose to visit venial faults with oppressive retribution.”

i. Kent is going beyond what the presumable intent of the parties was and as judge, Cardozo’s job is to draw inferences from what is available to him

j. If we accept Kent’s argument, J&Y could work for months and Kent could deny payment because any little condition was not satisfied in the thick specifications

J&Y v. Kent Factor Analysis

Simple and uniform Multifarious and intricateChattels SkyscraperCan be returned United with the land and not

returnableField of art Field of utilityWillful breach Unintentional breach

D. Works painting hypo: Works promises to paint Brym’s house if she pays him $4000. her promise to paint is conditional upon him painting the house in “autumn sunrise.” If he misses a spot, she will say she doesn’t have to pay because he didn’t finish in workmanlike quality. His argument is not analogous

to Kent because Kent can’t show any damages but Brym can. Substantial performance- was that which was done pretty close to completion? 1. more simple and uniform than Kent, chattels (movable goods) as compared to Kent’s skyscraper

(hard to undo), united with the land and not returnable (like Kent in that you cannot give performance back), field of art (the color of paint is a personal preference unlike Kent’s field of utility), and willful breach (if he knew he missed a spot)

2. if Works uses “September morn” instead of “autumn sunrise”- this relates to field of art, so you can’t say “or equivalent”

3. works argues that he substantially performed so not a material breach- this language can be used interchangeably

4. close enough is not always good enough- the condition precedent has not been satisfied with wrong color or with missing a spot

E. a lot of the 241 factors have to be involved to build a constructive condition to require 100% perfect performance1. field of art: personal preference (ex: wife wants Reading Pipe because they aren’t manufactured by

immigrant laborers)2. united with the land: how hard is it to fix?

a. it would have to be very difficult to undo the problemb. unless it would be a forfeiture, unjust enrichment, etc. it’s not going to be used

3. house painting hypo: Works paints a house and misses a spot. He cannot recover because it’s not united with the land- it will take little effort to go up there and paint it.

4. purpose is to avoid disproportionate forfeitures. Cardozo thinks they are more likely with the items in the right-hand column.

F. Constructive conditions in the sale of goods: perfect tender v. substantial performance1. UCC 2-511: Tender of Payment by Buyer; Payment by Check.

(1) Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery.

(2) Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.

(3) Subject to the provisions of this Act on the effect of an instrument on an obligation (Section 3-802), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.a. a check is a manner current in the ordinary course of businessb. most people take a check and if they don’t then you are entitled to an extension of time to

produce the $

2. UCC 2-601: “§ 2-601. Buyer's Rights on Improper Delivery. “Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may”(a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest.

3. Makes duty to pay subject to the constructive condition that seller has perfectly tendered everything she’s obliged to tendera. (subject to 2-612 and 2-608) if the goods or the tender of delivery fail in any respect to

conform to the K, the buyer may:(a) reject the whole or(b) accept the whole or (c) accept any commercial unit or units and reject the rest

4. beer dealer hypo: Works promises to deliver to Schafer 100 cases of long-neck beer bottles and Schafer promises to deliver $1000. the constructive conditions are “if you pay me $1000” and “if you deliver 100 cases of long-neck beer bottles.” If he delivers 99 cases of the long-necks and 1 of something else then he didn’t fulfill the constructive condition of perfect tender. If Schafer cares enough, he can employ 2-601. he is not obligated to pay until there is perfect tender.

5. UCC 2-608. Revocation of Acceptance in Whole or in Part. (1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity

substantially impairs its value to him if he has accepted it (a) on the reasonable assumption that its non-conformity would be cured and it has not

been seasonably cured; or (b) without discovery of such non-conformity if his acceptance was reasonably induced

either by the difficulty of discovery before acceptance or by the seller's assurances. (2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or

should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.

(3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

6. back to beer dealer hypo: if buyer accepts delivery (by exercising dominion over goods and failing to make a timely rejection), we are no longer under 2-601. if delivery was accepted then UCC 2-608: may revoke acceptance if the nonconformity “substantially impairs the value of the K” (is material breach, in other words)a. this is a revocation of acceptance in whole or part. You cannot revoke an acceptance.b. the beer bottles were already delivered and acceptedc. must revoke within a reasonable timed. revocation vs. rejection: buyer who wants to revoke an acceptance must make a stronger showing

of non-conformity than a buyer who rejects- must show the non-conformity substantially impairs the value of the goods, whereas the rejecting buyer merely has to show the goods fail to conform in any respect

7. 2-608 and 2-601 signal to us that we are going to gap-fill differently depending on the power relationship in place when the deviation from K is discovered*a. if the truck pulled up and someone noticed it said Cohoes on the pipes, then it would be a 2-601

story and the owner could refuse the pipesb. since the house is already built it’s a 2-608 story- Cardozo comes up with “substantial

performance” in order to avoid unjust enrichment of Kent and the substantial forfeiture the construction co. would suffer

c. Ask when the nonconformity is found and what circumstances surround when this happened to decide which to employ

d. The story is either one in which the pipes were on the truck (and could easily be sold to someone else) or already in the house (cannot be taken out without a substantial cost)

G. R2K effort to capture J&Y v. Kent is in §237 and 241:1. §237: suggests as the standard constructive condition default “that there be no uncured material

failure by the other party to render any such performance due at an earlier time”2. §241: provides a laundry list of “circumstances significant in determining whether a failure is

material.” Paraphrased:a. extent to which injured party will be deprived of the benefit reasonably expectedb. extent to which injured party can be compensated by damagesc. extent to which breaching party will suffer forfeitured. likelihood that breaching party will curee. extent to which breaching party conforms to standards of good faith and fair dealing

H. Right to assurances, anticipatory breach, and prospective inability to perform

1. REPUDIATION: not going to do something in the future you previously promised to do2. Hochster v. De La Tour: DLT is going on tour of Europe and hires Hochster to play courier for him

from Jun 1 to Aug 31. May 1 he gets a letter saying he won’t be needed. This is an anticipatory breach and H has the duty to mitigate damages. The court was worried about him not trying to get a job until after damages so it held that in situations like these, there are implied promises and conditions that look like above. Because DLT fails to satisfy a condition precedent, this excuses H from having to hold himself in readiness.

3. Anticipatory Repudiation: a. “I am going to breach in the future, I haven’t actually breached”b. Not that he will be likely unable to perform (prospective inability to perform), but that he refuses

to perform: requires a clear indication that a party cannot or will not performc. Victim is allowed to sue before the repudiator’s time for performance has arrivedd. when this happens it excuses H from having to “hold himself in readiness” and DLT has a

present active duty to pay because of the breach of the implied promise and condition. Because it’s a breach, it’s also a breach of the condition precedent to H’s promise not to do anything to impair DLT’s expectations. In other words, “H, go get a job.”

e. Damages will be hard to calculate. They have to be foreseeable, unavoidable, etc.f. UCC 2-610: anticipatory repudiation: when either party repudiates K with respect to a

performance not yet due… the aggrieved party may (a) wait for a commercially reasonable time for performance(b) resort to any remedy for breach, even though he notified the repudiating party that he

would await performance(c) suspend his own performance

g. UCC 2-611: Retraction of anticipatory repudiation. (1) until repudiating parties next performance is due, he can retract his repudiation unless

partner has cancelled, materially changed position or otherwise indicated that it was final

(2) Retraction can be by any method but must contain assurance required by 2-609(3) Retraction reinstates the repudiating party’s rights under the K with due excuse and

allowance to other party for delays caused by the repudiation In other words, can retract unless other party cancels K or detrimental reliance

4. prospective inability to performa. be careful when you have something less than a clear repudiation (more like I would like to

perform but it looks like I might be unable to do so)b. you can’t have a duty to mitigate unless you are a victim of a breach c. there is an “implied promise not to interfere with legitimate expectations of performance,

creating a duty subject to constructive condition that there will be no repudiation or prospective inability to perform.”

d. ex: DLT writes a letter and says the summer in Europe isn’t quite as certain to happen as he had thought.

e. “don’t go running off half-cocked” because this is not likely an anticipatory breach

5. Chart explanation: Works’ express promise to deliver horse includes an implied promise not to interfere with legitimate expectations of performance, creating a duty subject to the constructive condition that there will be no repudiationa. F doesn’t have to pay if W breaches this implied promise- he will never have the duty to perform

because the condition precedent to his duty to pay will never be satisfiedb. Gives F the right to sue right now as well as later when W doesn’t show up with the horse and F

has no duty to pay6. right to adequate assurance of performance

a. if a party’s conduct or words don’t constitute an outright repudiation but merely suggest that a party may not perform, the other party may demand assurances that the first party will perform. If the first party fails to provide these assurances, this failure will itself be considered a repudiation, entitling the innocent party to cancel.

b. horse breeding hypo: Morante and Works K to breed their horses. W hasn’t delivered by 6 week breeding period, M is worried and calls W. W says don’t worry, be cool. M waits and finally breeds his horse with someone else’s. W says he didn’t breach, still had a week. M says his expectations were impaired, W is a breacher. Prospective inability to perform, not a repudiation. UCC says M is entitled to an adequate assurance of future performance. M would have to write a letter to W saying that his expectations were being impaired, close to repudiation, and demand adequate assurances of due performance.

c. Demanding the assurance= “ripening the issue” (law wants to encourage)d. UCC 2-609 Rights to Adequate Assurance of Performance

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

(2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.

(3) acceptance of any improper delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of future performance.

(4) After receipt of a justified demand failure to provide within a reasonable time not exceeding 30 days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the K

I. Installment K’s

1. periodic alternating: parties may agree that their performances shall alternate. This is true of most installment K’s. here, a series of alternating constructive conditions arises: each party’s obligation to perform his duty is constructively conditioned on the other’s having performed the prior duty. It’s therefore important to decide who was the first to fail to substantially perform, since that failure of substantial performance is the non-occurrence of a constructive condition of the other party’s subsequent duty.

2. Hochster hypo: H has a present active duty to do what he promised if it is June 1 and DLT has not repudiated. DLT has a present active duty to pay if it is July 1 and H as substantially or completely performed. There cannot be a breach unless there is a present active duty. They have an installment K for 3 months. Assume DLT didn’t repudiate and took H to Europe and that H fully performed during June but DLT doesn’t pay on July 1. H should not quit working because it’s not a one-shot deal. Installment K depends on substantial performance. H can ask for assurance that this isn’t a repudiation- that he’ll still get paid. It does not excuse H from present active duty to perform in July because it does not substantially impair the value of the K.a. example of where it would substantially impair the value to H: if he had to pay his own hotel

costs and couldn’t afford it without payment so he was out on the street.3. iron ore delivery hypo: installment K. H promises to send 20 freight cars of iron ore on 1st of the

month for $70k payment on 15th of each month from W.

a. first installment is same as previously. Implied constructive conditions depending on sale of goods. Sale of goods uses 2-601 and 2-608 and CL allows substantial performance.

b. If the first delivery isn’t perfectly tendered, you can probably get out of the whole deal under perfect tender rule

c. Second installment is different: UCC 2-612 implies a condition that the failure in the last shipment did not “substantially impair the value” of the whole K: a slight non-conformity in one installment does not allow the buyer to reject it, as he could in a single-delivery K

d. what if it does “substantially impair the value” of the K? i. UCC 2-612 gives the right to terminate the whole K to aggrieved party: buyer has the right to

cancel the entire installment K if the defect is grave enough, if it “substantially impairs the value of the whole K”

ii. you can suspend payment until they fix itiii. could also argue the installment K is divisible- a new agreement each time- usually unlikely

e. UCC 2-612 also applies the other way: if payment is not made, deliveries can be suspendedf. does failure to pay substantially impair the value of the K? it depends on the circumstances.

When it does impair in business context:i. operating close to the margin (might not be able to prepare next shipment without the $)-

need the money, no access to financial marketii. if it appears payment will never be forthcoming- don’t think you’ll ever get paid, treat like

repudiationiii. if you say yes to BOTH= substantially impairs

6. for non-sale of goods (CL):a. don’t say it “substantially impairs the value.” Instead, ask if conditions precedent to duty to pay

are satisfied. If yes, then you can say “breach is not only a breach of present active duty, but also an anticipatory breach of future obligations”

b. applied to employment situations: you can only stop working if the failure to get paid on time substantially impaired your expectation that you would ultimately get paidi. employment K breach doesn’t entitle you to quit and probably doesn’t entitle you to suspend

performance7. EXCEPTION to general rule that anticipatory breach damages are available: if one of the

parties has fully performed, then he has a claim for past and present breaches, but not for future breaches

a. why? If the underlying policy in Hochster of getting him to work is not there, then there’s no need to do tricky damages calculations

b. grew up around disability insurance casesi. Bob v. Big Bad Insurance Co. hypo: Bob promises to pay and BBIC promises to pay $ if

Bob is totally disabled. If he gets hit by a bus, the question of whether he has fully satisfied the condition might be an issue. If they repudiate the K and W demands present payments that will be owed, will this work? They can argue that they only owe him what they owe to this date. He can come back every month and sue for repudiation damages. courts usually say if there are obligations going both ways at the time of repudiation, not entitled to pay damages.

ii. Milk delivery hypo: school district enters into K with milk company. The milk company promises to deliver milk for the school year and the school goes ahead and pays before-hand. What happens when the milk company repudiates the K? One side has already fully performed so they don’t get the benefit of the repudiation damages.

iii. If one side has fully performed and the other side has a series of performances, and one side is in breach, the fully performing side doesn’t have the present right to sue

Express Conditions Black Letter Law: If the occurrence of an express condition is required by the agreement of the parties, a strict compliance rule applies. The parties’ bargained-for-expectation must be given effect. Failure to satisfy an express condition results in the other party having no duty to perform. §225(1)o Strategy for getting around failure to satisfy Express Condition: You’re not permitted to attack black

letter law [failure to satisfy express condition terminates the contract]. But you’re allowed to Interpret out of the dilemma.

Time-is-of-the essence clauses: Black Letter Law holds that breach of a time-is-of the essence clause automatically excuses the seller from performing his duty.

Failure to satisfy Express Condition—try different remedies: Play Cardozo: conclude the parties didn’t intend a constructive condition. The substantial performance doctrine only

applies to constructive conditions. [Jacob & Youngs v Kent] Restitution: if non-breaching party got some benefit that he won’t have to pay for. Interpretation

o Purposive Interpretation Divisibility

o Prejudice Rule Excuse [Excuse of technical conditions is available under Impracticability and Waiver]

o Impracticabilityo Frustration of Purposeo §229o Waiver [Waiver is only available to excuse technical conditions]o Estoppel [Equitable Estoppel can excuse core express conditions]

Reliance on a misrepresentation of fact (i.e., statement of business practices); can’t reasonably rely on a representation of the law [can’t rely on statement of what the courts will do in a certain situation]

RESTITUTION use Restitution as a way of ameliorating the legal consequences.Defendant can be forced to disgorge benefit, if:1. Plaintiff conferred measurable benefit on Defendant; and2. Plaintiff was not acting

a) officiously, orb) gratuitously; and

3. Defendant had opportunity to decline benefit but did not decline.

Britton v Turner: Britton, who had agreed to work for Turner for a year for $120, left his service without cause after less than 10 months and sued for the value of the work done. The court pointed out that, under the traditional view, the forfeiture a party suffers on its breach increases as the party’s performance continues, so that “the party who attempts performance may be placed in a much worse position than he who wholly disregards his contract.” In addition, the injured party might receive a windfall since that party “may receive much more, by the breach of the contract, than the injury which he has sustained by such breach.” The court concluded that if “a party actually receives labor, or materials, and thereby derives a benefit and advantage, over and above the damage which has resulted from the breach of the contract by the other party, the law thereupon raises a promise to pay the extent of the reasonable worth of such excess.” o Determining recovery may be difficult: According to Farnsworth, recovery should equal the contract price minus

the diminution in value resulting from the breach. PURPOSIVE INTERPRETATION: The purpose of the Express Condition is…[fill in blank]. Then, try to argue that the situation ex post conformed to the primary purpose of the express condition. Was the purpose of the provision to protect against risks of this kind?

American Prejudice Rule [re: Late Notice] Insurer wins only if late notice prejudiced the Insurer. But not much is needed to satisfy the Prejudice Rule. Australian Approach: If the notice is late, it is the burden of the insurer to show how much it was prejudiced

by the lateness. Current NE Rule: For late notice insurance cases; failure to cooperate insurance cases, there is a Prejudice

Requirement—this goes back to decisions being made with Purposive Interpretation. [Thus the black letter law has changed]

Excuse§229 Excuse of a Condition to avoid extreme forfeiture “To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.” Works Interpretation of §229: Even if you have express condition, you should still be able to look at what

the effect of indulging it is. Disproportionate? o CORE VS. PERIPHERAL: Core makes it more likely that it needed to happen; peripheral makes it

less likely that it needed to happen: Works’ law review article dealt with this, called “equitable excusal”

Mistake of Future Fact Impracticability and Frustration of PurposeDefense of Impracticability [Impracticability is generally a losing argument]Key Question: [Assumption of Risk] Did you assume risks of that kind? As a matter of technique Frustration of Purpose/Impracticability get framed as failure to meet constructive conditions. The excuse of Impracticability can only be used when the condition is technical (not core).

Classic Areas to Apply Impracticability Destruction of the subject matter [§263] [Taylor v. Caldwell]: Contracted to lease/license use of music

hall. Music hall burned down. Held impracticable to perform and performance excused. o Might also apply to destruction of crops, etc.

Destruction of the person who is essential to performance [§262]o Bazooka Bob: Former football star, Bazooka Bob Blanton, can’t perform the last 5 shows of his

radio contract, because of pancreatic cancer. The contract expressly stated that he must complete all 16 shows before getting paid.

Government edict [§264]o Promise to sell automobile and then government says no more automobiles.

It’s never impracticable to pay $. You can always pay. Thus, try Frustration of Purpose.o Paradine v. Jane: Where German prince takes over the pasture which made it worthless to graze

animals. Held still has to pay rent on it.o Failure of market conditions doesn’t create a plausible argument for Impracticability or Frustration

of Purpose. Rabin Factors for Mistake, using future fact instead of past/present. Works: “You could do far worse

than using these factors to look at impracticability and frustration of purpose.”

Checklist for qualifying for Impracticability under Restatement approach: A party who wishes to be discharged on the grounds of impracticability must show the following things: That the event occurred after the contract was made; That the event was one whose non-occurrence was a “basic assumption” on which the contract the made That the event was not the fault of the party seeking the discharge That the language or circumstances don’t dictate the discharge should be denied (e.g. because the parties

allocated the risk of the event to the party now seeking to use the impracticability doctrine.)

Frustration of Purpose Impracticability and Frustration of Purpose are generally losing arguments. Contracts are predicated on assumption of risk; court is not likely to grant a remedy when one party “guessed wrong.” Key Question: [Assumption of Risk] Did you assume risks of that kind? Krell v. Henry: Main case in the ‘coronation cases’ series. Held that he didn’t have to pay rent on the flat

with the window view of the parade when the prince was sick and the parade was cancelled. Not clear in Krell but in coronation cases taken as a whole, what’s going on is courts say they’re not going to change anybody’s position because of this. So the landlords get to keep deposit $, regardless of the amount, but

they lose their claim on the remaining $. Tenants similarly lose the deposit but don’t have to pay the remainder.

Could also mean courts say “we don’t know who bore the risk” and we’re not going to enforce without knowing that.

Could be that courts see the high price of the rooms due to the coronation as an opportunity for splitting the extra rents. Windfall allocation / Risk allocation kind of thing

UCC Version of Impracticability/Frustration of Purpose [§2-615]§2-615. Excuse by Failure of Presupposed ConditionsExcept so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:

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

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

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

§2-615 comment 4. Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section.

Only use FOP if the unpredictable event frustrates the purpose or business of BOTH parties.o Works says very few cases using FOP actually work anymore. You’re better off if you can make it an

impracticability case, or better still a mistake case.o Imprac & FOP are C/L gap fillers. Do not use if parties have specified who will bear the risk: force majeure

clause, etc.

Waiver useful tool when you can’t prove actual detrimental reliance Low-level employee whose acts are beyond his actual or apparent control can’t effect a valid waiver Only excuses technical failure of express condition Unilateral decision to waive a known right Applies when: Call agent up “Is it okay to do this.” Agent says “Okay.” But waiver probably won’t work,

because whoever is giving the waiver must have authority of the company.

Retraction of Waiver: A waiver can be revoked until the other party has detrimentally relied. If the other party has detrimentally relied, then it’s too late to retract the waiver.

Estoppel [requires actual detrimental reliance—can excuse a core condition]ELEMENTS of Equitable Estoppel: [1] Representation of past or present fact (can’t detrimentally rely on misrepresentation of law) [2] For which it was reasonable the person would rely; [3] The person actually relied. (Requires showing that a change of position occurred)

Equitable Estoppel: Capable of excusing a core condition Doesn’t require organizational authority

Examples include: o Estoppel to assert missed premium payments (they didn’t send him a bill)o Estoppel to assert coverage defenses (they told him otherwise)

o Ex: Law student leaving for 90 days to clerk somewhere calls insurance agent and tells him he’ll be gone. Agent says fine. Thieves break in and steal and then adjuster says there’s provision saying no pay if over 30 day absence. No purposive interpretation gets him out of this one. Not waiver either because agent doesn’t have juice to vary terms of the K. But could make estoppel argument:

Nonconforming GoodsIf seller tenders non-conforming goods, the buyer has the right to reject the goods if they fail to conform in any respect. [§2-601]. Once the goods have been accepted, the buyer may revoke his acceptance only where the nonconformance substantially impaired the value of the installment. Such revocation must be made in a timely manner. [§2-608]

Use of §2-601: Improper delivery gives the buyer the right to reject. Then, under §2-509 and §2-510, the risk of loss remains with the merchant seller until cure.

Seller’s Right to Cure: The effect of the seller’s cure is that the buyer must perform when it would otherwise have been excused by the seller’s breach. If the party in breach doesn’t cure within an appropriate time, the injured party may terminate the contract.

§2-508. Cure by Seller of Improper Tender or Delivery; Replacement.(1)Where any tender or delivery by the seller is rejected, because nonconforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.

(2)Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

Comment 1: Subsection (1) permits a seller who has made a non-conforming tender in any case to make a conforming delivery within the contract time upon seasonable notification to the buyer. It applies even where the seller has take back the nonconforming goods and refunded the purchase price. He still may make a good tender within the contract period.

Risk of LossFor sale of goods, risk of loss is controlled via UCC: UCC § 2-615: Excuse by failure of presupposed conditions. This is the statutory basis to get involved in

arguments about impracticability UCC § 2-509: Risk of loss in the absence of breach (1) Says risk of loss in event of destruction between

clearly buyer’s and seller’s (a) if obligation is not to deliver them then risk passes to buyer when delivered to carrier. (b): When the goods are there duly so tendered as to enable the buyer to take delivery.

UCC § 2-510: (1) where a tender or delivery so fails to conform...as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance.

Beer delivery hypo again: Buyer takes risk from moment they are delivered to the truck, but if there’s even one bigmouth in the wreckage, then the risk is still on seller during transportation.

UCC § 2-509: (3) says if it’s not in (1) above, then risk of loss passes to buyer on receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. Be careful because of this: Tendered to you, and then you ask if you can leave it there and come back and get it. Risk is yours.

§2-509 Risk of Loss in the Absence of Breach

(1) Where the contract requires or authorizes the seller to ship the goods by carrier:(a) if it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when

the goods are duly delivered to the carrier even though the shipment is under reservation (Section 5-505); but

(b) if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery.

(2) Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer(a) on his recipt of a negotiable document of title covering the goods; or (b) on acknowledgment by the baillee of the buyer’s right to possession of the goods; or(c) after his receipt of a non-negotiable document of title or other written direction to deliver, as provided in

subsection (4)(b) of Section 2-503.

(3) In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant. If the seller is not a merchant, the risk passes to the buyer on tender of delivery. [NOTE: Merchants are afforded less protection]

No carrier involved §2-509(3)

Carrier involved §2-509(1)

(4) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval. (Section 2-327) and on effect of breach on risk of loss (Section 2-510).

Under §2-510, the risk of loss remains on the seller if there was any breach. An undiscovered defect/any breach means the seller still bears the risk of breach until cure or acceptance.

§2-510 Effect of Breach on Risk of Loss(1) Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection, the risk of their loss remains on the seller until cure or acceptance.

(2) Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning.

(3)Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time. Tender = manifesting my willingness to let other party accept the goods. Whether the seller is asserting his willingness to have the buyer to take possession. Delivery doesn’t occur until the goods are out of control of the seller.