Law School Outline-Contracts Outline

Contracts Outline Introduction Two key elements of a K  A promise or promises and  Enforcement A contract is an agreement the law will enforce. Hill v. Gateway        Judge Easterbrook pro-business opinion (U of Chicago) Ks are formed when expectations of both sides are met Law looks to protect those expectations Law and Economics solving the problem through the most cost effective method with wealth maximization in mind Businesses can operate more efficiently when the terms of the K may be included with the product Overlooks the application of UCC § 2-207- additional terms to a K aren’t applicable unless the consumer explicitly agrees in merchant-consumer transactions Compare with Klocek I. Has a deal been made? A. Determining the meeting of the minds Gozo places little weight upon an actual meeting of the minds. Lucy v. Zehmer    Objective theory of Ks; modern theory Reasonable meanings of actions of parties Outward expression manifests intention over secret, unexpressed intention  Literal meeting of the minds not required  Reduce business risk and enhance predictability Undisclosed intentions are immaterial  Not what the offeror meant but the reasonable impression created Policy: This decision paves the way for a more predictable business environment. Businesses risk less when creating a K as the other party cannot bring in their inward intents. Leonard v. Pepsico      Smith v. Boyd     An advertisement doesn’t represent a valid offer unless specific conditions are included Reasonable assessment of offers is required Jokes don’t count as valid offers Restatement § 26- most advertisements aren’t offers to sell because they don’t contain sufficient words of commitment Preliminary negotiations 1. Advertsising 2. Invitation of bids or other offers Each party must have an objective intent to be bound Trade practices imply knowledge of parties to what is typically required (Real estate requires written agreement) Expectation of informed participants- parties entering into a business arena are expected to have knowledge of the rules and customs that govern Nature of real estate requires writing (Statute of Frauds)   B. Offer An offer is a statement or act that creates a “power of acceptance.” When an offer is made the offeror is indicating that he is willing to be immediately bound by the other’s acceptance, without further negotiation. Assent typically occurs by a mutual concurrence and understanding of the parties. Important to note the context in which the agreement takes place. Invalid offers:  Made in jest  Expression of opinion  Preliminary negotiations  Statement of future intentions  Solicitations of bids (auctions with reserve) Rest § 24 Offer Defined  An offer is the manifestation of willingness to enter into a bargain, that is made in a way that justifies another person in understanding that his assent is invited and will conclude it  The offer itself is a promise, revocable until acceptance  Proposal of a gift is not an offer, it lacks the elements of exchange Rest § 26 Preliminary Negotiations  A manifestation of willingness to enter into a bargain isn’t an offer if the offeree knows or should know that the deal isn’t to be closed until the offeror has made a further manifestation of assent  Reason to know depends on words and conduct, previous communications, and the trade usages involved  Advertisements aren’t offers without sufficient language of commitment  A price quote is usually intended to invite an offer but relevant factors such as previous inquiry, completeness of terms, and number of parties to which the communication is addressed could render a quote an offer Rest § 27 Existence of a K where a Written Memorial is Contemplated  Manifestations of assent that are sufficient to create a K are not prevented from becoming so because the parties manifest an intention to prepare a written document  The circumstances may show that the prior agreements were preliminary negotiations Rest § 28 Auctions  Unless a contrary intention is manifested, an auctioneer invites offers from the bidders which he may accept or reject  When goods are put up without reserve, the auctioneer makes an offer to sell at any price to the highest bidder, and after the auctioneer calls for bids the goods cannot be withdrawn unless no bid is made within a reasonable time  Whether or not the auction has a reserve, a bidder may withdraw his bid until the completion of the sale, but the bid cannot be revived by retraction  Unless a contrary intention is manifested, the terms of the auction are embodied by the advertisements and other postings which may be modified by auctioneer’s announcement Subjective intent may be indicative of objective intent Considerations of objective intent 1. trade practices 2. prior dealings between parties 3. who drew up the agreement 4. statements made during negotiations 2 Lonergan v. Scolnick      Explicit auction rules prevail over these general rules Without reserve typically means the goods won’t be withdrawn There is no valid offer if party accepting knows that some further expression of assent is needed Advertisements are requests for offers unless specific conditions are added DETERMINATIVE FACTS 1. First letter form letter 2. Second hopes for a buyer soon Express language can invoke a binding offer Offer cannot be withdrawn after acceptance Price quotes aren’t offers unless specific words of commitment are present Trade customs relevant to determination Test for offer under UCC: whether it induces the recipient to reasonably believes that acceptance is all that is necessary to close the deal DETERMINATIVE FACTS 1. Wasn’t an advertisement 2. Specific inquiry 3. Language of the quote “for immediate acceptance” Fairmont Glass Works v. Grunden-Martin Woodenware Co.       Statutes can cause advertisements to become offers Reasonable expectation of seller’s intent created by regulatory guidelines Tender of purchase price creates a unilateral K Specific language such as first come, first served constitutes a binding offer C. Destroying the Offer Offers create the power of acceptance in the offeree. When an offer is made in face to face conversation, the default rule is that it expires when the parties part company. Rest § 35 Power of Acceptance  An offer gives the offeree a continuing power of acceptance  Offeree cannot accept until the offer is complete Rest § 36 Methods of Terminating the Power of Acceptance  Termination may occur by 1. Rejection or counter offer by the offeree 2. Lapse of time 3. Revocation by the offeror 4. Death of the offeror or offeree 1. Indirect Revocation Donovan v. RRL Corporation     Dickinson v. Dodds     Reasonable expectation that all is required is acceptance on the part of the offeree Without consideration it is not mandatory for an offer to be held open for a promised amount of time Notification must be made to offeree to revoke offer but court is flexible as to how the notification takes place No consideration=No option 2. Lapse Minnesota Linseed Oil Co. v. Collier White Lead Co. 3 Acceptance is affected once dispatched unless the K is an option K  Revocation when received  Offers are valid only for a reasonable amount of time  Reasonable time depends upon the circumstances and character of the subject matter of the K  Items that fluctuate greatly in price over short periods of time require immediate acceptance  Offers for unstated periods of time lapse after a reasonable time  A reasonable time contemplates how rational parties would have understood each other 3. Death or Incapacity of Offeror  New Headley Tobacco Warehouse Co. v. Gentry      D. Preserving the Offer Options to renew Ks are subject to withdrawal before acceptance or reliance, when consideration is absent Death of a party who has the right to revocation terminates the offer Rest. § 41 o A power of acceptance is terminated at the time specified in the offer or if no time is specified, at the end of a reasonable time o What is a reasonable time is a question of fact depending on all the circumstances that existed at the time of offer and attempted acceptance o When not otherwise stated, an offer is effective if mailed at any time before midnight on the day in which the offer is received o An offer is irrevocable once an acceptance has been mailed; this imposes a risk of commitment on the offeror Rest. § 48 o An offeree’s power of acceptance is terminated upon the offeror’s death o In absence of legislation the rule remains in effect o When an offeree dies or becomes incapacitated, the offer dies unless the terms of the offer allow a representative to accept o This rule does not affect option Ks Subjective theory holdover o Party cannot perform terms of K if dead. However, if K would have been able to accept just prior to death, K would have been valid and offeror would still be unable to perform. This technicality shows that perhaps this rule is outdated. Beall v. Beall      Consideration given to hold offer open creates a binding option to contract Option sells the power to revoke Death doesn’t terminate an option An option without consideration is simply an offer Gozo feels the rule requiring consideration to be paid is outdated and overly technical; Compare to Rest 4       Consideration must actually be paid or option is not valid Substance over form Minority position Under UCC: Firm offers between merchants are irrevocable regardless of consideration  All offers are revocable unless they are supported by consideration or made enforceable by statute  Rest. § 87o An offer is binding as an option K if it is in writing, signed by the offeror, purports consideration, and contains terms o An offer that is reasonably expected to cause action or forebearance on the part of the other party and does so, creates a binding option  Form over substance E. Modes and Methods of Acceptance Acceptance of an offer is a manifestation of assent to the terms made by the offeror in a manner invited or required by the offer. An acceptance is a statement or act that indicates the offeree’s immediate intent to enter into the deal proposed by the offer. As long as the acceptance takes place while the offer is outstanding, a K is formed as soon as the acceptance occurs. An offer can only be accepted by the person whom it invites to furnish the consideration. Termination of an offer:  Rejection  Counteroffer  Revocation  Lapse Rest § 54 Acceptance by Performance; Necessity of Notification  When an offer invites acceptance by performance, no notification is necessary to make acceptance effective unless requested by the offer  If the offeree knows the offeror would have difficulty learning of his performance, the offeror’s duty is discharged unless 1. The offeree exercises reasonable diligence to notify the offeror 2. The offeror learns of acceptance within a reasonable time, or 3. Notification isn’t required Rest § 56 Acceptance by Promise; Necessity of Notification  Acceptance by promise, unless otherwise specified, requires the offeree to exercise reasonable diligence or the offeror to receive acceptance seasonably 1. Control Over the Manner of Acceptance Board of EMU v. Burgess Offers accepted within the time limit of an option without consideration will create a K unless the offer is withdrawn prior to acceptance The time limit will generally represent a reasonable amount of time La Salle National Bank v. Vega      Ever-Tite Roofing Corp. v. Green Default rules for Ks unless otherwise specified therein The terms of execution made explicit in an offer must be followed by both parties or no K exists Offeror must notify offeree in order to effectively revoke an offer Preparatory acts don’t represent assent until they communicate that the acts are for a specific job When did the acts of π in this case represent assent? 1. Loading of the truck? 5     Offeree given choice of method of acceptance under restatement Offeror is less sovereign than before over the method of acceptance unless it is explicitly stated  No notification of acceptance is necessary for unilateral K; performance of conditions is acceptance of the proposal  In cases of doubt, it is assumed that Ks are intended to be bilateral  Circumstances must be considered  UCC gives option of acceptance by performance or expression of assent  Old rule required acceptance by performance and also allowed the offeror to revoke the offer before completion without penalty  Rest. § 45 o When an offer invites acceptance by performance, and performance has begun, a binding option K is formed o The offeror’s duty of performance is conditioned upon the completion or tender of the invited performance o Promise may not be effective as acceptance  Rest. § 90 o A promise that is expected to reasonably induce action or forbearance on the part of the promise or 3rd person and does so may cause for enforcement or remedy based on limited breach 2. Effectiveness of Promissory Acceptance Davis v. Jacoby 2. Arrival at the house? Assent typically must be communicated to create binding option through a unilateral K Case different in that courts typically rule in favor of the consumer Hendricks v. Behee              Adams v. Lindsell Notice to the agent is notice to the principal Notice of acceptance must occur before revocation Acceptance of an offer doesn’t occur until communicated Notice to your own agent isn’t effective Mailbox rule Acceptance is effective upon dispatch even if the letter is lost Agency not a factor (Gozo) All other communications are effective upon receipt, meaning once the writing comes into the person’s possession Along with death terminating an offer, this represents the most glaring holdovers from subjective theory Resistant to change due to its universal nature Doesn’t apply to option Ks under Rest, but does under common law If you don’t want to be subject to rule, use a different medium or specifically include different terms in the K A delivery method equal to or better than the method used by the offeror must be used or acceptance is effective upon receipt o Rest § 67 make effective improper mediums as long as seasonably accepted 6 Ex: A offers B through telegram and requests acceptance by the same by Thursday noon. B mails acceptance that arrives Thursday morning. A cannot revoke by phone on Tuesday morning if the acceptance is already mailed. 3. Effectiveness of Acceptance by Performance Unless otherwise stated an offer is treated as inviting acceptance in any manner or medium reasonable in the circumstances. o Carlill v. Carbolic Smoke Ball Co.       Beginning of performance upon a unilateral K creates a binding option  Full performance within terms of the offer are required  Offeror must let performance be done  Performance must be completed in a reasonable time  Rest. § 45 4. Acceptance by Silence or Inaction Laredo National Bank v. Gordon (Where the relationship between the parties creates a duty to reply or where silence will be misinterpreted an acceptance occurs  Silence will be construed as acceptance when one party allows another to operate under the assumption that the offer has been accepted  Rest. § 69 o When an offeree fails to reply to an offer, his silence represents acceptance in the following cases only: o When the offeree takes the benefit with the reasonable opportunity to reject it o Where the offeror has given reason that acceptance may be affected by silence and the offeree intends to accept by silence o Because of previous dealings o If the act is wrongful to the offeror, it is enforceable only if ratified by him o Usual requirement is notification  General rule is that silence doesn’t signify assent unless 1. offeree accepts benefits with the opportunity to reject 2. reason has been given to convey silence as acceptance Marchiondo v. Scheck Ads can be considered in line with rewards when they convey a reasonable intention to give reward o Rest § 46 Revocation of a general offer must occur by notice of termination given publicly in a way equal to that of the offer when no better means is reasonably available Performance of the conditions is acceptance Must know of the offer when appearing to perform; eg To collect a reward for a lost dog you must know of the reward before giving the dog back. Can learn of the reward at any point before delivery. Completed performance completed before the offer comes to the offeree’s knowledge does not reference or satisfy the offer Area carved out of traditional K law 7 3. because of prior dealing offeree knows or should know that notice should be provided to avoid acceptance 5. Imperfect Acceptances Egger v. Nesbit     Dorton v. Collins & Aikman Corp.    Mirror image rule Acceptance must be unequivocal, unconditional, and without variance in regards to the offer Best way to accept “I accept” Two readings of case 1. Initial letter didn’t conform with mirror image rule and thus was a counteroffer that is only effective upon receipt. Because it was lost, the offer lapsed due to time. (Gozo reading) 2. Initial letter was effective upon dispatch and rejected offer through mirror image rule. (Misreading of dispatch rule by the court) UCC § 2-207 once material terms are agreed upon, a K exists and any trade of additional terms does not void K Battle of forms Additional terms that don’t materially alter the terms of the K are treated as proposals in addition to the K and become effective after 10 days unless objected to by one of the parties. (Between merchants) Gozo’s reading of the Gateway cases Goes against Easterbrook opinion in Hill UCC § 2-207 does apply Additional terms don’t apply under § 2-207 unless explicitly agreed to (When consumer is involved)  Buyer is offeror, Gateway accepted as offeree and proposed additional terms  Comparisons between this case, Dorton, and Hill encompass major issues of the course F. Completing the Agreement An acceptance of an offer isn’t effective unless the terms of the K are reasonably certain. 1. Indefinitness and Open Terms Klocek v. Gateway     Varney v. Ditmars            Nora Beverages v. Perrier Group of America Vague and indefinite promises can’t be enforced Conjecture shouldn’t be used to fix damages Executory Ks rely on good faith of offeror Ct. shouldn’t involve itself in enforcing incomplete Ks Old rule New rule espoused in Cardozo opinion looks to what is reasonable Fair and reasonable within the marketplace means market value Damages can be estimated by evaluating situation Quantity more important than price What details must be determined and which ones can be filled in? Price not as important as duration and quantity 8    2. Agreements       Walker v. Keith UCC case; UCC pro-formation Small missing terms not fatal to K Market price can be used to Agree Compare to Moolenaar K must give method for ascertaining with certainty that a price can be fixed There can be no agreement to agree Courts should not force parties into agreements when they can’t agree Old rule Intention of the parties when the lease option was made must be examined for determining reasonable price  Agreement can be enforced and price set by the court  The option is a material term of the initial K and lessee is considered to have given consideration through original lease  Modern view of UCC even though it doesn’t apply here  Set rent according to original intent of the parties; Here that use is agriculture  Future Ks should have helpful items such as rent caps or formulas G. Pre-Contract Formation Liability Good faith is indefinable in business (Gozo- not a good argument to attempt argument at good faith because everyone has a different view of what is called for); Especially during negotiations  Promissory estoppel must establish 1. a clear and definite agreement 2. the party acted to its detriment relying upon the other party 3. equities support enforcement to avoid injustice  Damages are limited to the extent of reliance  Rest. § 90 H. Defeating Agreements Based on Misunderstanding of the Terms There is no mutual assent if the parties have assented to different things. Moolenaar v. Co-Build Companies, Inc. BMI v. Centronics Corp.  Raffles v. Wichelhaus  Any mistaken term can void the agreement  Very subjective view  Classic case of mutual mistake Hill-Shafer Partnership v. Chilson Family Trust  Parties must be attempting to contract for the same thing  Material difference of understanding in a K can render it void  Rest. § 20- no K is formed if neither party is at fault or if both parties are equally at fault; comparative fault II. Is it a deal that the law will enforce? A. Preview Questions surrounding enforceability: 1. What do courts do to enforce contracts?  Injunctions  Damages  Specific performance 9 2. Why aren’t all agreements legally enforceable?  The way the deal was made  Parties involved  Terms of the deal 3. Which agreements aren’t legally enforceable? B. Mistaken, Unstated Factual Assumptions Three core problems 1. Proof- How do you prove what your client was thinking but didn’t say when he entered the agreement? 2. Policy- Why should the courts excuse someone from a contract? 3. Rules- Once the courts decide the policy, what rule should the court decide advances this policy? Rest § 151 Mistake Defined  A mistake is a belief not in accord with the facts  An erroneous belief at the time of formation  Need not be articulated and may be an assumption  Erroneous predictions of the future are not mistakes  Legal consequences determined by contractual liability Sherwood v. Walker            Burggraff v. Baum  A party may refuse to execute a contract if it was consummated upon a mistaken material fact when the mistake is mutual The mistake must go to the substance of the thing, rather than just the quality Relief generally isn’t given for a mistake on the part of only one party to the contract (unilateral mistake) Execution of the contract is necessarily important to whether rescission may take place Who gets to enjoy windfalls from the risks taken in a contract and who bears the risk? How valid does the price appear to be, taking into account the likely intentions of the parties? Speculation or mistake? A line must be drawn between cases of unilateral and mutual mistake Separation of inadvertent errors from misjudgments Rest § 152 o When a mistake regarding a basic assumption which the parties had a formation causes a material effect on the agreement, the K is voidable by the adversely affected party unless he bears the risk of mistake o In determining materiality, account is taken of relief by reformation, restitution, or otherwise o PER doesn’t bar evidence that establishes the mistakes o Parties must be mistaken as to the same assumption or it is a unilateral mistake, making the K voidable only if the voiding party does not bear the risk o Must affect the basic assumption on which the K was made Rest. § 154 o A party bears the risk of mistake when it is allocated to him in the agreement, he is aware of the mistake at the time of formation that he only possesses limited knowledge, or the risk is allocated to him by the court Knowledge of the law is imputed to us 10          4 part test for rescission due to unilateral mistake of fact 1. Mistake made regards basic assumption upon which contract is made 2. Mistake has a material, adverse effect upon the agreed exchange 3. ∆ doesn’t bear the risk of the mistake 4. The mistake is such that enforcement would be unconscionable or 5. The other party had reason to know of the mistake or caused the mistake  Unconscionability  Rest §§ 152, 154  Rest. § 153 o A mistake at the time of formation by one party may make the K voidable if he doesn’t bear the risk and the effect of enforcement would be unconscionable or the other party had superior knowledge  First Restatement only allows rescission for mistake due to the fault of another or where one party has reason to know that the mistake exists Rest § 155  Where a writing embodying an agreement fails to express the correct terms due to a mistake in the writing, the court may reform the writing to express the agreement to the extent that it does not affect 3rd party good faith purchasers Rest § 157  Only a mistake that involves a failure to act in good faith will bar avoidance or reformation C. Fraud, Fraudulent or Material Misrepresentation, and Nondisclosure Part law, Part common sense Donovan v. RRL Corp. Old rule Mistakes of law v. Mistakes of facts Parties are presumed to know the law or at least be capable of verifying it Misread of Jefferson (referring to criminal law) Must be a good faith mistake for the contract to remain valid Restatement doesn’t distinguish between mistakes of law and those of fact Mistake of law may be grounds for rescission if one party possesses superior knowledge Rest § 152 Halpert v. Rosenthal     If one is induced into a contract by material misrepresentation, the contract may be rescinded even if the misrepresentation was innocent when the other party relies on it to his detriment Knowing representations are easy cases Speaker of the misrepresentation bears the loss Different categories of misrepresentation: 1. Deceit (tort)- requires some degree of culpability on the part of the misrepresenter. π has burden of proving that ∆ made statements that were false and likely to deceive π 2. Material misrepresentation- a suit to rescind a contract based on misrepresentation whether it was innocent or not 3. Innocent misrepresentation- the speaker actually believes what he is saying. Unqualified statements 11      Swinton v. Whitinsville Savings Bank             A misrepresentation is material when it is likely to affect the conduct of a reasonable person Rest § 159 o A misrepresentation is an assertion not in accord with the facts o Must relate to something in the past or present but not the future Rest § 160 o An action is equivalent to an assertion when it is known that its is likely to prevent another from discovering the fact o Hiding of defects o Reading a written offer and intentionally omitting a part o Frustration of investigation Rest § 162 o A misrepresentation is fraudulent if it is known not to be true o A misrepresentation is material if it would likely induce a reasonable person to assent Rest § 164 o If assent is induced by fraudulent or material misrepresentation the other party may void the K Old rule Law cannot require a seller to list every known defect It would place too great a burden on courts to enforce such deals Moral duty, not legal duty No defense to enforcement of an agreement based on nondisclosure More up front transaction costs for parties due to investigations that must be made Intentional hiding or nondisclosure that was significant to the contract justifies rescission Fair justice and dealing require both parties to disclose material facts that greatly affect value Minor conditions not included Silence is fraudulent if a material fact is concealed or suppressed when good faith requires disclosure What constitutes a material fact or condition? Compare to Swinton and examine the arguments and ambiguities in between these two positions Less up front transaction costs Rest § 161 These types of cases now allocate risk through standard contracts Weintraub v. Krobatsch    D. Capacity Rest. § 12 A person who manifests consent to a transaction has full legal capacity unless he is 1. Under guardianship 2. An infant 3. Mentally ill or defective 4. Intoxicated Kiefer v. Fred Howe Motors, Inc.   Contract of a minor for non-necessities may be voided at his option Exceptions are those that are statutory and those involving support for illegitimate children 12 The general rule isn’t affected by the minor’s status as emancipated or unemancipated (Some states do end minority by emancipation)  The fact that a rule of law renders a promise voidable does not prevent it from becoming consideration  Policy: Protection of the minor from deals that he lacks the experience to fully enter into and to prevent interference into the rights of the parent  Legislature sets age of majority  Two possible methods of binding a defrauding minor: 1. Estopping him from denying his majority by proving that the minor intended to defraud the other party and they justifiably relied upon the minor’s false assertions 2. Allowing the minor to disaffirm but holding him liable for tort damages; this requires same proof as above  It is debatable as to what is a necessity  Once minor reaches age of majority, his contracts made in minority will be ratified unless disaffirmed in a reasonable amount of time (1 week?) E. Pressure-Duress and Undue Influence Defense typically based upon how the deal happened Rest § 174 Duress by Physical Compulsion  If conduct appears to be a manifestation of assent by a party that does not intend to engage in that conduct but is physically compelled by duress, the assent is not effective and no K exists  Austin Instrument, Inc. v. Loral Corporation          Totem Marine & Barge, Inc. v. Alyeska Pipeline Service Company A contract is voidable on the ground of duress when the party making the claim was forced to agree by means of a wrongful threat precluding the exercise of free will Economic duress is demonstrated by proof that immediate possession of needful goods is threatened (such as threatened breach of contract) and there is an inability to acquire goods from another source Courts are reticent to find economic duress Thin line in deciding these cases Economic duress requires coercive act on the part of ∆ and no alternative but to accept for π If free will and judgment of a party are precluded by fear, a threat has occurred Must prove ∆ is acting in bad faith; π has burden of proof Balance between a bad contract or settlement and a showing of one party taking advantage of another Duress exists where: 1. One party involuntarily accepts the terms of another 2. Circumstances permitted no alternative 3. Such circumstances were the result of coercive acts of the other party Requirement of coercion may be satisfied by proving a criminal or tortious act on the part of ∆ Rest § 175 When Duress by Threat Makes a K Voidable o Improper threat that leaves the victim no reasonable alternative o The K is voidable by the victim Undue influence is coercion that overcomes the will without convincing the judgment   Odorizzi v. Bloomfield School District  13 Misrepresentation isn’t necessary as long as one takes advantage of another’s weakness of mind or distress  Undue influence usually involves the taking advantage of a relationship  Undue influence requires: 1. A lessened capacity of the object to make a free contract 2. Application of excessive strength by a dominant subject against a servient object  Threat or presentation of choices  Elements of overpersuasion 1. Discussion of the transaction at an unusual or inappropriate time 2. Consummation of the transaction at an unusual place 3. Insistent demand that the business be finished at once 4. Extreme emphasis on the consequences of delay 5. Use of multiple persuaders by the dominant side against a single servient party 6. Absence of 3rd party advisers to servient party 7. Statements that there is no time to consult financial advisers or attorneys  If a number of these are simultaneously present then the situation may represent excessive persuasion F. Illegality and Public Policy Rest § 178 When a Term is Unenforceable Due to Public Policy  A term of an agreement is unenforceable on the grounds of public policy if the legislature provides that it is unenforceable or the interest in enforcement is clearly outweighed by the public’s interest in not enforcing the K  Minor administrative regulations should not prevent enforcement o Ex: A & B enter K to deliver a sale of goods worth $10,000 at a time and place that would require a $50 fine. The court should enforce the K Rest § 179 Bases of Public Policy Against Enforcement  A policy against enforcement may be derived from 1. Legislation relevant to the policy 2. Restraint of trade 3. Impairment of family relations 4. Interference with protected interests Rest § 181 Effect of Failure to Comply with Licensing or Similar Req.  If a party is prohibited from performing due to licensing requirements, a promise in consideration of his promise is unenforceable on the grounds of public policy if 1. the requirement has a regulatory purpose 2. the interest in enforcement is outweighed by public policy  Covert v. South Florida Stadium Corporation      Exculpatory clause- a clause that removes a party from liability when he has acted in good faith Exculpatory provisions that relieve a party of their negligence are generally looked down upon For them to be enforceable the intention of the parties must be clear Must be no ambiguity and rights be given up must be conspicuous as well as an even amount of bargaining power and no gross negligence exemption Must be no or few other options for party signing agreement (such as competing businesses) 14   Valley Medical Specialists v. Farber     Courts must attempt to figure out public policy Rest. § 195 Rationale for Policy Against Exculpatory Clauses o One cannot exempt himself from liability due to intentional or reckless conduct o A party’s attempt to exempt himself from liability from negligence may be construed as unconscionable Covenants not to compete are valid only if they protect a legitimate business interest from competition and doesn’t take advantage of unequal bargaining power Public policy has a great interest in balancing the interest protected and benefits to society Very specialized interests are entitled to unique protection (Dr.-patient) A restriction is unreasonable and won’t be enforced if 1. the restraint is greater than necessary to protect the interest 2. the interest is outweighed by hardship to the employee and likely to injure the public The restriction must not be greater than necessary as defined by its duration and geographic scope Blue pencil rule may be applied to fix good faith attempts Policy of freedom to contract vs. freedom to work Goes against free enterprise nature      Surrogacy agreements are the most complicated and controversial cases considering a public policy defense to enforceability of agreements  Differing opinions of the states regarding validity of surrogacy agreements 1. Some deny enforcement of all such agreements 2. Some deny enforcement only if the surrogate is to be compensated 3. Some have exempted surrogacy agreements from provisions making it a crime to sell babies 4. Some have explicitly made unpaid surrogacy agreements lawful 5. Arkansas presumes the child born to a surrogate mother is the child of the intended parents and not the surrogate 6. Massachusetts applies the adoption statute that doesn’t allow for a mother to give up her child before the forth day after the birth  Public policy of protecting women’s bodies from commercial uses  Not a simple task to find the right policy  Cases are very fact specific and don’t make good precedent  Scientific advancement vs. Traditional constraints (Constitution)  Posner says enforce them G. Unconscionability Looks at both bargaining process and terms of the bargain while combining elements of misrepresentation, undue influence, duress, and nondisclosure UCC § 2-302 R.R. v. M.H. Williams v. Walker-Thomas Furniture Company     Enactment of UCC by Congress has allowed for contracts that are unconscionable at the time of their formation to be voidable The contract must have an absence of meaningful choice by one of the parties as well as unreasonable terms Does moral obligation become a legal obligation? Meaningfulness of the choice may be negated by a gross inequality of bargaining power 15           Substantive: A contract is unconscionable when its terms are unfair and unreasonable  Procedural: The relative bargaining power  Adhesion contract- a standardized contract offered on a take it or leave it basis  Adhesion contracts don’t exist where meaningful choices exist  Standardization of contracts allows for the use of cheaper personnel, greater efficiency, and more operational fluidity H. Consideration A BARGAINED FOR EXCHANGE Purpose of consideration is to distinguish between gratuitous and non-gratuitous promises Rest § 71 Requirement and Types of Exchange  To constitute consideration, a performance or promise must be bargained for  A performance or return promise may consist of 1. An act other than a promise 2. A forebearance 3. The creation, modification, or destruction of a legal relation Rest § 73 Performance of a Legal Duty  Performing a duty already legally required does not constitute consideration  Ex: A offers reward for anyone coming forward with evidence about a crime. B produces evidence in the performance of his duty as a police officer. B’s performance is not consideration. If B was on vacation in another state, however, his performance would be valid consideration. 1. Changing Your Mind About Agreeing to Give Morrison v. Circuit City Considerations to observe in contract: 1. Manner in which the contract was entered 2. Reasonable opportunity to understand the terms of the contract with respect to the party’s education of lack thereof 3. Bargaining power Whether the terms are so unfair the enforcement should be withheld Primary concern is the terms of the contract in the light of the commercial background and the commercial needs of the particular trade or case What about freedom to contract? Triggering mechanisms are if there are apparent or obvious inequalities of bargaining power and it appears that the party took advantage Should stores have to protect customers from themselves? Success depends on the facts When the concept of unconscionability developed it appeared that it would be huge force in K law; The opposite has been true Many oppose its application in commercial bargaining Kirksey v. Kirksey      Hamer v. Sidway Mere gratuitous promises aren’t enforceable Gift promises may have conditions that don’t represent consideration Context and surrounding circumstances What about reliance? Compare to Hamer 16 The giving up of legal rights represents valid consideration Consideration is a right, interest, profit, or benefit accruing to one party or a forebearance, detriment, loss, or responsibility suffered by the other  Doesn’t matter if consideration benefits the other party  Familial promises are rarely brought into the judicial realm: 1. They often involve an indefinite nature of performance 2. Unwillingness of parties to sue until the relationship is beyond repair  Legal detriment vs. actual detriment  No inquiry into the adequacy of consideration once some form of consideration is found  Promise as consideration  Bargained for requirement 2. Changing Your Mind About Agreeing to Settle Past Claims   Schnell v. Nell               Dyer v. National By-Products, Inc. Peppercorn theory represents symbolic view of considerationreplacement of the seal Substantive view of consideration looks to the adequacy of the consideration The symbolism is more important than the sufficiency Past consideration is no consideration When renegotiating, old contract needs to be rescinded so that consideration may be found in the new one Old rule- can’t trade money for money because it would be unconscionable Disappearance of the seal has led some courts to examine the adequacy of consideration Forbearance of an invalid claim may represent consideration if there is any reasonable ground on which to try the claim and the party is acting in good faith Policy: Compromises made outside of court shouldn’t be allowed to be second-guessed after the fact Court favors compromises Some courts require the claim have some merit These courts hold that a doubtful claim is sufficient while a clearly invalid claim is insufficient, regardless of what π believes Compare to an illegal promise Rest. § 74- Surrender of an invalid claim is not consideration unless the claim is in fact doubtful due to the facts or the law or π believed it to be a valid claim Release forms are supported by consideration as one party gives up the right to sue and the other allows participation  Clarifying and allocation of risk  The forbearance of a legal right is a legal detriment which constitutes good consideration  Rest. § 75- a promise for a promise is valid consideration if the promised performance would be consideration; The promise is enforced by fact of bargain 3. Changing Your Mind About Employment Agreements Reed v. University of North Dakota & NDAD  Hooters of America, Inc. v. Phillips 17     Unilaterally adopted policies during employment may be terminated after a reasonable time provided that there is reasonable notice and doesn’t interfere with employee vested interests  Availability of continuing employment represents consideration  Indefinite duration of promise is a factor  Illusory contracts avoided by setting boundaries  Opposing view: may not be terminated as the policy was part of the consideration the employees received upon being hired  Rest. § 45 4. Changing Your Mind About Agreeing to Change the Deal Asmus v. Pacific Bell  Illusory contract- an apparent promise which makes performance on the part of the promisor optional Disparities in obligations may lead to unenforceability One party may not retain unfettered rights to decide later their nature or extent of performance Rest. § 77- a promise isn’t consideration if the promisor reserves a choice of performance unless o Each alternative performance would represent consideration on its own o It appears that the promisor’s alternatives will be eliminated by the time of performance Alaska Packers Association v. Domenico        A promise to modify a contract is enforceable if: 1. The promise hasn’t been fully performed by either side 2. The situation was unanticipated 3. The modification is fair and equitable  In line with modern view of the UCC  Good faith required  Gozo likes the case  Not a bad idea to tear up the old contract  Cases in between are the difficult ones  UCC § 2-209  Rest. § 89- a promise modifying a duty under a K not fully performed on either side is binding if o The modification is fair and the circumstances unanticipated at the time of formation o Not prevented by statute o Reliance has occurred  Old rule- preexisting duty doesn’t represent consideration because it deters coercion and duress I. Consideration Substitutes 1. Promises to Pay for Something that Happened Before the Promise Angel v. Murray A party cannot demand more compensation for something that they are already obligated to do by taking advantage of the necessities of the adversary A party shall not profit by their own wrong Good faith requirement for estoppel Past consideration is no consideration Cannot promise to withhold doing an illegal act Similar to economic duress 18 Rest § 86 Promise for Benefit Received  A promise made in recognition of a benefit received is binding to the extent necessary to prevent injustice  A promise is not binding if 1. The original benefit was conferred as a gift or any other circumstance in which the promisor wasn’t unjustly enriched 2. Its value is disproportionate to the benefit Case Series: Harrington through Webb Harrington v. Taylor Mills v. Wyman      Voluntary performance doesn’t constitute consideration Humanitarian acts aren’t either A moral promise is insufficient consideration There must be a material benefit to the promisor and not to his son unless the son is a minor Rule for enforcing moral promises: (Gozo) 1. Promisor received a material physical benefit 2. It was an emergency situation 3. Promisee suffered injury 4. Promise is reasonable with regard to amount and time after the action Circumstances where past consideration is good consideration: 1. Promise reviving a previously legally enforceable obligation now barred by the statute of limitations 2. Promise to pay a debt discharged by insolvency( No longer true due to bankruptcy laws) 3. A promise to pay an obligation incurred by an infant Rest. § 82- Previously enforceable obligations are binding if renewed in writing in most jurisdictions Rest § 85- a minor may, upon reaching majority, make enforceable all Ks made as a minor without added consideration Moral duty may become an obligation if it is: 1. To a particular person 2. Person feels they have a strong moral duty that he has a debt 3. Duty can fulfilled by pecuniary objects 4. Obligation is recognized by performance or promise 5. The duty doesn’t impair public order Not that great a rule; Louisiana Civil Code Statute 3rd party beneficiary and Rest. § 90 reliance is better     Thomas v. Bryant Best determinative rule 1. Material non-economic benefit to ∆ 2. Loss sustained through performance by π 3. Emergency 4. Reasonable promise  Will a new rule create a burden on the court and should that matter?  Distinguish between good Samaritan and officious intermeddler  Rest. § 86 2. Promissory Estoppel Webb v. McGowin     19 Rest. § 90       Ricketts v. Scothorn Katz v. Danny Dare, Inc.     When a donee prior to revocation acts upon a promise to his detriment, the donor is estopped from pleading want of consideration Argument used in the past by charities Not your lead argument Did promise induce reliance and do we now feel that we should enforce the promise? Finding of reliance rather than consideration 3 critical aspects of early cases 1. Familial relationship 2. Promise sincerely offered 3. Reliance on promise to detriment Old rule required full enforcement of the promise Compare to Hamer Beginning of doctrine- promise the most important factor Promissory estoppel requires: 1. A promise 2. Detrimental reliance 3. Injustice can be avoided only be enforcement Doesn’t matter if person is entitled to the thing they give up or not Pension cases Full enforcement not necessary if restitution is a better fit A promise need not necessarily be found as long as one party induced detrimental reliance in the other The test isn’t whether someone gives up a legal entitlement but whether they acted to their detriment while reasonably relying on the promise Most important aspect is justifiable reliance Promissory Estoppel requires: 1. A promise 2. Forseeability of reliance 3. Reliance 4. Injustice may only be avoided by enforcement What are the real losses in the cases? Partial enforcement Courts don’t like to speculate so it may be necessary to have a strong case and basis for determining losses Rest. § 139 Construction bidding cases require then general contractor prove that the subcontractor: 1. Made a clear and definite offer 2. Sub reasonably expected bid to be relied upon 3. General must provide prompt notice of acceptance and reasonably rely on the bid 4. General must have clean hands 5. Sub is bound only to prevent injustice      Midwest Energy, Inc. v. Orion Food Systems, Inc.        Pavel Enterprises, Inc. v. A.S. Johnson Companies, Inc. 20         Salsbury v. Northwestern Bell Telephone Company Evidence of bid shopping by the general will revoke any later reliance argument and free the sub from his bid Justice Hand view (Gozo as well): Renegotiation is part of the process and it is not the job of the courts to get involved. Promissory Estoppel shouldn’t be used in a commercial setting. Justice Traynor view: Apply Rest. § 90 as consideration for an implied promise to keep the bid open for a reasonable amount of time UCC Art. 2- written offer requires no consideration Cases turn on whether or not there was a contract and whether there was reliance No consideration or reliance is needed for enforcement of charitable pledges and marriage settlements Policy: The public favors philanthropy and it is more efficient to eliminate the consideration or reliance requirement here Charities will rarely sue because they want to keep a good reputation with their continual donors; Pragmatics Another area carved out of the law just as rewards  J. Statute of Frauds Rest § 110 Classes of Ks Covered These Ks won’t be enforced without a written memorandum or applicable exception: 1. A K of an executor or administrator to answer for the duty of a decedent 2. A K to answer for the duty of another 3. A K made upon consideration of marriage 4. A K for the sale of an interest in land 5. A K that is not to be performed within 1 year from its making Ks for over $500 were traditionally governed by the S of F but are now regulated by the S of F provisions of the UCC § 2-201. State Statute of Frauds usually cover: 1. Land transfer 2. Ks for over $500 3. Agreements that can’t be performed within a year The primary purpose of the S of F is evidentiary, providing relevant evidence of the existence and terms of a K. Ks that are covered are so because of their complexity or importance. Radke v. Brenon        The Statute of Frauds requires writing to express consideration and authorization by the selling party Written memoranda Items that must be included 1. Parties to the K 2. Items to be sold 3. General terms 4. Consideration Courts loosely interpret the signature requirement 1. Letterheads 2. Typed communications; must be clear it is from the person specified The writing creates an evidentiary platform Statute of Frauds is a gatekeeper to the oral K Policy of preventing the enforcement of by means of fraud or perjury 21 Technical requirements overlooked due to admission An admission that a K was made, while not making the K enforceable, provides evidence that a K was made  Policy of the statute is to prevent fraud and not to make admitted Ks unenforceable due to technicalities DF Activities Corp. v. Brown (Posner)  π must meet the proper levels of evidence to have cause of action  π cannot rely on ∆ changing their testimony as the only basis of their case  ∆’s deposition may end an action if π has no further evidence  UCC § 2-201(3)(b)  Statute of Frauds as the gatekeeper   McIntosh v. Murphy    Courts generally look to get around 1 year requirement of the S of F Justification for retention of the S of F: 1. Evidentiary function 2. Cautionary effect 3. Distinguish enforceable and unenforceable Ks Rest. § 139- S of F won’t prevent enforcement if a party has justifiably relied on the promise to his detriment III. What are the Terms of the Deal? A. The Agreement: Beyond the Written Word To bind a party by means of a trade usage, the party must have had actual or constructive knowledge of that usage  For constructive knowledge, the usage must be sufficiently general so that the parties could have contracted in reference to it  A usage isn’t required to be of universal and notorious use in most instances  The custom isn’t binding if it is against public policy or unreasonable  A K isn’t just the what the parties agree to, but other things that for differing reasons become part of the deal  Parties are supposed to become informed members of the trade B. Express Terms, Parol Evidence, and the Argument of Completeness of the Written Contract 1. The Common Law  Rest. § 213  Parol evidence rule isn’t a rule of evidence but one of substantive law  Prior written and oral agreements are rendered inoperable when there is a writing pertaining to the same subject in an agreement Threadgill v. Peabody Coal Co.  Nelson v. Elway       Minority position will not step into integrated agreements between sophisticated parties to rewrite the K Merger clauses will be effective if included Extrinsic evidence that is contrary to that of the 4 corners of the written agreement may not be admitted Majority position will allow in evidence to ascertain the intention of the parties Parol evidence rule shouldn’t be used aggressively to keep evidence out Rest. § 210- A completely integrated agreement is adopted by the parties as a complete and exclusive statement of the terms 22   Esbensen v. Userware International, Inc.           Merger clauses that frustrate the intentions of the parties should not be enforced When parties disagree as to whether a document represent the full agreement of the parties and conflicting evidence exists, a factual determination is necessary If no integration clause exists, relevant terms that aren’t discussed in the written agreement require extrinsic evidence Sophistication of the parties is an important factor as they tend to leave out important provisions Trade customs can always be brought in from oral testimony PER doesn’t bar information regarding conditions precedent An agreement is fully integrated when the writing is intended as a complete and exclusive statement of the terms An agreement is partially integrated regarding the terms specifically laid out in writing PER bars the admission of oral evidence regarding prior or contemporaneous statements contradicting the terms in writing Evidence of oral understandings is allowed in partially integrated agreements regarding terms not inconsistent with the express language of the writing Oral evidence is always allowed to interpret the written agreement The CISG covers deals made between 2 parties from different countries involved in the convention  It differs from American law by allowing parol evidence to obtain the subjective intent of the parties C. Ambiguous Express Terms: Using Parol Evidence and Other Extrinsic Evidence to Discover the Meaning of the Terms Used Rest. § 214 Prior & Contemporaneous Negotiations  Agreement before or simultaneous with the adoption of a writing are admissible to establish 1. Whether the writing is an integrated agreement 2. That the agreement is only partially integrated 3. The meaning of the writing 4. Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause 5. Grounds for granting or denying rescission, reformation, specific performance, or other remedy Parol evidence may be allowed to interpret the meaning of the writing Frigaliment Importing Co. v. BNS International Sales Corp. (Friendly)  Parties are expected to be informed in the businesses they entered into and acquiring this knowledge is part of the start-up costs  Witnesses that testify to the effect of a trade usage must in fact use the usage themselves  Relevant sources for determining meanings of terms 1. Trade usages 2. Regulatory agencies 3. Dictionary  π has the burden of showing a term is used in a broader rather than narrower sense Trade usage: a practice or method of dealing having such regularity of observance in a trade that the parties will be expected to K in reference to it MCC v. Ceramica Nuova 23 Random House v. Rosetta Books LLC         Course of dealing: an established sequence of conduct between parties that forms the understood basis for interpreting their expressions Express terms control over both trade usages and courses of dealing. Course of performance: when repeated occasions for performance between parties are called for in a K, any course accepted without objection shall be relevant to determining the meaning of the agreement The determination of whether ambiguity exists in a K is a matter of law for the court to decide No ambiguity exists in most jurisdictions when a definite and precise meaning can be attained Once the K is found to contain an ambiguity, the interpretation is a matter of fact for the jury to decide New use problems develop when new technology makes terms in a K ambiguous Broad language in a K will be read to include future uses Narrow language will likely confine the scope of the K to the uses contemplated at the time The neutral approach places the burden of proof upon the party asking for the less reasonable interpretation of the K Trident Center v. Connecticut General Life Ins. Co. What is the level of sophistication of the parties and what is their bargaining power?  Normal rule of K construction requires the reading of the K to be interpreted as to avoid internal conflict, if possible  Minority rule allows for parol evidence under any circumstance to interpret the meaning of the K 3. Rules, Maxims, and Extrinsic Evidence to Interpret Contract Language Posner  Dictionaries, treatises, articles, and other published materials should be used as long as it is apparent that a discrepancy exists and one party isn’t trying to slip out of their obligations Rest § 203 Standards of Interpretation  Interpretation which gives a reasonable, lawful, and effective interpretation is preferred  Express terms are given greater weight than trade usages  Specific over general  Separately negotiated terms are given greater weight Rest § 206- interpretation is generally against the draftsman Patterson 1. Meaning of words is affected by the others in the same series 2. A general term joined with a specific one will include only things that are like the specific one 3. If one or more specific terms are listed, without general terms, other items although similar are excluded 4. An interpretation that makes the K valid is preferred over one that makes it invalid 5. Read Ks to favor the party that didn’t draft the K or the party with the least bargaining power 6. Interpret the K as a whole 7. Examine the purpose of the parties 8. A specific provision is an exception to a general one 9. Handwritten provisions control over printed provision on the same K 24 10. Public interest is preferred 4. Special Interpretive Rules for Ks of Adhesion Meyer v. State Farm         Rest. § 211- where one party has reason to believe the other would not accept the agreement if he knew the writing contained due to a particular term, that term is not effective  In Ks of adhesion, which people most often don’t read, the agreement will be construed according to principles of reasonable expectations D. Implied Terms Lauvetz v. Alaska Sales & Service dba National Car Rental Adhesion Ks aren’t evil, they are efficient ways of doing business and reducing costs ADR is favored by the courts when it provides a fair method of relief for both parties Arbitration clauses that are more friendly to the party with less bargaining power are more likely to be enforced What are the established practices in the industry? Public policy, plain language, no unconscionability, no fine print, and a fair process make adhesion Ks and arbitration clauses stronger Not reading a K is no defense If the insertion of an arbitration clause is induced by fraud, it will not be enforced Wood v. Lucy, Lady Duff-Gordon            Locke v. Warner Bros., Inc. Old view of K interpretation required express consideration or the K was found to be illusory Modern view reads implied term of good faith and reasonable effort into the K Standard for implied terms Doctrine of implied good faith The implied covenant of good faith and fair dealing can’t be imposed to create a different K from the one negotiated or to take away rights given in the K UCC specifies that all Ks are to be performed in good faith Without a statement to the otherwise, good faith will be implied Rest. § 205- Every K imposes upon each party a duty of good faith and fair dealing in its performance and enforcement Express terms control the implied Good faith often used to find consideration Parties may contract out of good faith covenant Hobin v. Coldwell Banker IV. When is Someone Who Made an Enforceable Deal Excused from Doing What He Agreed to Do? Reasons that justify non-performance in contract law are termed excuses. A. Satisfaction of Mature Obligations to Perform: The Concept of Discharge Rest § 235  Full performance discharges a K  Any non-performance is a breach Full performance only will discharge a K. Excuses for less than full performance 1. Conditions: something must happen first before a party is obligated to perform 25 2. Amendment 3. Modification 4. Waiver 5. Estoppel 6. Impossibility 7. Impracticability 8. Frustration of purpose 9. Repudiation 10. Failure of Adequate Assurance of Future Performance 11. Material Breach B. Conditions Conditions may be used to allocate risk. Rest. § 224- A condition is an event which must occur before performance under a K is due Conditions are about when, if ever, a party must perform West v. USPS   Kingston v. Preston   Conditions precedent must be closely followed when expressly laid out in an agreement Rest. § 225 Effects of Non-Occurrence of a Condition o Performance of a duty subject to a condition cannot become due unless the condition occurs or is excused o Non-occurrence of the condition discharges the duty under the K once performance of the condition can no longer occur o Non-occurrence is not a breach unless a duty exists for that condition Old common law provided no remedy for parties that did not specify an order of performance in executory Ks Three kinds of covenants 1. Mutual and independent 2. Conditioned 3. Simultaneous Unless otherwise specified in a K, simultaneous performance will be implied If one party is to go first, it becomes a condition precedent Rest. § 234- performances are due simultaneously unless the language indicates the contrary; However, when one party’s performance requires a period of time, his performance is due first without language to the contrary A condition precedent is a fact or event that the parties intend must exist or take place before there is a right to performance Law doesn’t require futile acts in order to bring a breach action A party seeking the benefit of a condition precedent may waive strict compliance by conduct indicating strict compliance isn’t required Ambiguous terms may be interpreted to mean reasonable Risk must be shifted in clear and unambiguous terms Rest. § 227- interpretation of conditions is preferred that reduces the risk of forfeiture Prevention doctrine PCB&R v. Tuck-it-away, Bridgeport, Inc.           Peacock Const. Co. v. Modern Air Conditioning, Inc. Moore Bros. Co. v. Brown & Root, Inc. 26       If a condition isn’t a material term of the K, a party may be excused from the condition to avoid disproportionate forfeiture  Rest. § 229- a court may excuse the non-occurrence of a condition if it would cause a disproportionate forfeiture and is not a material part of the agreement  Can’t contract out of forfeiture protection  Evidence is necessary to show purpose and materiality C. Is Performance Still Due?: Post-Formation Conduct that Changes the Deal and the Nature of the Performance Required Amendment to a K may occur at any time. Under the modern view such modifications don’t require consideration. Both parties must consent to the proposed modification. Acme Markets, Inc. v. Federal Armored Express, Inc. A condition may be excused if the promisor prevents or hinders the fulfillment of the condition Requires proof that ∆’s conduct materially contributed to the nonoccurrence of the condition But for causation may be required in some jurisdictions The action must be wrongful and in excess of the party’s legal rights Under conditions, it is all or nothing; no part payment is given for partial satisfaction May Centers, Inc. v. Paris Croissant        A condition is waived when the acts of a party cause the other party to reasonably justify a belief that it has been waived  No consideration required for waiver  Modification is a new agreement  A waiver cannot be reinstated once revoked D. Unanticipated Post-Formation Events That May Excuse Performance Rest § 261 Discharge of Supervening Impracticability  A performance is discharged when an event that the non-occurrence of which was a basic assumption of the K occurs Rest § 262  The death of a party necessary for performance is an event that the non-occurrence of which was assumed in the K Clark v. West Waivers are the unilateral giving up of rights that can only be reclaimed prospectively Modification is permanent A course of conduct may indicate the intent of the parties Rest. § 278- if a different performance from the one promised is accepted, the duty is discharged Rest § 279- a substituted K is accepted in satisfaction of the existing duty and discharges the original duty A non-waiver provision does not allow a party to return to prior violations of the K, but only future ones Taylor v. Caldwell      The occurrence of unforeseen accidents that destroy the reason for the K may discharge the duties of the parties This stipulation is implied Underlying notion is a lack of foreseeability What would the K have said if it was foreseeable? As time passes, relief for unforeseen occurrences becomes less and less as parties are expected to prepare for known possibilities 27 Krell v. Henry       Risk may be shifted by implication Frustration of purpose What is the foundation of the K? Parol evidence is used to determine the foundation Implicit understanding Questions for consideration: 1. What was the foundation of the K? 2. Was the performance of the K prevented? 3. Was the event which was prevented such that it could be said to have been in the contemplation of the parties at the time of formation? Things are typically allowed to be unforeseen only once The level of sophistication of the parties plays a large part in what is expected to be foreseen    Where a party’s principle purpose is substantially frustrated without his fault by an unexpected occurrence his duties are discharged unless the language of the circumstances indicates the contrary  A problem must arise that makes one party’s performance virtually worthless  Communication of purpose must be explicit at the time of formation  Both parties must know of purpose  What are the backgrounds of the parties?  New human experience adds to the list of foreseeability  Rest. § 265- unless the language indicates the contrary, the frustration of the principal purpose of a K by an event assumed not to happen in the K will discharge the parties’ duties  Rule for discharge of obligations due to frustration 1. The principal purpose of the party making the K must be frustrated 2. The frustration must be substantial 3. Non-occurrence of the frustrating event must be one on which the K was made E. Excuse Through Actions Of a Party Before Performance is Otherwise Due Mel Frank Tool & Supply v. Di-Chem Co. Hochster v. De La Tour           Truman L. Flatt & Sons Co., Inc. v. Schupf π has an affirmative obligation to mitigate damages After the renunciation of an agreement, π is absolved from any future performance and may pursue a breach action immediately π isn’t required to wait until the time of performance if repudiation has occurred π must assess the amount of damages to determine if it is worth a lawsuit In executory Ks, there is an implied agreement between the parties that a relationship exists, that if renounced breaches the agreement More modern applications are not as cut and dried Repudiation must be very clearly communicated Anticipatory repudiation must be clear and unequivocal Rest. § 250- a repudiation is a statement indicating that a party will commit a breach that would give the other a claim for damages or a voluntary affirmative act which makes performance impossible Whether an anticipatory repudiation occurred is a question for the jury 28      Demands for adequate assurance of future performance are allowed in long and complex deals  Demands for assurance may come 1. Communication from one party making the other unsure 2. Questions about solvency  Law is moving toward allowing parties to seek assurances  If a demanding party overreacts, they may become the breaching party  These demands allow parties to reach an equilibrium in terms of uniformity and reliability in resolving problems without judicial intervention  If the demanding party’s assurance isn’t met, they may take reasonable action to act as if repudiation occurred  Rest. § 243 F. Excuse Provided by a Material Breach by the Other Party Possible responses to breach: 1. Waiver 2. Amendment 3. Partial breach 4. Adequate assurance 5. Total breach Rest § 237- performance can only be suspended due to the other party’s material breach; the duty to tender performance is conditioned on the other party’s not being in material breach Norcon Power v. Niagra Mohawk Power Retraction may occur if the other party has not substantially altered their position and does not immediately refuse the retraction Rest. § 251- a failure to provide adequate assurance may represent a breach when a party reasonably demands them Rest § 256- a party may retract its repudiation Modern doctrine requires π to mitigate damages Gibson v. City of Cranston  A contracting party may cease performance and seek damages if a material breach that goes to the essence of the K occurs  Questions of materiality are to be determined by the jury unless no reasonable person could find otherwise  Rest. § 241 Factor in Determining if a Breach is Material o Extent of deprivation of benefit o Extent to which the injured party would be compensated for the part of the benefit it is being denied o Extent to which the party failing to perform will suffer due to forfeiture o Likelihood that the failure will be cured including any reasonable assurances made o Extent to which the failing party’s behavior comports with good faith and fair dealing  It must be objectively determined that the breach frustrates the K to the point that performance is virtually worthless Jacobs & Young, Inc. v. Kent (Cardozo)  A condition of a K won’t cause forfeiture when it is insignificant to the overall deal  Substantial performance  Collateral damages may be awarded 29                     OW Grun Roofing v. Cope An unintentional mistake that doesn’t frustrate the purpose of the K, is grounds for replacement or the difference in value Law will not impute perfect performance requirement Some jurisdictions limit this rule to construction Ks Ks that require perfection will be strictly enforced What is the purpose of the item? Deficient work will not constitute substantial performance Under substantial performance, the K must be completed close to the extent and value requested Must be a good faith unintentional mistake Purpose, general plan, and object Avoidance of forfeiture when imperfection is insignificant What is the purpose? Divisible Ks Whole performance is divided into sets of partial performances The failure to perform one part does not bar recovery for the other part Performance of each division will be treated as a condition precedent to the next division Reduces the risk of forfeiture Election of remedies To elect to continue on one part of a divisible contract may vitiate any future claim arising from the prior breach When a party breaches a K, the non-breaching party must choose between terminating the K or continuing and recovering damages for the sole breach Once a party elects to continue, it can never elect to terminate the K based on the prior breach, but retains the right to terminate the K for future breaches ESPN v. Office of the Commissioner of Baseball V. How Does the Law Enforce the Deal? A. Specific Performance        Triple-A Baseball Club Assoc. v. NE Baseball, Inc.  The granting of specific performance is a matter of judicial discretion and won’t be granted unless the terms of the K are clear enough to enable a court to grant an appropriate order Specific performance will not be granted where there is an adequate remedy at law Party seeking SP has the burden of proving that it is warranted π must show an attempt to tender its own full performance or show that such tender would be futile Precedent is helpful, but not controlling as courts make decisions on a case by case basis Ks for the sale of realty may be specifically enforced Rest § 360 o In situations where no suitable substitute is reasonably ascertainable and o Where goods are unique in kind, quality, or personal association, and purchase elsewhere may be impractical o And the buyer is unable to cover specific performance may be granted Other factors (Corbin) 30         No SP for personal services Rest § 367- no specific performance for personal service Ks Although a court won’t grant an injunction requiring personal services, certain situations exist in which a court will enjoin a party from rendering such services to another during the term of the K  For enjoinment there must be 1. A negative covenant precluding ∆ from providing the services to anyone else 2. The services are unique or extraordinary, either because of special skill or special knowledge that ∆ has acquired of his employer’s business 3. The injunction won’t prevent the employee from possessing reasonable mean of making a living (preventing the equivalent of requiring ∆ to perform the K) 4. The party seeking the injunction is not in default or unable to perform its obligations (Clean hands)  Policy justifications for not enforcing employment agreements o Personal freedom of the employee o Quality of work may be affected in a negative manner o Too much supervision for the court  UCC focuses on the commercial feasibility of replacement  The test of uniqueness is the total situation which characterizes the K  In contrast to the past, where SP was granted typically for heirlooms or priceless works of art, SP is now commonly granted for output and requirements Ks involving a peculiarly available source or market  A party may not get SP even if agreed to in the K, if the breaching party’s sole remaining obligation is to pay money B. Damages and the Concept of Efficient Breach Holmes- there is no moral component to the law of contracts. A party must pay damages for breach but nothing else. This attitude is supported by the lack of punitive damages in contact law. Efficient breach- if ∆ can make more money by breaching a K than ∆ would have to pay in expectation damages to π, than everyone is better off by ∆ breaching and repairing π while ∆ uses its resources more efficiently This theory fails to take into account transaction costs and attorney’s fees. AGH Associates v. Fusco Difficulty and uncertainty in determining the amount of damages Insufficiency of money damages to obtain the duplicate or the substantial equivalent of the promised performance UCC allows SP for unique goods or where proper in other circumstances; Meant to broaden the rule Courts do not like to supervise performance; Sales of goods are easier to enforce than projects and relationships that would continue over time Sequence of activities vs. One time performace CISG and UNIDROIT both prefer to enforce SP more readily The preference for money damages in our system is likely traced back to the courts of equity’s deference to the courts of law o o Paton v. Mid-Continent Systems     A breach of K is efficient if ∆ is better off after paying π’s damages This breach is beneficial to society as π is not worse off and ∆ is better off Should ∆ have to split its profit with π? Should ∆ have to negotiate its way out of the deal with π? 31 Minority rule allows punitive damages for breach of K when 1. The breach is mingled with elements of fraud, malice, gross negligence, or oppression 2. Opportunistic breaches where the promisor wants the benefit of the bargain without bearing the agreed upon costs 3. Proved by clear and convincing evidence C. Agreed Remedies  O’Brian v. Langley School           Vines v. Orchard Hills, Inc.    Liquidated damages create incentives for timely performance Cts. will not enforce liquidated damages clause if they represent a penalty Parties may agree to liquidated damages for compensation of a loss due to a breach when actual damages at the time of agreement are uncertain and difficult to determine with exactness and the amount is not out of proportion to the probable loss When the liquidated damages are ascertainable at the time of formation or out of proportion to the actual loss, the clause will be found a penalty and thus unenforceable π is not precluded from litigating the fairness of the clause π must show that the damages are susceptible of definite measurement or that the damages are excessive If π proves the clause unenforceable, then ∆ must show its actual damages ∆ must mitigate damages of the breach This rule seems inconsistent with freedom of K Rest § 356- a term in a bond providing for more than the loss occasioned by the non-occurrence of the condition of the bond is unenforceable on the grounds of public policy Typically enforcement of liquidated damages does occur Old rule prevented a breaching party form seeking restitution The recent cases, however, allow a breaching party to seek restitution for unjust enrichment of the other party despite being in default  A purchaser whose breach is not willful has a restitutionary claim to recover moneys paid that unjustly enrich the seller  Purchaser must establish that the seller has been unjustly enriched by proving the damages suffered are less that the money received  Seller’s damages include expectation damages as well as incidental damages  Ct. presumes 10% is valid liquidated damages  Sellers damages are measured at the time of breach  Purchasers may also invoke unconscionability or excuse to avoid damages  The policy justification surrounding this rule is that π has partially performed despite its breach, and thus it is more injurious to deny its claim than to allow ∆ to recover in nonperformance  Rest § 374- a party may seek restitution even if it is in breach if the amount in question is unreasonable  Gozo says enforce the clause 1. Penalties, Liquidated Damages, and Efficient Breach Judge Posner represents one of the many proponents of enforcing liquidated damages clauses. Especially when a substantial corporation is involved, the promise to pay a penalty clause is a way of 32 reducing credit risk and may be essential to some value- maximizing Ks. The penalty clause could also represent a valuable negotiating tool when one party wishes to take advantage of an efficient breach. 2. Dissenting View on Efficient Breach Certainty of performance is the essential value of many Ks and to allow parties to breach at will undermines the public confidence in contractual relations. As traditional contract damages offer no motivation not to take advantage of an efficient breach, recognition of a cause of action under tort may be necessary to compel commercial responsibility. D. Money Damages Expectancy damages put the aggrieved party in the same position he would have been in had there been performance. In short, money substitutes for performance. Hawkins v. McGee        Leingang v. Mandan Weed Board General rule gives expectancy damages Puts π in as good of position as he would have been in had ∆ performed Difference in value Expectancy may be difficult to compute in some contexts Damages are compensation for a breach measured in the terms of the K For a breach of K, π is entitled to compensation for the loss suffered, but can recover only the amount that would have been gained by full performance In a K for services, the value of the K when breached is 1. π’s reasonable expenditures that would have been spent in performance subtracted from 2. the anticipated revenues π may recover lost profits if they are reasonable and not speculative Overhead costs are not deducted as they must be paid anyway and thus factoring them in causes π to pay them twice K price is reduced by reduced by expenses actually saved When actual damages are difficult to compute, ∆ may be forced to pay cost of completion reduced by the costs π could have avoided The difference is the value of performance as actually rendered and the value of full performance π must act reasonably and in good faith ∆ is ineligible for relief under substantial performance if it has acted in bad faith Gozo rule: If there is a windfall, it must go to the innocent party Cost of completion vs. Diminution in value Correct doctrine is the cost of remedying the defect ∆ is liable for the reasonable costs of doing what they promised to do and have willfully declined to do π has bargained for the performance, not the increase in the value of the land If the court finds substantial performance, an effort to avoid economic waste will be undertaken and damages will be calculated by diminution in value Without substantial performance, which requires good faith, the damages will be calculated as cost of completion               Rasnick v. Tubbs Groves v. John Wunder Co. 33 To construct an argument that π has bargained for performance of the activity which will yield little gain in value to the land, ignores the unlikelihood that anyone would bargain for the performance at such a price when so little value is added (Reference to Groves)  Diminution in value is the proper calculation if economic waste is involved  The value rule should be followed when the cost of performance is disproportionate to the end to be attained  Relative economic benefit is thus the proper consideration  Cost of performance is the typical calculation of damages, unless the breach is incidental to the main purpose of the K and the economic benefit to π from performance of the K is grossly disproportionate to the cost  Dissent: ∆ has gained the benefits without incurring the obligations of the K. ∆ is the more sophisticated party and knew going in the cost of repairing π’s land and thus specific performance should be ordered  Willful and malicious conduct should not be rewarded  Signal to the legislature that sanctions are needed  This case shows how important framing your arguments is; π needed to show the need for the reparation of the land and put the cost of completion in context with how much profit ∆ made Incidental damages include 1. Costs incurred in the process of replacement 2. Expenses or commissions involved in covering 3. Interest costs 4. Reliance costs E. Limitation on Money Damages Consequential damages- the dislocation of one’s business by the failure of another party to perform. Peevyhouse v. Garland Coal & Mining Co.  Hadley v. Baxendale             Manouchehri v. Heim π may only recover damages that were contemplated at the time of formation Flow of damages go only as far as foreseeable If a K is made under special circumstances, they must be known o both parties in order for lost profits to be awarded ∆ must know of the damages to be comtemplated Without this knowledge on both sides, ∆ may only be held liable for the amount of injuries that would generally arise Consequential damages are typically not foreseeable ∆ may be held liable for the regular business profits if they are foreseeable and communicated, but not extraordinarily lucrative profits unless they are communicated as well Modern delivery companies contract out of these risks Foreseeability and knowledge of profits may be found in businesses in which certain ∆s commonly deal For breach of warranty, π may recover direct, incidental, and consequential damages Difference of value between goods accepted and received may be determined by the cost of repair Consequential damages aren’t awarded if they could be prevented by cover or otherwise 34       ESPN, Inc. v. Office of the Commissioner of Baseball                        π isn’t precluded from damages by unsuccessful attempts to cover It is reasonable for π to rely on ∆’s promises that the breach will be remedied π isn’t required to tell ∆ how much income relies on the K, as long as the lost income was reasonably foreseeable π must produce evidence of the loss in proportion to the context of the claim (The bigger the claim, the more evidence required) Mass produced items to anonymous buyers don’t allow for consequential damages Limitations on damages 1. Foreseeability 2. Certainty 3. Minimization or mitigation Evidence is necessary to substantiate damages π must show a stable foundation for a reasonable estimate of damages Damages for loss of goodwill, business reputation, or future profits have more stringent requirements π must not only prove the loss with certainty, but the loss must be reasonably certain in amount If a loss cannot be proven with certainty, the injured party may seek nominal damages Nominal damages are a small fixed sum without regard to the amount of loss, if any In the past, damages had to be proven to an absolute certainty o Ex: π claims $500 loss, but only proves $200= no recovery Reasonableness is now the standard New businesses have a very difficult time establishing damages for lost profits In the past, new businesses could not recover lost profits Franchises have cause this calculation to become easier (more predictability) Breaching parties are only liable for the damages they cause π has the choice of seeking expectancy or reliance damages Lost profits aren’t required to be calculated exactly, but documentation must support the estimate At a very minimum, opinions or estimates must be based on objective facts Mere speculation is insufficient The relevant enterprise for a lost profit inquiry is the activity not the business entity Loss of goodwill or business reputation may not be recovered in a breach of K action If π fails to produce evidence to substantiate a compensatory damages award, π may recover its reliance costs π may only recover damages that stem from the breach Mitigation requires the non-breaching party to minimize damages Time frame of damages is from the time of breach to the time you should mitigate π is required to act reasonably Hollywood Fantasy Corp. v. Gabor Fair v. Red Lion Inn 35        Different and inferior employment will not be considered a substitute requiring mitigation  Just because employment is different, doesn’t mean π may reject it  Geographical concerns depend on the career path  Measure of recovery for a wrongfully dismissed employee is the salary for the period of service agreed upon, less the amount the employer proves the employee has earned or reasonably could have earned from other employment  The employment must be comparable or substantially similar  Ultimate question is whether the employee acted reasonably F. Other Remedial Measures- Restitution π may, upon breach, choose to seek restitution for its services Quantum meruit allows a promise to recover the value of services rendered irrespective of whether the K would have been profitable or not  The measure of damages is the reasonable value of performance  Most courts don’t limit the innocent party’s damages by the K  Minority of courts use the K as a governor on damages  Damages are capped for the breaching party G. Innovation of the UCC Parker v. 20th Century-Fox Film Corp. An employee must accept an offer of reinstatement if it is unconditional and lacks special circumstances in order to mitigate A counter offer may terminate the time frame of damages as well An injured party must take steps that are reasonable to mitigate or minimize damages sustained Mitigation or failure to mitigate is an affirmative defense that ∆ may raise π’s failure to mitigate is excused if mitigation would require inordinate or unreasonable measures or if other reasonable grounds exist People typically aren’t required to move in order to mitigate unless moving is generally part of the career path United States v. Algernon Blair, Inc.   Rodriguez v. Learjet, Inc.        Roneker v. Kenworth Truck Co.     Lost volume sellers can’t mitigate by a resale Perfect for liquidated damages Criteria for measuring reasonableness of liquidated damages 1. Anticipated or actual harm caused by the breach 2. Difficulty of proving loss 3. Difficulty of obtaining an adequate remedy A lost volume seller may recover lost profits under the UCC The seller loses volume by the buyer’s breach If a seller would have entered into both transactions but for the breach, then the seller is a lost volume seller as a result of the breach To establish standing as a lost volume seller π must 1. Possess capacity to make an additional sale 2. The additional sale must have been profitable 3. The additional sale would have still been made in absence of the buyer’s breach Lost volume anticipates a relatively unlimited supply Status usually doesn’t change (Car & boat dealers) Lost volume status backs up the liquidated damages clause Liquidated damages are easier than having to prove actual lost profits 36         A sales K limiting the buyer’s remedy and excluding recovery of consequential damages examines 1. Whether the limited remedy failed in its essential purpose 2. Whether the exclusion of consequential damages would be unconscionable A remedy fails in its essential purpose when it deprives a party of a substantial benefit of the bargain, even though it appeared fair at the time of formation The damage to the buyer is the same whether the seller diligently attempted to make repairs or whether the seller acted in bad faith If π proves that the limited warranty has failed, it may seek any other remedy that the UCC typically would provide For π to recover consequential damages, it must be shown that their exclusion would be unconscionable Unconscionability is rarely found in the commercial context This allocation of risk requires π to seek insurance ∆ can limit damages, but must not fail in the warranty VI. When Do You Have Rights And/or Duties Under a K You Didn’t Make? A. 3rd Party Beneficiaries Issues involving 3rd party beneficiaries arise when one person who is not a party to the K and provided no consideration, claims that it can be enforced because the parties intended it for his benefit. Ex: Life insurance contract Lawrence v. Fox            Ex Parte Stamey Elimination of 19th century requirement of privity to sue Efficiency drives the theory ∆’s K identified π A promise made to one for the benefit of another allows the one whose benefit the K is made to bring suit for the K’s breach Incidental beneficiaries may not recover o Ex: A hits B’s car. Tells B to go to C to buy another. C is incidental. A promise to one, may imply a duty to another Who is to benefit? A party claiming to be a 3rd party beneficiary must establish that the contracting parties intended to confer direct benefits upon the 3 rd party at the execution of the K This will be determined by the language and intent of the parties Arbitration privileges may also be bestowed upon a 3rd party Rest § 302- a beneficiary is an intended beneficiary if a right of performance is appropriate to effectuate the intention of the parties and either 1. the performance will satisfy a debt (Creditor) 2. the circumstances indicate that the promise intends to give the beneficiary the benefit of the promised performance (Donee) Rest § 304- a promise in a K creates a duty in the promisor to any intended beneficiary and the beneficiary may enforce the duty Nature of business may determine who is a 3rd PB An ultimate buyer is not typically a 3rd PB A middle man must bear the risk     Midwest Grain v. Productization, Inc. and CMI Corp. 37    Old rule allowed 3rd PB rights to vest immediately and irrevocably and could not be extinguished without the 3rd party’s assent  A promisor may assert any defense against the beneficiary that could have been asserted against the promise  A delegation involves the appointment of another to perform one’s duties  When a duty is delegated the delegating party remains liable  The modern view provides that in the absence of language to the contrary, the parties to the K retain the power to discharge or modify the duty by subsequent agreement without the 3rd party’s assent unless the 3rd party has (Rest § 311) 1. Materially changed position in justified reliance on the promise 2. Brings suit on the promise 3. Manifests assent to the promise at the request of the promisor or promise  The rationale for the rule is that parties to a contract should remain free to amend or rescind it so long as it isn’t to the detriment of the 3rd party  Freedom to contract  The first restatement drew distinctions between a creditor beneficiary and a donee beneficiary o Creditor’s rights vested once the beneficiary brought suit or otherwise materially changed position in reliance on the promise o Donee’s rights vested immediately  These distinctions are now eliminated  Rest § 308- the intended beneficiary isn’t required to be recognized at the time of the K B. Assignment and Delegation A K creates both rights and duties. A contracting party’s transfer of rights under a K is an assignment while a transfer of duties is a delegation. A contracting party can both assign his rights and delegate his duties. Olson v. Etheridge Producers of standard goods aren’t liable to 3rd PB in the absence of specifications for specific orders A 3rd party may only be a 3rd PB if the contracting parties intended the benefits to run directly to the 3rd party The Macke Co. v. Pizza of Gaithersburg          In the absence of language to the contrary, rights and duties under an executory bilateral K may be assigned and delegated subject to the exception that duties under a K to provide personal services can’t be delegated It must be shown that a material change in performance would occur in order for a party to refuse recognition of an assignment To prevent assignability, use an non-assignability clause; May lower the value of the business, however The main part of the purchase of most businesses is the volume acquired Personal service Ks are unassignable when rare or unique skills are involved Intimacy of the relationship is also considered (Drs. & Lawyers) The general rule allows assignment unless the assignment would change the contract in a material manner The language in the K is critical A party should mention in the K the benefits that it believes are important; Expectations should be spelled out in the K 38 Rumbin v. Utica Mutual Insurance Co.                 Sally Beauty v. Nexxus Products Co., Inc. In the absence of express language, rights may be assigned but the assigning party or the assignee is liable for resultant damages when an antiassignment provision is included An antiassignment provision does not limit the power to assign This modern approach allows free assignabiltity for the assignor and protects the oblige from any damage that may result π does not have the right to transfer, but does have the power to do so, unless this is forbidden with sufficient specificity A specific performance clause is necessary to completely block assignments Judicial preference is for assignabilitiy ∆ must show actual damages as a result of the assignment ∆ may pursue damages from either the assignor or assignee K must state that the assignment will be void or invalid or that the assignee will acquire no rights and the assignment will not be recognized in order to prevent assignment. Saying that the K may not be assigned is not enough The common law formerly enforced these provisions without express language A duty of performance under an exclusive distributorship may not be delegated to a direct competitor without ∆’s consent A party may perform his duty through another party unless otherwise agreed to or the other party has a substantial interest in having the original promisor perform the K An obligation to use best efforts is implied into exclusive agreements under the UCC (e.g. Lady Duff-Gordon) Personal service Ks are per se nondelegable The general rule is that change of corporate form does not affect contractual rights 39