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									Contracts Outline –           Mutual Assent                                               Imwinkelried – Fall 2008

   Formation Stage

   ~Mutual Assent~

                    Subjective:
                         o     Meeting of the minds; but injustice in problem of proving state of mind
                    Objective (modern view):
                         o A manifestation of mutual assent – behavior and external manifestations suggest to a
                         plaintiff a subjectively honest belief and objectively reasonable expectation of performance
                    Shift from S to O cited in Lucy, where Lucy’s belief there was an offer rendered a reasonable

   Tentative working evidence for offer: a definite, conditional promise manifesting the offeror’s present intent to enter
   a binding, final agreement
                    Conditional
                         o     ―If‖; I request (promise/performance)  given  crystallized K
                         o     I promise something in return for another promise or performance
                         o     Distinguishable from a mere gift
                    Binding
                         o Express intent: look at seriousness—that the parties desired legal enforcement; the more
                         details, more serious
                         o Interpretive intent: intent of parties to have agreement legally enforced is not expressed
                         or is ambiguous, presume parties don’t want legal enforcement (family/social vs. business
                    Finality – intent to enter into a final agreement… facts considered by court below:
                         o     Words used:
                                    clear and specific; can’t be futuristic; quotes usually aren’t offers just prelim
                                              Owen (no K b/c no offer; ―unless‖ is not an offer to sell)
                         o     Surrounding circumstances:
                                    Subject-matter, third-party negotiations, business customs, other documents
                                              Harvey (known pendency of negotiations with multiple buyers  less
                                             reasonable to think it’s intent to offer; no K b/c no offer)
                         o     Definiteness of proposal
                                    too much definiteness is bad if the market is moving fast***
                                    efficiency of the market concern
                                    Silence w/r to quantity = no K
                                              SW Engineering (shook hands manifesting present intent but lacked
                                             payment method; yes K b/c shouldn’t fail due to lack of one term when
                                             everything else, including quantity was there… filled with UCC)
                         o     Size of the group addressed:
                                    Larger the group, less likely Ct sees an offer
                                              Norm:

                                              Craft (no K b/c no offer due to indefinite size of group of
                                          addressees; ad was invitation for D to receives offers)
                                          distinguished from following…
                                     Exception:
                                              Lefkowitz (―first come, first served‖ limits size of addressees
                                         and takes away policy concern of multiple liabilities***; yes K b/c
                                         definiteness in offer)
                o   Contemplations of subsequent execution of formal writing:
                         Going to attorney to draft details, indicating INTENT
                         Modern view: less stress on formality
           Definiteness Requirement – to supply Ct w/ way to give remedy
                o   At common law
                         General standard is reasonable definiteness on material terms (i.e., price,
                        quantity, time and location of delivery)
                                  Traditional view:
                                              Walker (no K b/c only agreement to agree; ―upon business
                                         conditions‖ is very vague/broad; no intent to enter a final
                                                   o [No faith in valuable experts]***
                                     Minority view (trend):
                                              Greene (yes K b/c rent ―to be agreed upon business
                                          conditions‖; this Ct placed expert testimony as reasonable gap-
                                                   o Aforementioned cases are not factually
                                                   distinguishable, rather suggests [court’s policy can differ
                                                   on whether expert testimony is a reliable or efficient way
                                                   to fill in gap for non-scientific material terms (i.e.,
                o UCC – for ambiguity/ambiguous terms – laxing the common law definiteness standard
                          UCC 2-305, 2-308, 2-309 are gap-filling provisions
                                 Price, time of delivery, delivery terms, duration, time of payment if
                                parties are silent
                          UCC 2-305 resolve common-law splits of authority
                          QUANTITY is always necessary
                                 ambiguity in material terms – Fairmount (turn to trade custom to fill in
                                that gap of quantity)
                o When a court finds breach of K, it grants remedy by providing P w/ specific performance
                by D or damages
                          Needs reasonable definiteness in the material terms

           Offeror’s supervening death OR incompetency – S/A
                o   Prevailing view:
                         If offeror dies or becomes mentally insane, unbeknownst to the offeree, the offer
                        terminates… {vestiges of subjective theory b/c lacking meeting of the minds…
                        offeree doesn’t get notice, relying on offeree’s good faith  injustice results}
                o   Minority view:
                         Offer terminates only when offeree knows or should have known

   Offeree’s supervening death OR incompetency
        o   Common law:
                Automatic termination, lower risk of injustice if offeree dies
   Destruction of subject matter
        o   Automatically terminated offer
   Lapse of time
        o   With express duration, after that expires, the offer is terminated
        o   If duration is not mentioned, it expires after ―reasonable‖ time
                  Face-to-face or IM offers end upon conversation ending
                  Rule: look to the market
                            More volatile subject matter, the shorter the duration time
                  Method of correspondence used (fax or letter)
        o   When does the period begin?
                  Often the offeror specifies a term, i.e., ―good for 8 days‖ and 8 days begins
                 when the offeree receives the offer
                  If offeror calls to say he FedEx’d and offer stands for 5 days, but the offer
                 doesn’t arrive until after 5 days, Ct may say 5 days began at phone call
                  Subsequent extension of time:
                            Before the lapse of original period:
                                       If before the 5 days passed, the offeror contacts offeree and
                                    gives 2 weeks instead, Cts allow [freedom of K ]***
                                       Even if there is not communication to the offeree, as long as
                                  offeror intends to extend, it’s fine
                             After the lapse of original period:
                                       Offeror forms intend to renew the offer after it dies—must
                                    contact offeree again—back to square one
                                       If offeree has waited past the period and then calls to accept,
                                    he is making a counteroffer
   Revocation by offeror
        o lax standard for finding revocation, compared to strict standard for making an offer 
        [policy consideration in favor of freedom of K of the offeror, tough to surrender offer but
        easier to revoke]***
        o Basic RULE: Offeror can REVOKE at any time BEFORE an acceptance and it’s
        effective at time of receipt
        o Two types – direct and indirect
                   Direct revocation
                            General Rule: Wishy-washy revocation will suffice; all you need is
                                       Hoover (―might not want to go through‖; no meeting of the
                                 minds in subjective theory; no K, words were sufficient to revoke
                                 the offer)
                             Revocation of ads and media:
                                       Must be clearly directed if specific ppl were addressed (if
                                    offeree contacts offeror, offeror should contact to revoke)

                             If large group of addressees (newspaper), must have
                         revocation notice up for same time period as offer
           Indirect revocation (hear from a third party)
                 If offeree learns of offeror’s intent to revoke from a reliable source, it is
                sufficiently revoked—no need for direct revocation by offeror
                             Dickinson (P heard from third party that D sold property to
                          someone else; no K b/c offeror can revoke any time before offeree
                          accepts; also offeree knew of offeror’s subjective intent to revoke)
                    5 elements of indirect revocation
                             1) offeree must hear of the revocation

                             2) the source must be considered reliable by the offeree

                             3) the tenor of the information given must destroy the
                         offeree’s reasonable expectation
                             4) the report must be given before the attempted acceptance

                             5) the revocation reported must be accurate and actual
o   ~~Limitations on Power to Revoke~~
        Limitation have been progressively limited by the courts and legislatures – most
       courts view that the revocation takes effect only when received by the offeree.
        Types of limitations:
                 Imposed by act of the parties:
                             Option K supported by consideration:
                                   o This promise effectively limits offeror’s power to
                                   o Option Ks are transferable to 3rd party (e.g., estate
                                   o Usually, an option K will override death of
                                   offeror/offeree, offeree’s rejection prior to change to
                                   acceptance, offeror’s revocation
                                             Variation #1: $100 to not revoke offer; if
                                            revocation, then remedy is only $
                                             Variation #2: offer accepted with $100
                                            consideration, on the condition of payment by
                                            certain deadline/time; if revocation, remedy is
                                            specific performance
                             By seal – no longer used; UCC replaced it

                             Statutory substitutes for seal: UCC 2-205 – firm offers for
                        merchants only, layperson can’t make firm offer; merchants signs
                        off in writing and it won’t be revoked for 3 months (max of
                        irrevocable), despite lacking consideration
                    Imposed by operation of law:
                             Part performance and unilateral Ks:
                                   o Good faith reliance and part performance triggers a
                                   [reliance interest the law ought to protect]***

        o   Restatement § 45
                  Only sufficient if offeror invites part
                  Offeror invites an offeree to accept by
                 rendering performance  option K is created
                 when offeree tenders or begins the invited
        o Marchiondo (P broker argued that it was partial K but
        court said no; broker had not produced a buyer; ―specified
        buyer‖ in this case terminates the policy in favor of D
        landowner’s ―exposure to multiple liabilities‖, and P
        broker’s efforts/reliance interest prevails)
                  D Landowner’s power to revoke =
                 Landowner’s freedom of K [find in favor of
                  P Broker’s reliance > D Landowner’s
                 freedom of K [find in favor of Broker]
                  If landowner’s offer is non-exclusive, then
                 Landowner’s possible multiple liabilities >
                 Broker’s reliance [find in favor of Landowner]
                  If specified buyer, then no more multiple
                 liabilities concern, then Broker’s reliance >
                 Landowner’s freedom of K [find in favor of
   Promissory Estoppel
        o   4 elements to trigger this doctrine:
                  1) D made promise
                  2) D should have reasonably foreseen that P
                 would rely on it
                  3) P does rely on promise and changes
                 positions (acts in a way he otherwise wouldn’t
                 have/forgoing opportunity  economic
                 disadvantage for P)
                  4) Court characterizes the reliance as
                 reasonable and substantial and [finds it would be
                 an injustice to not enforce D’s original
        o Reliance on the part of the P starts even before
        performance, rather at the point of preparing for
        performance; detriment to P even before D begins to
        receive benefits of performance
        o Social policy: [protects people who have acted in a
        substantial and detrimental way due to reliance on a
        promise]*** (from charitable orgs)
        o S/A – in P.E. b/w charitable organizations and
        business/market (Hand/Traynor debate)
                  Hand: gov’t should stay out of business so
                 no PE extention to marketplace
                  Traynor: [gov’t ought to protect reliance
                 interests; offeree could have protected himself in
                 the terms of the K]***
                  [offeror can be specific in langue, offeror is
                 the master of terms, ]

                                                   Today, Traynor’s way prevails… less laissez
                                         o    General contractor (P) sues subcontractor (D)
                                                   Baird (Hand) versus Drennan (Traynor)
                                                   Baird (Hand refuses to extend PE to
                                                  marketplace; no K b/c revocation happened
                                                  before acceptance, regardless of reliance by
                                                  general contractor)
                                                   Drennan (Traynor extends PE to
                                                  marketplace; yes K b/c the promise induced
                                                  reliance of the general on the sub’s mistaken
                                                  calculation bid; sub should exercise reasonable
                                                  care in preparing bid; sub could foresee the harm
                                                  in the general’s reliance)
                                         o    Subcontractor (P) sues general contractor (D)
                                                   SoCal Acoustics (Traynor) vs. Swinerton
                                                   SoCal Acoustics (sub’s reliance on the paper
                                                  listing his name is insufficient; paper listing
                                                  didn’t induce his change of position; Traynor
                                                  doesn’t buy sub’s argument that listing was
                                                   Listing was not acceptance; no change in
                                                  position  no promissory estoppel  use of
                                                  statutory interpretation of a violation of a statute
                                                  protecting subs from generals’ bid-shopping
                                                   Swinerton (sub sued general when the 2nd
                                                  lowest bid won instead of itself, the lowest bid;
                                                  yes PE b/c reliance based on the solicitation
                                                  promising contract to lowest bidder)
   Rejections, Counteroffers and Qualified Acceptances by Offeree
        o   Responses terminating offer:
                 Outright rejection – ―no‖
                          Exceptions:
                                    Offeror insulates against outright rejection by saying ―I know
                                you’ll say no at first, but think it over.‖
                                    Offeree can delay outright by saying ―I’ll keep it under
                   Outright counteroffer
                         Once made, the counteroffer terminates the existence of the original
                        offer, replacing it with a new offer
                                    Minneapolis RR (offeror quoted 2000-5000 at certain price,
                                but offeror put order for 1200 [counteroffer] and changed back to
                                2000 when it was rejected by offeror; no K, b/c the quantity here
                                was a material difference, while counteroffer voided the original
                           Exceptions:
                                    Offeror can insulate by using above words

                                                      Offeree can prolong offer by saying ―keep under advisement‖
                                                 even after counteroffer
                                  Qualified acceptance
                                         Says something other than ―I accept‖/changes terms/doesn’t occur to
                                        the offeree to say ―keeping under advisement‖; ―I accept‖ plus a conditional
                                        asking for change in terms
                                         Destroys offer, though parties often think a K has been formed
                                         Exception: Insulated by offeror
                      o    Non-rejections (grumbling acceptance) – DO NOT terminate an offer
                               Questions: ―Would you consider?‖
                               Request: ―Would you lower the price?‖
                               Mere comment: ―You should be ashamed of that price!‖
                 Supervening illegality – also terminates the offer
                      o If a material term of an offer becomes illegal before the acceptance or if there is
                      sufficiently important public policy that renders the offer illegal, the offer is automatically

Tentative working guide: an eligible offeree, with knowledge of the offer and intent to accept, gives the requested
return unconditionally.
                 Eligible offeree
                      o    General rule: only the person who the offeror addresses the offer to.
                      o    Exceptions:
                                Option Ks – if offeror has entered into an option K, then he can’t revoke. Most
                               courts say offeree can transfer to a 3rd party who can accept the offer
                                Mistake – of the identity of offeree, preventing formation of K (only if
                               materially important) – S/A
                                          Majority: mistake prevents formation only if mistake is materially
                                         important (but for the mistake, the offeror wouldn’t have made offer to that
                                          Minority: any mistake by offeror w/r to identity prevents formation of
                 Knowledge of Offer
                      o    General Rule: offeree must have knowledge of the offer to accept
                               Recurring problems:
                                        Offeree learns of the offer only after completing the requested return –
                                                      Majority: Broadnax (no acceptance, thus no K b/c P’s award
                                                  wasn’t induced by offer since he had no knowledge of reward for
                                                  capture of prisoner)
                                                      Minority (trend toward): enforcing rewards regardless of
                                                  knowledge of offer in [favor of public policy: would be ridiculous
                                                  to let prisoner go and then recapture]***
                                          Offeree learns of offer mid-performance  valid acceptance
                      o Cross-offers: buyer in SF and seller in NY, after discussing deal, both draft their own Ks;
                      both their offers are revocable assuming neither party knows of the other’s offer

   Intent to Accept – usually, the manifested intent to accept is easily identifiable with a simple ―I
accept,‖ but when this does not happen, look to…
         o Offeree’s subjective motivation
                  Intent to accept doesn't have to be the offeree’s primary motivation, as long as it
                 was a plausible motivation
                  If the offeree is aware of the offer and intent to accept is in the back of his mind,
                 then he accepts with performance
         o Offeree’s ambiguous statement or act
                  Silence
                            General rule:
                                        silence alone is not an adequate manifestation of intent to
                                    accept b/c that would entail restricting personal freedom of the
                                        need silence + a plus factor  objectively reasonable belief
                                   that silence is an acceptance
                              Exceptions (Silence +):
                                        Preliminary negotiations indicated that silence was a means of
                                    acceptance, then yes, it can be
                                        Prior dealings formed a pattern of silence as acceptance 
                                    leads offeror to the reasonable expectation that offeree accepts
                                    despite silence
                                             o Hobbs (each prior time, silence was followed by
                                             delivery of goods and then check payment; yes K b/c
                                             there was acceptance implied due to pattern of prior
                                        Offeree solicits offer – insurance context, where written
                                    application returned by offeree becomes the new offer; here,
                                    silence plus unreasonable delay = acceptance
                                        Silence after the receipt of goods (business norm):
                                             o Duty to speak if goods arrive in your hands; w/o
                                             speaking, there is implied acceptance b/c of offeror’s
                                             reasonable expectation
                                             o Sale on approval address in UCC
                                                      2-326: unless otherwise agreed, if delivered
                                                     goods may be returned by the buyer despite
                                                     conforming to the K, the transaction if (a) sale on
                                                     approval and b) sale on return.
                                                      2-227: offeree has option to accept or reject
                                                     goods after receipt
                                                                 under sale on approval, failure to
                                                                notify seller of election to return goods
                                                                is acceptance
                                        Silence after acceptance of services or exercise of dominion
                                    over goods
                                            o Norm: even in the case of mistaken delivery, it is

                                                   Indiana (buyer possessed refrigerators
                                                  delivered that he did not order; yes K b/c buyer
                                                  had duty to contact seller upon receipt, thus his
                                                  dominion implied acceptance and thus formed
                                          o Exception: difference between these cases is the
                                          conversion of the goods  inferred intent
                                                   LA Rams (player got check from Rams, who
                                                  knew he couldn’t accept the check at the time;
                                                  player did not endorse check; no K b/c player
                                                  didn’t exercise dominion over check and
                                                  received it when he was unable to accept)
   Gives the Requested Return
       o   Methods of giving requested return
               Making a promise (dispatch required)
                        R1st 31 – ambiguous offer as to method of acceptance, we assume it
                       contemplated acceptance by making promise, thus making a bilateral K in
                       which 2 parties have legally protected expectations of future performance
               Performing an Act (dispatch not required, but suggested)
                        Offeror can say that offeree can indicate willingness of promise by
                       performing an act
               A choice of either of the prior
                        R2d § 32 – If ambiguous, offeree has the choice, any reasonable
                       method of acceptance
                        UCC 2-206 – Any reasonable method
                                    Ever-Tite (language in doc by ET’s lawyers said that
                                 acceptance was written OR commencing performance—protecting
                                 ET’s incurring detriment by investing in a project if Greenes
                                 terminate offer of work; yes K b/c ET commenced performance
                                 before revocation… ruled in favor of the drafters of the K)
       o Legal status of the method – for acceptance to be limited, specific words must be used
       (i.e., must & will—not should & may)
                  Required
                          Offeree has to do that method of acceptance (rare)
                  Suggested
                          Didn’t use the suggested method, other commercially reasonable
                         methods are OK
                  Reasonable
                          Use commercially reasonable method
                  Unreasonable
                          If you use snail mail, it’s only in effect upon receipt
       o Analytic approach – 3 questions
                  Q1: Must the offeree communicate the acceptance?
                          Bilateral K: communicated commitment usually required, unless
                         language indicates otherwise
                                    General Rule: offeror must be notified of acceptance [don’t
                                 want to prevent offeror to make offers to others in the marketplace
                                 if offeree is unclear or slow to reply]***
                                           o White (P asked D for specs for lumber, D gives
                                           estimate and says ―consider it‖, later changing the
                                           estimate saying ―can begin at once upon agreement‖, P

                           purchased lumber and D revoked; no K b/c P had to
                           notify intent to accept prior to revocation)
                      Exception: notice not needed if this was explicit in offer
                         o International Filters (offer said ―this becomes a K
                         when accepted by the purchaser and approved by exec.
                         officer‖, which terms were met; yes K b/c offer was
                         explicit about no notice needed)
            Unilateral K:
                      General Rule: no need for notice; beginning performance is
                  manifestation of acceptance if it will naturally and normally come
                  to the offeror’s attention
                      Exception: when performance does not come to the attention
                  of the offeror, then need notice
                      Exception to Exception: if notification is not expected (i.e., in
                  the class of the size of offerees) – S/A
                            o Minority:
                                       1) Notice is a necessary part of the
                            o Prevailing view:
                                       2) Notice is unnecessary
                                                 Carlill (ad if you use product and
                                                get flu, you get $; P sued for $; yes K
                                                b/c ad addressed public so no need for
                                                acceptance in unilateral K)
                            o Prevailing & best view:
                                       3) Notice is necessary not for formation but
                                      to activate a duty of immediate performance
 Q2: If so, which means of communication/acceptance is the offeree required or
authorized to use?
          Required or prescribed – offeree must use this method
          Authorized or suggested – if followed, it is an acceptance
          Reasonable – evolution of common law standard
                      offer sent by snail mail, send back same OK

                      offer sent by snail mail, and acceptance is sent by email or fax
                   suggests need it quicker
                      offer sent by FedEx, email, fax in stable market, you can send
                   back with slower method
          Unreasonable – in a volatile market, sending back by snail mail when
         the offer was sent by faster means
          Ambiguous – in case of doubt, offeree can choose to accept by promise
         to perform or by performance
                      Allied (K started after Allied began work on project, despite
                  that the signed copy including indemnity clause wasn’t sent to
                  Ford; yes K b/c ―should‖ in the suggested acceptance doesn’t
                  preclude other forms of acceptance such as performance)

                 Q3: When is the communication effective as an acceptance—on dispatch or only
                on receipt?
                          Legal methods of acceptance:
                                    a) Unreasonable and unauthorized: effective only upon
                                 receipt (slow return in highly volatile market)
                                    b) Reasonable: S/A (majority on dispatch Adams; minority on
                                 receipt Rhode Island Tool)
                                    c) Suggested: effective upon dispatch
                            General Rule:
                                    Mailbox rule: acceptance by offeree is effective upon
                                 dispatch, even if it is lost in the mail; rejection by offeree is
                                 effective upon receipt
                                          o [Public policy reason]***:
                                                     Facilitating fast market, dispatch acceptance
                                                    promotes efficiency
                                                     Fairness to offeror in the event that offeree
                                                    rejects, offeror can seek other business
                            Exception:
                                    The offer specifies acceptance effective upon receipt
                                         o Rhode Island (bid said ―successful bidder will receive
                                         notice of award‖, thereupon constitute a K; no K b/c
                                         actually delivery of notice needed before K formed)
                            Overtaking acceptance and rejection:
                                    Legally overtaking acceptance: rejection dispatched first by
                                 mail is valid on receipt, but acceptance dispatched before rejection
                                 received, but rejected is still received first, thus creating offeror’s
                                 anticipation of finding other buyers – S/A
                                           o Minority: Some cts say acceptance effective on
                                           receipt, neither party bound to K
                                           o Majority: Some cts insist applying mailbox rule,
                                           exception only if the offeror actually changes position in
                                           reliance on the rejection
                                    Physically overtaking rejection: mailed acceptance followed
                                 by phone call rejection, but acceptance upon dispatch precedes the
                                 phone call rejection
                                    Both cases prejudice for the offeror – S/A
                                          o Majority: if offeror does change position, the offeree
                                          is estopped from claiming K via mailbox rule, in order to
                                          protect offeror’s freedom of K—his right to walk away;
                                          here, neither party is bound
                                          o Minority: if offeror doesn’t change position, the court
                                          still rules in favor of the offeror
   Unconditionally (unconditional acceptance)
        o   Common law requirements (for services and realty/property)
                Must be mirror image to the offer: any difference is fatal to K formation

                    Do the terms of the acceptance differ from those of the offer?
                             Difference should be real, not just apparent
                    If so, is the offeree insisting on the different term?
                             versus inquiry, requests, or comments (precatory language)
                    If so, what are the legal consequences? – S/A
                             Majority: any different is fatal/mirror image rule
                                   o No legal K if there’s additional terms not in the offer
                                   o Offer is void
                                   o Qualified acceptance – counteroffer means original
                                   offer is no longer on the table
                             Minority: material/substantive differences (with real-world
                           economic significance) are fatal
                                   o Poel (insistence in boilerplate language that ―prompt
                                   acknowledgment‖ must follow for acceptance, and it
                                   failed to; no K b/c ―prompt acknowledgment‖ was
o   U.C.C. § 2-207 drafted to rid K problems of common law
        Legislative remedy to prevent last shot and escape hatch problems that arise
       from ineffective acceptances:
                 ―Escape hatch‖: if there is a change in the market that means you’ll lose
                money from the K and using the mirror image rule, you can find a
                discrepancy between the offer and acceptance, though not the important
                negotiated/dickered terms, and either part can escape K {closed by (1) &
                (3)’s 1st sentence}
                 ―Last shot‖: even if one party acts as though there is a K, non-mirror
                return docs serve as counteroffers that changes the terms, and the party
                performing manifests intent to accept by the act of performing {overthrown
                by (2) & (3)’s 2nd sentence}
                             Policy reason: For laypersons, Llewellyn’s notion of [real
                            assent to decent terms]***
         Clause (1): ―A definite and seasonable expression or written confirmation
        which is sent within a reasonable time operates as an acceptance even though it
        states different terms additional to or different from those offered or agreed upon
        unless acceptance is expressly made conditional on assent to the additional or
        different terms.‖
                   Was there a definite (i.e. agreement b/w the dickered terms—terms
                  unique to that K and negotiated, substantive) and ―seasonable‖ expression
                  of acceptance or written confirmation w/in a reasonable time?
                             No  go to clause (3)

                             Yes  continue
                    Were there different or additional terms?
                             No  mirror image of offer, thus acceptance and K

                             Yes  continue
                  Was the acceptance expressly made conditional on assent to
                 different/additional terms?

                      No  go to clause (2) – S/A
                            o Whether (2) applies to ―different‖ terms when text
                            only mentions ―additional‖ terms
                                     Majority: in effect go to clause (3)’s 2nd
                                    sentence (―different‖ terms don’t automatically
                                    go into K)
                                     Minority: treat additional and different terms
                                    the same (can use clause 2 for ―different‖ terms
                                    like ―additional‖ terms)
                      Yes  go to clause (3)
 Clause (2): ―Additional terms are to be construed as proposals for additions to
the contract. Between merchants such terms become part of the contract unless (a)
the offer expressly limits acceptance to the terms of the offer, (b) they materially
alter it, or (c) notification of objection to them has already been given within a
reasonable time after notice of them is received.‖
            Are both parties merchants?
                      No  additional or different terms become ―proposals‖ of the
                   K that require assent
                      Yes  continue
             Did the offer expressly limit acceptance to the terms of the offer?
                      No  continue

                      Yes  terms do not become part of K
                           o Itoh (expressly conditional term offeree doesn’t give
                           real assent to, seller performed anyway creating K
                           through (3); terms are only what both parties agreed upon
                           before arbitration clause added, clause is tossed)
             Did the terms materially alter the K?
                      No  continue

                      Yes  terms do not become part of K
                           o Marlene (K found under (1) and arbitration clause
                           materially altered the K under (2); not binding unless both
                           parties agree)
                                     Note: S/A for arbitration clause inclusion b/c
                                    policy reason to ease massively backlogged
                                    litigation dockets
             Was there an objection to the terms given w/in reasonable time?
                      No  terms become part of K
                            o Construction Aggregates (P called D objecting only
                            to the payment method, thus silence implied intent to
                            accept other terms; yes binding K including warranty
                            disclaiming liability clause)
                      Yes  terms do not become part of K
 Clause (3): ―Conduct by both parties which recognizes the existence of a
contract is sufficient to establish a contract for sale although the writings of the

parties do not otherwise establish a contract. In such cases, the terms of the contract
consist of the terms on which the writings of the parties agree, together with the
supplementary terms incorporated under the particular provisions of this act.‖
          Was there conduct that recognizes existence of a K?
                      No  no K

                      Yes  continue
            Do the terms of the writings agree?
                      No  terms consist of what was agreed upon in writing and
                  supplementary terms taken from the UCC
                          o Southern Idaho (difference of Oct. 15 vs. Dec. 15 is
                          discrepancy in dickered terms, no K under (1), but
                          performance begins K under (3), date terms knocked out,
                          and Ct goes to UCC 2-309, which suggests that Dec. 15
                          was indeed a reasonable termination date)
                      Yes  terms included in K

Contracts Outline –       Consideration                                             Imwinkelried – Fall 2008


               Definition: legal detriment to the P bargained for by the D and given by the P in exchange for the
            D’s promise
               Determines which promises can be considered legally sufficient to enforce

               Identify the promise that the P wants enforced:
                    o     What promise did the D fail to perform?
                              Identify every act, forbearance, or promise by the P, which the P might treat as
                             consideration for D’s promise
                              Test each act, forbearance, or promise by the P to determine whether it
                             constitutes legally sufficient consideration
                    o     Look for the bargained component
                              Focus on D’s state of mind – did the D bargain for ―it‖ (P’s performance,
                             forbearance, or promise) in exchange for D’s promise?
                              Focus on P’s state of mind – did P give ―it‖ (act, forbearance, or promise) in
                             exchange for the D’s promise?
                    o     Look for the legal value component
                              Does it entail a legal detriment to P?
                              Does it confer a legal benefit to D?
               If components of conventional consideration are not there, look for a substitute:
                    o     Moral obligation
                    o     Promissory estoppel

               Identify the overarching issue

               Identify functional P  party asking ct to enforce a K

               What promise by the D does P want to enforce?
                    o     Analyze each act, promise, forbearance separately
               Identify every act, forbearance, or promise by the P which the P might treat as consideration for
            D’s promise
                    o Look at why D made the promise and why P incurred the detriment
                    o Surrender of the claim
                    o Surrender of the right to enter into rescission K
                    o Additional or different consideration
                    o Test each act, forbearance, or promise by P to determine whether it constitutes legally
                    sufficient consideration (a legal detriment to P, bargained for by D, and given by P in
                    exchange for P’s promise)

               Did the detriment induce the promise? D must desire detriment before incurring it
                    o The detriment must at least purport to be at least part of the inducement; ―bargained for
                    by D‖

        o    Not necessarily the sole inducement—just a substantial part
        o    ―At least‖ vs. ―actually‖ inducement – S/A
                  Trend is toward real economic advantage/value in the bargain (despite the wife
                 bargaining for an economically invaluable bank note in the Newman case)
   Did the promise induce the detriment?
        o The D’s promise must at least purport to be at least part of the P’s inducement and given
        by P in exchange for D’s promise
                  Looks at P’s state of mind
                  It is not necessary to be the sole inducement
   Conditional gifts
        o Gratuitous promises, not bargained for by the P  not considered conventional
                  Kirksey case (brother writes sister-in-law offering her a place to live after her
                 husband died; after 2 yrs living there, he kicks her off the property; no K b/c
                 gratuitous promise  P didn’t bargain  no consideration for enforcement; Ct. says
                 P’s detriment may was not purported to be induced by D’s promise; but Ct. could’ve
                 looked at D’s intent to have P tend his land to be part of the inducement)
                  Feinberg case (D’s father promised P employee $200/month upon retirement b/c
                 of her good work at the company; promise was made at board meeting, brought to
                 the attention of P, and P continued to work for a while and then retired; after a while
                 the pension ceased; no K b/c past consideration = no consideration b/c she incurred
                 detriment w/o knowledge of forthcoming promise—that is, her continued work was
                 not induced by promise; D didn’t bargain for P’s retirement  promise was
                 gratuitous… Ct. then invokes promissory estoppel as an alternative)
   Nominal or formal consideration – ―consideration of $1‖ written in the contract and tendered
        o    S/A on the merits of this type of consideration
                  Majority (prevailing): NOT consideration, rather a ―cloaked‖ gift
                          There must be some real economic benefit/detriment
                                        Thomas case (husband left house to widow as long as she paid
                                     a small amount $ each year toward maintenance of house; yes K
                                     b/c formal consideration is real in this case; P’s agt to upkeep of
                                     house is detriment to P and benefit to D, for which D bargained)
                                              o ―cloaked gift‖ – in this case, the donative gift agt was
                                              disguised as a K using the wording ―in consideration‖ to
                                              make it seem like a real K
                       Minority (older): ―peppercorn‖
                            Any consideration, even as seemingly valueless as a peppercorn, will
   Sham consideration – ―consideration of $1‖ written into the contract and NOT tendered
        o    Nominal consideration that is only stated and not really given
        o    Few jxs accept this as consideration

Dovetail b/w Mutual Assent and Consideration
Mutual Assent                                         Consideration
Offer – definite, conditional promise manifesting     Did D bargain for ―it‖ in exchange for P’s
present intent to enter into a binding final          promise?
Acceptance – proper offeree, w/ knowledge of the      Did P give ―it‖ in exchange for D’s promise?

        offer and intent to accept, gives the requested
        return unconditionally

           Does ―it‖ (act, forbearance, promise) entail a legal detriment to the promisee (P) and a legal
        benefit to the promissor (D)?
           The P must either act in a manner or promise to act to do something he is not already legally
        obligated to do, or he must refrain or promise to refrain from doing something that he is legally
        privileged to do.
                 o New duty to the P (obligation, duty, etc.)
                 o New benefit to the D (rights)
                 o Variations of past consideration = no consideration
                 o Legal component is not necessarily economic
                            Newman case (widow gave valuable note to bank in exchange for late husband’s
                           bankrupt worthless note; bank wanted to enforce her promise to pay out on her note;
                           no K b/c bank didn’t incur detriment by giving up a worthless note; Ct is wrong b/c it
                           should’ve seen that bank giving up economically worthless note is indeed incurring
                           legal detriment by giving up its legal right to note AND she did in fact bargain for
                           the note)
           Problems with legal value – what D can claim to attack legal sufficiency of consideration
        given by P
                o Illusory promises
                        Wording
                                ―can‖ = ability; ―desire/want‖  free way out  no consideration
                                                Strong case (P agreed to not deposit D’s check of security of a
                                              debt owed by the D’s husband ―until he needed to‖ and also that he
                                              does not put it in regular bank channels; no K b/c P had a free way
                                              out from the wording ―until he needed to‖ = indefinite whenever…
                                              Ct. was wrong b/c the real legal detriment incurred by the P was
                                              promise to not put it in regular banking channels)
                              Implied promises
                                    Even if a promise on one side is not express/explicit, consideration can
                                   still be found
                                                Wood v. Lucy (P got to use D’s name in return for using
                                             reasonable efforts to market clothes w/ D’s name and keep records;
                                             D’s breached promise was the promise to solely share her designs
                                             to P; yes K b/c P’s duty = reasonable efforts made to find clothes
                                             to market by which D benefited from; keeping records for D is also
                                             a new tax accountant-like legal duty incurred on P)
                                                HYPO: Inventor A enters into a deal with businessperson B to
                                             provide a patent for business purposes. Businessperson C comes
                                             up with a better deal, and inventor A goes his way instead.
                                             Businessperson B sues for breach. But the catch is that
                                             businessperson could not have incurred a legal detriment without
                                             the patent in the 1st place. The court will find that B incurred a
                                             new legal duty, and that B did not have a legal

   Requirement and output Ks – S/A
        Requirement K: I agree to buy all that I need from you.
        Output K: I agree to buy all that you can output/produce.
        1st view: under CL, illusory and fatally indefinite  no consideration
                     Some cts say if no quantity  K not enforceable at all
         2nd view: under CL, OK. If buyer had established needs or the seller
        had established output, ct finds an implied promise to keep that general
        quantity  yes consideration
         3rd view: under CL, OK. A conditional promise will suffice as long as
        you don’t have complete, unfettered way out
                     UCC 2-306(1) view
         Modern view: the consideration that the buyer has given up a right to
        buy elsewhere, but only if a reasonable level of requirement or output can
        be determined
                     McMichael case (requirement K stated D agreed to furnish all
                 sand that the P ―can‖ sell; yes K b/c P gave up his legal right to
                 buy elsewhere, which affords a competitive benefit to the D; also
                 Ct. decides that P’s track record being in the business of selling
                 sand  implied promise he’d continue selling at his regular rate
                 {reasonable level of requirement}  consideration)
   Termination clauses
         If P has access to unrestricted termination clause, gives P a free way
        out  can invalidate consideration b/c if the P can terminate the K at any
        time, then there is no real legal benefit to the D***
                     5 exceptions:
                 1) Clauses won’t invalidate consideration if it is outside (either
                 partially or totally) of P’s control
                           o DiBenedetto case (P had an option K to buy property
                           w/ a clause that said if the buyer couldn’t make the
                           settlement $$ he could cancel the agt; yes K b/c there was
                           not a full termination clause—only if the P couldn’t come
                           up w/ the money, thus not wholly in his control; ―can‖
                           indicates ability, not desire, thus not a ―free way out‖; P
                           had a good faith duty to come up w/ the $$)
                 2) If the termination clause requires a written notice to the P 
                 consideration still valid. Even if it is not immediate.
                           o Legal benefit conferred is notice of termination
                           o Requirement of written notice is a legal duty (UCC
                 3) If the termination requires notice but is effective immediately 
                 consideration is still valid (modern view)
                           o The requirement to give notice is still there, it is just
                           less valuable
                 4) If clause is silent w/r to notice, consideration will still be valid
                           o Cts usually hold that notice is still required for
                           o Sylvan case (P to supply rocks to D, but could cancel
                           at any time; yes K b/c there was sufficient consideration
                           b/c cancelling within a reasonable time despite silence
                           to notice is a new legal duty)

                           5) As a matter of interpretation, ct concludes that termination
                           clause gives  absolute power to terminate at any time w/o written
o   Pre-existing duty
         If a party does or promises to do what he already has a legal obligation to do,
        then he has incurred no legal detriment  no consideration
         This prevents Ks formed by economic extortion (i.e., threat, coercion)***
                   Alaska Packers case (workers go to Alaska to work on a K, they said
                  they wouldn’t work unless they got more $$; owner agreed to pay more and
                  then reneged; 2nd K agt to raise their wages was invalid b/c packer workers
                  had a preexisting duty to work  no new legal detriment  no
         To see if there is preexisting duty, look to see if the duty existed before the K
        was formed…
                   If yes  no consideration
         Cts will often circumvent the preexisting duty rule once a K is in the
        performance phase to protect good faith actors
                   It is still necessary for the formation stage
                   6 ways to circumvent the rule:
                   Ct will find additional or different consideration
                           1) Any small feature added, such as change of date or payment
                           (method/location), but it must still have been bargained for –
                           remember S/A on nominal consideration
                           2) Ct can hold that the promisee surrendering a legal power to
                           breach the K is consideration – rare and there must be legal power
                           and not just actual power to breach… DO NOT PUT ON EXAM
                           3) Ct can rescind the original K and thus there was no longer a
                           preexisting duty in existence at the time the new K was formed
                                    o Express rescission: 3 Ks—old K, K of rescission, &
                                    new K, w/ all cts recognizing new K
                                    o Simultaneous rescission – S/A
                                               Some cts say that it must not be
                                              simultaneous, must be a time lapse, or else the
                                              preexisting duty was always there
                                               Some cts will recognize it
                                                         Schwarzreich case (tearing up of
                                                        old K and signing a new K 
                                                        symbolized rescission that
                                                        circumvented the preexisting duty rule
                                                         yes consideration)
                                    o Purported modifications – S/A
                                               Majority: modification not enough;
                                              rescission must be express to negate pre-existing
                                              duty rule
                                                         Arzani case (P subcontractor
                                                        worked on a K, then workers went on
                                                        strike; D agreed to pay more $$ to
                                                        subcontractor; work was finished and D
                                                        refused to pay; 2nd K of raised wages
                                                        was invalid b/c modification of K didn’t
                                                        make new K  still had preexisting
                                                        duty from 1st K … distinguished from
                                                        Schwarzrich b/c no rescission)

                                               Minority: implied rescission from
                                              modification is sufficient to invoke pre-existing
                                              duty rule
                                                         Watkins (P agreed to excavate a
                                                        house for a specified amount of $$; then
                                                        he found hard rock, approached D who
                                                        agreed to pay more $$; work was done
                                                        and D refused to pay; 2nd K valid b/c
                                                        rescission can be implied by a
                                                        modification; Ct. distinguished this
                                                        from Arzani by making a business
                                                        practice argument that commercial
                                                        practice allows business ppl to effect
                                                        these modifications)
                          4) Ct can hold that the party surrendered his right to a K of
                                    o Applies pre-existing duty rule in 3 party situations
                                               DeCicco case (held that K to an engaged
                                              couple had sufficient consideration; the couple
                                              surrendered their legal right to decide together
                                              not to get married, to rescind engagement, this is
                                              detriment  consideration)
                          5) Refusing to apply pre-existing duty rule to three-party situations
                          – S/A
                                    o (See McDevitt (Jockey case) and lawn mowing
                                    o Same promise to 2 different parties does not make it
                                               Winkie’s lawn mowing hypo of his
                                              neighbor’s wanting to sell their house. He needs
                                              to keep his lawn clean to improve the house
                                    o Rights and duties are correlative; however, they are
                                    also personal
                                               The court in the McDevitt case found a pre-
                                              existing duty
                          6) A voluntary modification prompted by unforeseen difficulty or
                          expense – S/A (minority view)
                                    o Why allow this? Future agreements, business
                                    reputation, etc.
                                    o If the motivation of the request is due to something
                                    unforeseen, the promise to pay more should be enforced
                                    even if there is no mutual mistake
                                    o An example is above, Watkins
         UCC § 2-209(1) eliminates the PED Rule – allows modification of existing K w/
        no consideration and uses different provisions to prevent coercive situations
o   Claims settlement: only purported consideration was surrender of a legally invalid claim
         Valid claims: as consideration for promise, P may purport to release D from
        claim; thus P suffers from legal detriment  sufficient consideration to support a
        counter-promise. Incur legal detriment when you have an honest belief that you
        have a legal claim.
         Invalid claims: Five views – S/A
                  View 1: Surrender of an invalid claim cannot be sufficient

                     D would almost always take to trial, thus shifting burden to
                 court system – not acceptable alternative b/c law should encourage
                 settlement out of ct
         View 2 (Minority view): If P honestly (subjectively) believes
        surrendered claim is valid, its surrender is sufficient consideration
                     Fiege case (P believes the claim is valid, she would have a
                 right to sue; D promised to pay child support if P doesn’t make
                 bastardy proceedings; surrender of claim is surrender of P’s legal
                 right; not enough evidence to show ―objectively
                 reasonable‖;THATthat’ Ct said consideration doesn’t necessarily
                 require reasonable belief of claim’s validity; her belief was real at
                 the time promises were made, regardless of later paternity test)
                           o Policy consideration: [3rd party interest of children in
                           need of support]***
         View 3 (Majority view): If P’s belief in validity of claim is
        subjectively honest AND objectively reasonable, then consideration is
        sufficient – To invoke P must show:
                     P honestly believed claim was valid

                     P belief was reasonable

                     P released claim

                     P agreed not to sue on claim
         View 4: Restatement 2d § 76(b): ―Forbearance to assert or the
        surrender of a valid claim or defense which proves to be invalid is not
        sufficient consideration unless:
                     Claim or defense is in fact doubtful because of uncertainty at
                 to the facts or the law, or
                     ―Forbearing or surrendering party believes that the claim or
                 defense may fairly be determined to be valid.‖
                     Use of ―or‖ makes this too broad to be acceptable; would give
                consideration in case where person acting in bad faith
         View 5: Promisee’s surrender of any invalid claim is sufficient
                     Too broad, not accepted: promisee has power to assert an
                invalid claim in the same sense that he or she has the power to
                breach a K
   The Restatement says a surrendered claim is valid consideration if:
         (1) The claim is in fact doubtful as to uncertainty to fact or law or,
         (2) The surrendering party believes it was valid
                     This view has not gained favor in the courts because it rewards
                 people who proceed in bad faith
   Related problems w/ claims settlements

 Unliquidated claims (amount in dispute): generally valid as
consideration when they become liquidated because there is a legal
detriment involved in settling.
            Giving up the right to go to court and the right to have the
          amount determined later
 Composition with creditors (multiple creditors): an agreement b/w
debtors and creditors where the creditors get less money, it surrenders the
pre-existing duty because usually the debtor is bankrupt and the creditor is
getting less money but now at least getting the benefit of controlling how
much less money it gets (in bankruptcy, may not get any at all)
            Yes there is consideration despite paying less than full amount

            D debtor is surrendering the right to pay one creditor in full
       and ignoring the rest; surrendering of this power of preference 
   Check cashing cases: depends on if disputed or undisputed
            Disputed: consideration is mutual assent on how much money
         is owed
            Undisputed: owed $1000, check for $500 says ―cashing this
         check is equal to full payment‖ – S/A
                  o Majority: ignore words: ―payment in full‖
                  o Minority: by cashing check you gave up your right to
                  the rest of the $
                  o Kibler case (D issues check to P w/ statement in fine
                  print saying check (for unliquidated claim) is full and
                  final payment, which P disputes; Ct analyzes as mutual
                  assent – policy consideration: they want to protect
                  creditors from fine print on checks depriving them of their
                  payments; ct says if such language is to be enforceable, it
                  must be specifically brought to P’s attention – rejects
                  formalist notion and looks for real assent***)
                             The fine print was so small that nobody
                            noticed it until the trial. This was language on
                            all checks.
                             The subjective theory of mutual assent
                            comes into play. This case is just like Fiege, 3rd
                            party equities explain the outcome of the case.

Contracts Outline – Substitutes to Conventional Consideration
Imwinkelried – Fall 2008


   Moral obligation: no bargain component, but legal value component
                  When D’s promise was not induced by the P’s detriment

                  HYPO: Man saved drowning woman and the woman promises to pay him $. The $ was not the
               inducement to save her life; P saved D’s life by deflecting an axe; P mutilated hand in the act and the D
               promised to pay and reneged; Held: no K; no expectation of payment was made at the time of the act.
                       o This is the majority view
                  The general rule:
                        o    Courts do not usually recognize past consideration or moral obligation as consideration
                                 If the duty is wholly moral and is not connected to any legal liability or material benefit
                                 HYPO: D’s son is sick and P nurses him. Father says he will pay for some of the
                                expenses incurred by the P and then reneges. Held: no K; past consideration is no
                                 Mills v. Wyman (All out of pocket expenses had been made before P got the letter.
                                Timing is fatal here—past consideration won’t work. No PE either because P changed
                                position, not because of the promise that was forthcoming, but because he was a Good
                                Samaritan. What D did was morally wrong, but court says moral obligation is not enough)
                  Exceptions to the general rule
                        o There is a minority view that where there is a material benefit that leads to a sense of moral
                        obligation that prompts a promise
                                  HYPO: P saved man’s life and was injured. Man promised to pay $ to P for rest of his
                                 life, executor of P reneged. Held: K conferred to the man and the P received the promise in
                                 return. This ignores that there was no expectation of payment at the time. Webb v.
                                 McGowan – yes there was M.O.
                        o If at the outset promise was void, voidable, or unenforceable and promisor subsequently
                        renews the promise
                                  If duty was void, courts will not enforce renewal of promise
                                  If promise was voidable or unenforceable and is renewed, most cts will enforce (e.g., a
                                 case of fraud where innocent party decides to proceed). However, new promise must not be
                                 subject to same defense (e.g., infancy, insanity, duress, or the Statute of Frauds)
                        o If at the outset the promise was enforceable, and later because unenforceable:
                                  Promise barred by Statute of Limitations:
                                            Subsequent express promise, acknowledgement, or part payment will revive
                                           the promise
                                            Promise or acknowledgement must be in writing in most jxs
                                  Promise discharged in bankruptcy
                                            Some courts require that promise be made after filing of petition or
                                            Only an express promise will suffice
                                            Promise need not be in writing
                                  Promise voluntarily discharged by act of parties
                                            Voluntary discharge destroys both moral and legal duty
                        o Promisee previously conferred an economic or material benefit upon promisor, and the
                        promisor then promises to pay the promisee
                                  If promisee conferred benefit gratuitously w/o expectation of payment, there is no
                                 moral obligation
                                  If promisee’s intention was not donative but circumstances do not create a quasi-
                                 contract, some courts enforce the subsequent promise

                            Initial conferral of benefit created a quasi-contract – S/A
                                   View 1: promise is nugatory; unenforceable
                                   View 2: subsequent promise is admissible evidence of value of benefit
                                   View 3: subsequent promise is enforceable to the extent that the amount
                                  promised is not disproportionate to the actual value of the benefit conferred
                                              View 4: subsequent promise is enforceable according to its terms
                          Initial conferral of benefit created an implied-in-fact contract requiring promisor to pay
                         reasonable value
                                  Same split of authority as (iii) above
                o For moral obligation to work, there always needs to be a plus factor (+), such as material
                benefit to promisor. Moral obligation alone will not suffice for consideration.
                          Material Benefit Doctrine: if P performs an act materially benefiting D and D
                         subsequently promises to pay P for act, promise is enforceable
                                  Antecedent conferral of benefits substitutes for bargained-for consideration
                                  Some jx apply even when P conferred benefit without expectation of
                                  To trigger application of rule, P must show:
                                              P performed act

                                              Act conferred material benefit upon D

                                              Act generated sense of moral obligation to P in D’s mind

                                              Sense of moral obligation prompted D to make a promise to P
                          Webb v. McGowin (Webb fell with a block to divert the direction of the same block,
                         which was about to hit McGowin; Webb saved McGowin’s life, and McGowin promised to
                         pay for Webb’s injuries (who was thereafter incapacitated) and continue payments for the
                         remainder of his life but after McGowin’s death, his executor reneged; Webb sued; timing
                         is fatal to the argument that you have conventional consideration. The case is parallel to
                         Mills, the timing is essential to this case.)
                                     What does the P have to allege in order to make out a case enforced under
                                    moral obligation?
                                     P conferred a material benefit on D
                                     Created a moral obligation on D’s mind
                                     Prompted moral obligation on D to make a promise
                                     Was there a consideration in P to make this split-second decision? No,
                                    material benefit was not in P’s mind.
                          Harrington v. Taylor (Represents the prevailing view in the U.S. The court says:
                         detriment or not, you are not going to get compensation for a humanitarian act.)
                          When there is a mistake, and there is an expectation of compensation, the courts will
                         enforce the expectation. It is essential to find the expectation, though.
                          Implied-in-law duty when the hospital saves a family’s life.


           Equitable estoppel in pais – based on reliance on a misrepresentation of fact
                o   Prima Facie Case of Promissory Estoppel
                         D made a promise to P
                         At the time D should have foreseen that P would rely
                         P did rely (detrimentally changed position)

                     P’s reliance was substantial
                     P’s reliance was objectively reasonable
   Expanded to promises in 4 Lines of Authority
        1) Family Promises
        2) Promises to Convey Land
        3) Promises Coupled with Gratuitous Bailments
        4) Charitable Subscriptions
   Charitable organizations which were relied on by the organization

   Expansion to family cases:
        o Ricketts v. Scothorn (to provide a trust for granddaughter; grandfather says none of children
        should have to work for family pride reasons, promising granddaughter an allowance; Ct makes a
        blunder ruling for equitable estoppel – his promissory note is NOT factual representation—it was a
                     a transitional case which fortuitously pushes doctrine of PE forward
   Equitable estoppel requires a representation of fact. If you have all five elements of prima facie case
of promissory estoppel, we must enforce the contract as made, per Williston. This case had such an estoppel.

 Expansion to marketplace:
      o See debate between Hand and Traynor under revocation of offer
      o Traynor is de facto winner of debate and PE is now almost universally recognized in commercial
      o Restatement (First) § 90: broader principle emerging; not limited to factual misrepresentations
      or 4 narrow areas
      o Remedial Flexibility: Substitute for conventional consideration
   CURRENT LAW: Hybrid independent Cause of Action (not just K or Tort)
        o All of elements of mutual assent do not necessarily need to be established – key terms which
        were left to be decided later, and would be fatal to enforcement of a K, do not need to be established
        for PE cause of action
        o East Providence Credit Union v. Geremia (91): (a change of position v. tort ―but-for‖ causation
        (they are not the same); P-lender sues on original written agreement saying you owe us balance on
        note; D counterclaims for recovery of policy of car b/c if insurance (which P promised to
        maintain/pay) had been in effect, D would have received policy and could then at least cover amount
        of loan; this is a counter-claim case. The credit union is suing the Geremias on the balance of the
        premium, but the Geremias are suing the credit union on the proceeds of the insurance of the car,
        since the credit union erred in not paying the monthly insurance premium, causing the insurance to
        be canceled; P made promise to keep insurance policy in effect; P’s breach was a but-for cause of
        the injury P suffered  if D had kept insurance, P would not have suffered the loss
                   Keep in mind the word ―COULD‖ as opposed to ―WOULD.‖
                   Is acquiescence consideration? The P had the right to make this payment, they were
                  simply informing the Ds that they would do it. The Ds simply acquiesced, there was no
                  bargaining in that conversation.
                   In respect to the counter-claim, we need to find something that the Ds (really the Ps in
                  this case) gave away that they had to withhold, and in this situation, they simply acquiesced,
                  no bargain, no consideration.
                   Reliance: Detrimental change of position. This has a causation action, but this is a K
                  case, not a tort case. The Ds would have been in the same position if they had not asked the
                  credit union to cover the premium, the policy would still have lapsed, since they did not
                  have the money to pay it.

   What is measure of recovery? Court can decide, in the interest of justice, how to compensate P. It is
flexible as to the amount and type of recovery.
   Expectation interest:
         o   Put P in economic position P would have been in if D had performed K
         o   Measure of damages: benefit of bargain, prospective profits
         o   Normally protected in true K actions
                  Feinberg v. Pfiffer: (Employment K: What if D reneges after 1 year? Has she
                 suffered an out of pocket loss? No. In actuality, she does detrimentally change position; the
                 court decides that she did in fact rely on the company’s promise and because of this, they
                 are going to enforce the $200 a month that the K stated, for life. She most definitely
                 suffered an out of pocket loss in this case; She has had a loss recoverable in promissory
                  Goodman v. Dicker (339): (If K can be terminated at will the moment it’s signed, then
                 there is no expectation interest; Judgment was in the amount of $1,500, expected profits
                 included. Generally, expectation is more favorable than reliance. The court is saying that
                 they are not concerned with the terms of the franchise, not K. Since there is no K, the court
                 is saying that we should follow the logic of promissory estoppel. Since there is no K, there
                 cannot be any loss of profits.)
                            In this case, D has access to termination clause (as opposed to P, which would
                           make it an illusory promise issue); question is not whether there was a valid K but
                           whether there was a breach
                            See p. 340, paragraph 1: this is not just promissory estoppel replacing
                           conventional consideration, it is a new way of looking at and deciding cases  the
                           Hybrid that Traynor wanted
   Restitution interest:
         o   Compensate P for the economic benefit P conferred upon D
         o   Measure of damages: value of benefit P conferred upon D
         o   Compensate the P for benefit of that conferred to the D suing FMV
         o   Normally protected in quasi-K actions
   Reliance interest:
         o   Compensate P for economic losses P sustained
         o   Measure of damages: P’s out-of-pocket losses
         o   Courts often protect when they invoke doctrine of Promissory Estoppel
                 Hoffman v. Red Owl: (Franchisee case – P wanted to open a supermarket and the D
                company wanted more money. P sues D for FMV loss; This court pushes too far:
                Promissory Estoppel is not only substitute for Conventional Consideration but also for
                mutual assent; The parties never got around to agree upon the size, design, rent, etc. of the
                Red Owl store; They never got into the details of the K; As a matter of law, there are so
                many terms left up in the air, there is no mutual assent; Red Owl would win for lack of
                finality and lack of definiteness; The court is explicitly announcing that they are bringing in
                a new doctrinal area, a hybrid cause of action; Court also considers prospective profits –
                however, if only basis for recovery is PE (and hence reliance) should not consider this,
                right? One of the things that the P is entitled to recover with the sale of the grocery
                store is the loss of the profits as it applies to good will under fair market value. Profits
                are included in good will, which added with the book value of a sale equates to the fair
                market value of the store. FMV minus proceeds from the sale of the store equals the
                loss on the sale of the store.)
                           The moral of the story: this evidence was not admissible for direct recovery
                          of profits; however, it is logically relevant and necessary to proving good will
                          (which along w/ book value comprises FMV, which in turn is needed to calculate
                          loss, which is what is being sued for)

                 After D makes promise to P then P relies and detrimentally changes position; usually is enforced by court

                 Sometimes promise is made first and then reliance interest gives rise to finding consideration in a fair
             number of considerations
                 D’s promise then P later acts in detrimental reliance on promise (this is distinguishing characteristic
             between PE and conventional consideration)
                 Innocent person’s legitimate good-faith reliance is worthy of legal protection

                 Factual Predicate for PE (Commercial context: Restatement § 90) must show:
                       o D made relatively definite promise to P
                       o At time of promise, D should have foreseen that P would rely on promise
                       o P in fact relied on promise; Causation: P must show that he changed position and that D’s
                       promise was factual cause of change
                                  Similar to tort analysis (reasonable foreseeability); however, don’t equate change in
                                 position w/ but-for analysis
                       o P’s reliance was definite and substantial
                       o Needs to be objectively reasonable
For (d) and (e): only if injustice can be avoided only by enforcement of promise

Contracts Outline –          ENFORCEABILITY                                                Imwinkelried – Fall 2008



   Analyzing an S/F case – Four-Step Analysis:
                    1) Do any of clauses of S/F apply to K?

                    2) If so, did the parties comply w/ S/F by preparing a note or memo?

                    3) If not, what are the consequences of non-compliance?

                    4) Are there any mitigating doctrines available? Estoppel? Restitution?

   Five Alternative Arguments Available to P (when D uses S/F as defense):
                    Step 1: None of S/F clauses apply to this K

                    Step 2: Even if one or more S/F clauses apply, parties complied with S/F, for example, by
                preparing a note or memo OR under UCC
                    Step 3: Even if one or more of S/F clauses apply and parties did not comply with S/F, D waived
                S/F by not properly pleading S/F
                    Step 4: Even if one or more S/F clauses apply and parties did not comply with S/F and D properly
                pleaded S/F, an estoppel lifts bar of S/F
                    Step 5: Even if one or more S/F clauses apply and parties did not comply with S/F and D properly
                pleaded S/F, P is entitled to a quasi-K or restitutionary remedy

                    Requirement that certain types of Ks be IN WRITING. The courts were concerned about oral
                    What are its functions?
                           o Evidentiary function: simplifies process of decision making for court; proves the promise
                           – allows for reliable fact-finding
                           o Cautionary function: people careful as to what they agree to; they take agreements more
                           seriously, cautiously if written; sober 2nd thought
                    Courts are hostile to it – many courts will find a reason not to apply it, which undermines
                separation of powers; since courts don’t like it, it is likely to be construed very narrowly. Nonetheless,
                that court has a constitutional duty to apply this statute in good faith (unless it violates substantive due
                    It can give D a free way out of a K that had honest mutual assent and consideration. D can say: ―If
                we did not reduce it to writing, I can walk away because of S/F.‖

   Is this K within the purview/scope of S/F?
   Do any of the clauses of the S/F apply to this K?

   Marriage  no longer valid

   Year-Long  If it takes longer than one year to perform

   Land  executory Ks for purchase of realty

   Executory  Special promises of executor’s in wills, etc.

   Goods  > $5,000 need to be in writing

   Surety  special promise to answer for the debt of another

   Ks in consideration of MARRIAGE
        o Statute applies to Ks in consideration of marriage – either an actual marriage or promise
        to marry
                  DiCicco case (supra)
        o Marriage must be part of consideration; not applicable if:
                  Promise is merely made in contemplation of marriage
                  Marriage is a condition of a promise supported by other consideration
        o Exception: Mutual promises to marry
   Ks which by their terms cannot be performed within ONE YEAR of their making
        o Must be impossible to perform within a year – if there is any way it can be performed
        within a year, S/F doesn’t apply
                  Promises conditional upon an uncertain event
                  Cancellation and termination clauses
        o Period of one year: One year is FROM making of K and the completion of performance
        o Employment K HYPOS (130-131)
                  A agrees to work for B for 5 years – within S/F
                  A agrees to work for B for A’s life – not within S/F because B could die within
                 a year
                  A agrees to work for B for A’s life, but not exceeding 5 years – not within
                  A agrees to work for B for 5 years, if A lives that long – not within S/F
                 because A could die within 1 year
                  A agrees to work for B for 5 years, but if A dies the K is to be terminated –
                 courts divided on this example:
                           View 1: K is both performable and terminable within a year – S/F
                          doesn’t apply
                           View 2: Termination clause means nothing since if a party dies a K is
                          no longer valid. Reach same result as view 1
                  A agrees to work for B for 5 years, but A can cancel the agreement at the
                 end of 1 year – If K is terminable but not performable within 1 year, courts divide
                 on whether S/F applies, but most courts say S/F does not apply.
   Executory Ks for sale of real property (LAND)
        o Applies only to executory Ks: that is, only agts prior to exchange of the deed/title; once
        title has been conveyed or K executed, it is too late
        o What constitutes real property? Structure fixed to the land might qualify.
                   Common Law:
                           Improved/unimproved land

                                       Standing timber, perennial crops, and minerals in place – S/A
                                  as follows:
                                           o Approach #1: When did buyer become owner of
                                           o Approach #2: Did parties deal with property as realty
                                           or personalty?
                                           o Approach #3: Was buyer supposed to remove
                                           property promptly?
                          Annual crops, fructus industriales were considered personalty since so
                         much labor went into them
                     UCC:
                          2-107(1): considered personalty if severed by seller
                          2-107(2): either purchaser or seller can sever – if it can be severed
                         without material harm (without disrupting the land) to realty, its still
   Special promises of EXECUTORS or administrators to answer for decedent’s debts out of
personal representative’s own funds
         o Specialized application of next clause (see 2. below)
         o Let’s suppose one of the administrators goes to the creditor and tells him that he is going
         to use that credit to pay a debt of the estate, is this a special promise? No. Only if the
         administrator uses his/her own funds to pay the debts, then there’s a special promise if the
         creditor agrees to pay the administrator back.
   Executory Ks for sale of personal property (GOODS)
        o    Applies to Ks for sale of personal property in a certain amount ($5000 or more)
                   Ex: A $2 Billion construction deal can be completely oral and completely oral,
                  whereas a $400 deal for personal property must be in writing.
        o Sale of goods – UCC § 2-106 – present or future sale
        o Labor and materials – e.g. construction – can be taken outside statute because of high
        degree of labor involved
        o Special, custom goods
                   Common law – S/A:
                            Would K ultimately result in transfer of title to a chattel?
                            At time of contracting, were goods in existence in substantially the
                           needed form?
                            Even if goods were not in existence at time of contracting, would seller
                           make this type of good in ordinary course of business?
                   UCC 2-201(3)(a) attempts to resolve S/A:
                            Once a seller makes a commitment or purchase of materials, K is
                           enforceable anyway. Substantial beginning or commitment for procurement
                           of the material.
        o Determining value is easy when it is $ for goods, harder to figure out otherwise – if there
        is a question look to FMV and valuation experts
   Special, secondary, or collateral promises (SURETY)
        o If one promises to answer for debt of another (to act as surety or guarantor) the agreement
        must be in writing
        o Principal debtor (PD) must have at least voidable duty to creditor (C), usually the P. PD,
        usually the D, might have duty at the time surety (S) and C contract. PD must at least come
        under duty before time S is to perform
                  1) Relationship between PD and S must be a suretyship relation;
                  2) S must be secondarily liable for debt;

                                 3) C must know that S is only secondarily liable for debt;
                                 4) S must make promise directly to C
                      o In the landowner HYPO, there is respectable authority to comply with the statute.
                      o This does not apply if main purpose of acting as surety is to further one’s own advantage
                      – e.g., a controlling shareholder guarantees a loan to a corporation to protect value of his stock

If so, did the parties comply with S/F?
If yes, how can S/F be satisfied? (ANY ONE OF THESE WILL SATISFY)
[Corbin – a variable function; the rigor with which you apply the S/F should be correspond w/ the RISK of
FRAUD…] ***
                Note or memorandum – Satisfies ALL clauses
                      o Common law: Have to include type of goods, quantity, quality, and a method of
                      identifying parties. Must be complete, correct, and signed by Ds.
                                Does not have to be all one document
                                          Crabtree v. Arden (there was a note referring to term of employment
                                         vaguely minus signature, 2 payroll cards, one signed; Ct held that several
                                         documents comprising all of the material terms is OK for purposes of
                                         memo; must clearly refer to same subject)
                                          S/A:
                                                     1) you may not include other writing unless the initialed or
                                                  signed doc REFERS to the WRITING, not just the subject matter
                                                     2) don’t need a reference to a writing, but it must be clear on
                                                   the face of the writings that they refer to the same SUBJECT
                                          Futuristic language OK
                                          In this case, helpful that all 3 documents were prepared by D –
                                         evidentiary value
                                          Parol evidence can be brought in to explain writings or an oral
                                         agreement/evidence of assent, but not to supplement it substantively.
                                         NOTE: It can only be brought in by the D.
                               P cannot bring in oral evidence, but D can, and this is why the courts are not
                              willing to use the S/F, this is a one-way street.
                      o   Signature
                               Can be omitted; Initials are OK
                               Intent of signature does not have to be to make writing enforceable – only
                              authenticate the writing
                               Careless cancellation – a letter to the other side stating the material terms meant
                              to inform the other side of cancellation can make K enforceable (i.e., don’t send
                              anything that indicates K exists)
                               Subscription – needs to be at the end of all essential terms
                               Makes enforcement a one-way street – K can only be enforced against a party
                              who signed
                               You physically affix the unsigned memo to the signed one. The Crabtree court
                              tells us that this is a great case to apply this rule, but this is not true. The payroll
                              cards do not identically identify the specific language of the first memo, it talks
                              about ―contractual arrangements‖ instead.
                      o   UCC § 2-201(1) – ―A contract has been made‖ (past tense)
                               ―Except as otherwise provided in this section a contract for the sale of goods for
                              the price of $500 or more is not enforceable by way of action or defense unless there
                              is some writing sufficient to indicate that a contract for sale has been made between

               the parties and signed by the party against whom enforcement is sought or by his
               authorized agent or broker. A writing is not insufficient because it omits or
               incorrectly states a term agreed upon but the contract is not enforceable under this
               paragraph beyond the quantity of goods shown in such writing.‖
                Requirements for enforcement are:
                           Signature of party against whom enforcement is sought
                           Quantity term
                           Sufficient to indicate a K has been made (past tense – future tense not
                Original statute required much more complete memo, but now even incomplete
               memo is acceptable.
                If a term is wrong, K is enforceable up to quantity in the writing
                Can use documents that came into existence prior to K even if have futuristic
                           Talks in past tense  ―has been made‖
                           Textualist: primacy of text  now have authority for proposition that
                          inclusion of futuristic language is fatal to note/memo. Present tense carries
                          more weight.
        o   UCC § 2-201(2) – ―A writing in confirmation‖
                ―Between merchants if within a reasonable time a writing in confirmation of the
               contract and sufficient against the sender is received and the party receiving it has
               reason to know its contents, it satisfies the requirements of subsection (1) against
               such party unless written notice of objection to its contents is given within 10 days
               after it is received.‖
                Both parties are bound if a writing in confirmation is sent (past tense) and the
               party receiving the writing does not object. That language means that if P generates
               a memo that will be satisfactory to D, and D does not do anything, the memo
               becomes valid, and both parties are bound.
                           Harry Rubin & Sons v. Consolidated Pipe Co. (3 different agts for
                          Hoola-Hoops; the D claims that 2 of the 3 Ks violated the S/F; 1 st K is a
                          purchase order; 2nd K is a letter from Rubin to Consolidated, using the word
                          ―order,‖ but you do not complete orders, you complete Ks; 3 rd K is a letter
                          from Rubin to Consolidated that states ―this order is to be entered… in
                          which you agreed…‖  3rd letter’s past tense indicated prior written
                          correspondence was in fact mentioning an agt
                                        The main thing that has to be shown is that it is a ―writing in
                                    confirmation;‖ can show that there was an agt by referring to
                                    documents outside of the writing but only if they refer to an agt
                                    that they ALREADY had
   Acceptance and receipt – goods/personal property clause
        o Common law: if part of K is performed, the whole thing was enforceable. If D took part
        of delivery, then bound to take whole thing
                  Trojan Textile case – n. 3, 150 (oral agreement involving 83,000 yards of cloth;
                 as soon as accept 15 of 83,000; under S/F there is enforceable K; all or nothing
                 choice for buyer)
        o UCC 2-201(3):
                  A contract which does not satisfy the requirements of subsection (1) but which
                 is valid in other respects is enforceable
                  (a) if the goods are to be specially manufactured for the buyer and are not
                 suitable for sale to others in the ordinary course of the seller's business and the seller,
                 before notice of repudiation is received and under circumstances which reasonably

                                 indicate that the goods are for the buyer, has made either a substantial beginning of
                                 their manufacture or commitments for their procurement; or
                                  (b) if the party against whom enforcement is sought admits in his pleading,
                                 testimony or otherwise in court that a contract for sale was made, but the contract is
                                 not enforceable under this provision beyond the quantity of goods admitted; or
                                  (c) with respect to goods for which payment has been made and accepted or
                                 which have been received and accepted (Sec. 2-606).
                                            Part (c) makes the common law less draconian… enforceable only w/
                                           respect to goods for which payment has been made and accepted, or which
                                           have been received and accepted
                 Part payment – goods/personal property clause
                      o Common law: ―earnest money‖ – e.g. Lucy slapping down $5 – was considered to be
                      for binding purposes only, not part payment
                      o Modern view: considered part payment credited toward final cost
                      o Making part payment DOES NOT make whole agreement enforceable – under UCC § 2-
                      201(3)(c) [same as above]
                 Part performance – one-year clause
                      o If one party who could actually performs within 1 year, the K is no longer within S/F and
                      is enforceable – some courts have extended this to part performance [SEE NOTE 5, 133]
                      o The courts will give them their expectation interest.
                 Part performance – realty clause
                      o If K has been partly performed, court may enforce because there is no other way to
                      provide relief for person who relied
                      o If deed has been given to buyer by seller, oral or not, agreement will be enforceable
                                Buyer has to do more than just put money on the table; buyer must move on to
                               the land and make improvements (conduct is persuasive corroborating evidence as to
                               existence of K; also courts not comfortable with valuation once improvements
                               made). If the buyer just gives a payment, he could just get the money back. If he
                               also moves onto the land, he could just move out. Taken one step further, this
                               satisfies the S/F.
                                If the seller goes as far as giving the deed, has he done enough? Yes.
                 Admission – goods clause - § 2-201(3)(b)
                      o If D admits a K was made, it is enforceable to quantity of goods admitted (i.e., P has lost
                      S/F defense). Pleading testimony or otherwise in court. The admission does not need to be
                      voluntary. If the P encourages the D to admit, D has just established the existence of the K.
                      o Downside – encourages lying (perjury) – if D doesn’t admit they still have a complete
                      defense. (CA doesn’t have this provision)

Effects of Non-Compliance:
If not, what are the effects of non-compliance?
                 Executed K: if K has already been performed, S/F has little effect. Performance has same effect
             as if K were in writing
                 Executory K:
                      o    Affirmative enforcement of K – P sues on K or D files counterclaim based on K – S/A
                                View 1: Oral K is unprovable – S/F is merely rule of evidence; effect of no
                               writing is that oral K is inadmissible
                                View 2 (Majority view including California): Oral K is unenforceable even if
                               there is mutual assent and consideration – S/F is limitation on court’s authority to

                              provide a judicial remedy. This has to be raised in an affirmative defense in the
                               View 3 (Minority view): Oral K is void – S/F has a substantive operation; as if
                              K had never existed
                     o    Practical importance is procedural
                               In ―void‖ jx: S/F need not be plead as an affirmative defense (general demurrer
                              will suffice) – it could be raised for first time on appeal
                               In ―unenforceable‖ jx, it must be plead as an affirmative defense
                               More available remedies in ―unenforceable‖ jx – e.g., if a K is void there cannot
                              be an action for tortious interference with K (substantive) while in an unenforceable
                              jx there could be one.


Mitigating Doctrines:
Are any mitigating doctrines applicable?
                Quasi-K Restitution Interest:
                     o    To establish quasi-K liability, P must show that:
                                P conferred material benefit upon D
                                P did so w/ expectation of payment
                                D was acting officiously
                     o P must not be in default on K; D must be the one who has breached or repudiated oral K
                     o Court will also deny recovery if granting recovery would thwart statute’s policy
                                Ex: real estate brokers are not allowed to recover on oral commission Ks; if
                               statute in jx requires such Ks to be in writing, Ct will not grant quasi-K recovery
                     o Measure of recovery: if party performs under oral, unenforceable K, that party normally
                     has right to quasi-K recovery—can recover FMV of benefit conferred
                Specific restitution:
                     o Sometimes P can obtain equity decree forcing D to return property in kind
                     o Courts will do this if D used fraud, duress, or undue influence to make original
                     o Court may also do this if D breached fiduciary duty to P; D abused some confidential
                     relationship with P
                Equitable estoppel:
                     o Requires deliberate misstatement of fact; P can sometimes invoke this to overcome S/F
                              Ex: D lies about fat that he had signed document and P proceeds to perform; lie
                             must relate directly to S/F
                     o Since D lied, courts will often grant P full expectation interest (full K remedy)
                Promissory estoppel:
                     o    Most controversial area of mitigating doctrine for the S/F
                     o    What should be factual predicate for applying PE?
                              Loss must be something besides prospective profit.
                              If P could have made another K with no loss, there is no PE—would make S/F
                              If market changes and P cannot reenter the market to make another K, PE CAN
                             be invoked
                              If the subject matter of K deteriorates (i.e., crops), PE can be invoked
                              Very extreme cases of reliance over a long period of time; when a quasi-K
                             recovery would not be enough

                                             Services have been consumed and all cts will take this into account


Minority/Infancy – status alone is the focus, not the effect of that status of the substance of the agreement
                 How to define infancy – chronological age
                       o Unless there is a statute, it is based on common law, where most states recognize age 18,
                       where it used to be age 21
                       o Content of K is irrelevant, no matter how fair or reasonable K is
                 Effects of minority
                       o Some Ks are valid – cts will recognize some Ks made by minors (e.g., bail bonds  obv.
                       Public policy reasons)
                       o Some Ks are void – such as sophisticated surety agts
                       o Most Ks are voidable at minor’s election
                                 Kiefer case (minor misrepresented, by signing form, that he was over 21 when
                                he bought a car; after becoming of age he returned the car and sued to recover the
                                price; Ct held the K voidable due to P’s minority status at time of purchase; suggests
                                to appellant car company that they must go to the legislature if they want reform in
                                status doctrine)
                 Minor’s options
                       o   Ratification
                                When? K can be ratified by minor only after he reaches majority/maturity as
                               specified by statute
                                         Express – oral or written is acceptable but rarely happens
                                         Implied – person who contracted w/ minor will usually argue for
                                        implied ratification; arguments include:
                                                      Minor received a new benefit under original K (e.g., brining
                                                  car in for warranty service)
                                                      When both parties assume further benefit, this becomes an
                                                  implied ratification
                                                      Length of time – can be claimed that minor implicitly ratified
                                                  by waiting too long; must be fairly long time; cts grant minors a lot
                                                  of leeway; argument will be helped if party can show depreciation
                                                  or some other prejudice (change in the state of the market)
                       o   Disaffirmance
                                Minor as P: minor has to return whatever he has in whatever condition it is in—
                               this is not full restitution to D
                                Minor as D: same; cts will tend to be even more protective of minor
                 Can party who contracted w/ minor get quasi-K recovery? – S/A
                       o Majority: Recovery in quasi-K – a majority of jxs say only for necessities (e.g., food and
                       clothing); both majority and dissent in Kiefer are wrong
                       o Minority: New Hampshire says full recovery for all benefit conferred
                 Can the party who contracted w/ minor recover in tort?
                       o   Minority is not a tort defense
                       o   If boiler-plate provision, minor must be aware of it

                            Keser v. Chagnon case (Chagnon was 20 yrs old when he bought a care from
                           Keser; a few month later, after he turned 21, he decided to return the car; the judge in
                           this case is being dishonest, b/c the amount that the P was awarded ($655.78) is the
                           exact amount of money that the P owes the Public Finance Corp., his lending
                                      Reconcile Keser with Kiefer? Chagnon himself misrepresented his age
                                     at the time of purchase, while Kiefer only signed the form with the
                                     boilerplate text about being 21 or over and didn’t know he was

              Who is deemed insane?
                   o   Common law:
                           Cognitive test – if person lacked capacity to understand the nature and
                          consequences of their act or their effects during the transaction  considered insane
                          for purposes of the status doctrine defense
                                                  Ortelere v. Teachers’ Retirement Board (60 y/o teacher retired
                                              and took out a huge part of retirement pension, leaving nothing for
                                              her husband and children; at time of K, she was on medical leave
                                              and the Board knew of her medical condition; husband sued the
                                              Board claiming she was mentally incompetent; Ct. uses volition
                                              test, not cognitive test, finding in favor of P; the Board did not
                                              changes position; also considered the relationship b/w the
                                              retirement system and its member)
                   o   Modern view:
                            Volitional test – if a person understands by is unable to control their behavior 
                           considered insane for purposes of the status doctrine defense
                   o   Prevailing view:
                            ―Either/Or‖ test – either cognitive or volitional will qualify for insanity defense
                   o   Limits of the R2d § 15:
                            Other party knows or should know of mental illness
                            Mental illness must be serious
                            Ct can limit recovery/right to terminate if other party did not know of condition
                           and K is made on fair terms
              Consequences of insanity
                   o   Some Ks are void
                            If there is a formal adjudication of incompetence, any K made after are void
                            If a general guardian or receiver has been appointed, K is void
                   o   Most Ks are voidable
                            Ratification
                                       Person’s guardian can ratify
                                       Person can ratify if they are no longer insane and has regained mental
                            Disaffirmance
                                       If K is disaffirmed, other party must be put back in full status quo ante,
                                      the position they were in prior to entering into the K (different from minors)
                   o   Relevant circumstance
                            Person’s capacity at the time they entered into agt needs to be proven
                            Person seeking to set aside K does not need to show that insanity affected agt,
                           but it is persuasive circumstantial evidence
                   o   Quasi-K recovery?

                                   FMV conferred only for necessities
                                        Cundick case (59 y/o farmer contracted w/ Broadbent to sell him farm
                                       and proceeds w/ agts of sale; wife, as guardian ad litem, brings suit against
                                       Broadbent, claiming he was mentally ill; Ct held Broadbent didn’t defraud
                                       or overreach in the agt b/c no notice of Cundick’s psychosis)

Intoxication – Restatement 2d § 16 – closely parallels insanity rule
                 Person incurs only voidable K duties by entering into a transaction if the other party has reason to
             know that person entered into a K while intoxicated:
                     o He is unable to understand in a reasonable manner the nature and consequences of the
                     transaction, OR
                     o He is unable to act in a reasonable manner in relation to the transaction


Duress – Affirmative defense
                 Pre-existing duty rule – policy reason for rule was to prevent economic extortion
                      o See Alaska Packers vs. Thompson case
                      o Pre-existing duty rule does not change the status quo
                      o If party has already performed X, and wants damages, then party can invoke economic
                              Austin case (Navy radar sets subcontracting case; Austin officer refused to
                             accept Loral’s order for less than all 40 of the gear parts and told Loral that Austin
                             would cease deliveries of the parts due under existing subcontract unless Loral
                             consented to increased prices; recognizing econ duress  a question of law; whether
                             Loral contacted 10 alternative suppliers  matter of fact {narrow scope of review};
                             ct. can’t use the preexisting duty doctrine b/c Loral has ALREADY made the
                             payment to Austin; need to use econ duress; a trier of facts find that during a four
                             week period Loral contacted to alternative suppliers; trier concludes that Loral acted
                             unreasonably in contacting only 10 alternative suppliers)
                 Economic duress
                      o    No real assent to decent terms (Llewellyn’s reason for writing UCC Article 2)
                      o    Elements of economic duress:
                                1) P committed an illegal act or made an illegal threat
                                2) P’s illegal act or threat placed D in a dire economic situation
                                3) P knowingly capitalized on D’s desperate economic situation by making an
                               improper demand to D
                                4) Subjective element: D yielded to demand b/c of P’s illegal act or threat
                                5) Objective element: D acted reasonably in yielding to the demand
                                6) Some cts – D had no other adequate, available means of preventing or
                               avoiding the loss other than yielding to the demand (redundant)
                 Physical duress
                      o Criminal or tortuous means were used to persuade innocent party into entering agt
                      o Threat of physical injury to party or a family member
                      o Common law required innocent party to resist with ―average courage and vigor‖—
                      modern law does not require this
                      o Subjective standard: but-for the threat, innocent party would not have entered K; does not
                      have to be objectively reasonable
                 Consequences of duress:

                    o Voidable: similar to insanity and minority – innocent party gets to decide to void the K or
                    o If innocent party is the D, they can use duress as a complete defense
                    o Delay can be taken as an implied ratification, which would deprive right to recover

              Fraud in factum or execution
                    o    Types:
                              Misrepresentation about character of document to be signed
                              Physical interference w/ a party’s opportunity to read a document
                    o Legal consequences: agt is void  no K
                    o Innocent party’s belief does not have to be reasonable – ―pure heart, empty head.‖ Most
                    cts view foolishness is more forgivable than fraud
              Fraud in the inducement
                    o   Elements:
                             1) One party made a statement of fact to the other party before or at formation
                            of K
                             2) Statement was false
                             3) Party who made the statement knew or believed that it was false
                             4) Party who made the statement intended to deceive other party
                             5) Statement induced other party to enter into K; Other party would not have
                            entered K but-for the false statement
                             6) Other party’s reliance on the statement was reasonable
                                       Trend  subjective ―pure heart, empty head‖; but-for fraud, he would
                                      not have entered into K
                    o   When is relief granted?
                             For active suppression of truth, affirmative conduct hiding the truth
                             For misleading half-truths
                             Cts do not grant relief for nondisclosure
                                       Swinton case (P sued D Whitinsville Savings Bank to recover damages
                                      for alleged fraudulent concealment by defendant in sale of a house to
                                      plaintiff; Ct finds in favor of the D invoking rule of nonliability for bare
                    o   What is the legal consequence?
                             K is voidable at innocent party’s option
                             As P, innocent party can sue for rescission and gain restitution of everything P
                            gave D under the K
                             As D, this is a defense
                             Ratification can be implied from timeliness of rescission
              Negligent (Innocent) misrepresentation (similar to mistake)
                    o   Elements:
                             1) Statement of first party was false
                             2) Statement was material—if not material, it will have no legal consequences
                             3) Second party relied on the statement
                    o   Innocent party’s behavior must be objectively reasonable
                    o   What is the legal consequence?
                             K is voidable
                             Second party can rescind/defend against enforcement
                             Second party has the choice to ratify or disaffirm
                                       Can use negatively or defensively to defend a suit OR can use
                                      affirmatively or offensively as in Kannavos

                                                 Kannovos case (Ds had failed to inform Ps that the multi-
                                              family houses purchased were prohibited by local zoning; Ct held
                                              that reliance on fraudulent representations did not bar rescission of
                                              the purchases merely because plaintiffs did not use due diligence
                                              when they could readily have ascertained from public records the
                                              true facts.)
             Breach of express warranty
                  o From seller of goods under UCC § 2-213 – if an express warranty about goods sold is
                  breached, innocent party can recover

             In general, mistake renders K void or voidable; 2 general norms
                  o    Unilateral mistake, even if material  enforceable K (no relief to mistaken party)
                            Exceptions:
                                     Mistake induced by other party  unenforceable
                                     Mistake known to the other party  unenforceable
                            Exception to the exceptions:
                                     If mistaken party assumed the risk  enforceable (R2d § 154)
                                                 Jardel, infra
                  o    Mutual, material mistake  void or voidable K
                           Both parties made a mistake, not necessarily the same one
                           When assessing materiality, ask what the mistake relates to (i.e., delivery date,
                           Exception: If one party assumed the risk of the mistake (more than mere
                          negligence)  enforceable
                                    Assumption of risk (gambling state of mind) – party must be conscious
                                   that they do not have sufficient knowledge of the pertinent fact and still
                                   disregard it  knowingly > negligently
                                                 Expertise

                                                 Duration of opportunity for investigation

                                                 Awareness of custom (trade)
                                                       o Common law: custom must be virtually universal
                                                       o UCC: ―normally‖ (>50%) may be sufficient to
                                                       establish custom
                                                                 Beachcomber, infra
             Intrinsic Mistakes (inherent in the bargaining process)
                  o    Mistake about what the speaker said orally
                            Ex: Speaker said 30 and hearer heard 13
                                    if caused by hearer’s inattention  unilateral mistake  enforceable K
                                   for the term 30
                                    If caused by speaker’s poor enunciation, either voidable or hearer can
                                   enforce for 13 term under R2d approach
                  o    Mistake about contents of the document/writing evidencing agt
                            Ex: writing includes some term that wasn’t bargained for or omits one that was
                           bargained for

                            2nd party knew 1st party was mistaken  unilateral mistake  voidable
                           by 1st party
                            Both mistaken  mutual mistake  voidable
                            Mutual material mistake  unenforceable
        o    Mistake in choice of words (e.g., slip of tongue, pen, or typewriter)
                   Enforceable unless 2nd party sees mistake
                   Ct can grant creative remedies like changing to what was really meant
        o    Intermediary causes mistake by changing terms of a message – S/A
                   If agency relationship (e.g., trustee, fiduciary, etc), the principal agent 
                  mistake imputed on one who hired the agent  enforceable K
                   If an independent contractor  mutual mistake  voidable
                   Majority view: intermediary is an agent  unilateral mistake  enforceable K
                            Ex: telegraph company is an agent; when buyer/seller uses this agent,
                           they assume the risk of failed communication
        o    Speaker uses ambiguous words
                   Speaker assigns one meaning and hearer assigns the word another
                   Subjective intents differ and parties equally innocent or at fault  mutual
                            Raffles case (2 ships both named Peerless; mutual mistake even though
                           mistaken about different things; Ds thought they would be getting their
                           cotton in Oct. and the ship arrived w/o cotton and assumed that P breached
                           K; then cotton arrived in Dec. w/ another Peerless ship and Ds refused to
                           pay; Ct says no K b/c no assent on the meaning of the term ―Peerless‖ 
                           mutual mistake  voidable)
   Extrinsic mistake (related to the application of the bargain to the extrinsic realities)
        o  Subject matter
               If unilateral  no relief, unless induced or known
                        Sherwood case (pregnant cow; barren cow is less valuable than a
                       breeding cow; mutual material mistake b/c the seller was confident he knew
                       the truth; no risk of ignorance b/c he was the expert in that he had owned
                       the cow for years)
                        Wood case (mistake of taking the stone to the jeweler and selling it for
                       $1; stone was uncut diamond; P didn’t know anything about precious gems
                       but didn’t bother to take it to an expert  unilateral mistake and assumed
                        Beachcomber case (coin dealer had a 15-45 min. examination of a
                       valuable dime but didn’t send it to an expert to make sure it was Denver-
                       minted; Ct agrees w/ P’s expert who asserts it’s possible to send the coins
                       off-site and people ―normally‖ do this, but it’s not necessarily ―universal‖
                        not knowledgeable assumed risk  voidable)
                        Sears v.Jardel case (general contractor was not satisfied with appellee's
                       work and eventually the parties entered into a settlement K by which, in
                       exchange for an agreed upon sum, the contractor appellee from all liability
                       on the project; following the settlement, a portion of one of the buildings in
                       the mall collapsed and the tenant brought suit against the general contractor
                       who then instituted a third-party action against appellee. The appellate court
                       affirmed;.contractor for building released the sub after differences arose;
                       building then collapsed and contractor sued sub for breach of K; Ct finds
                       that Robins assumed risk when they released Hirsch; found that Jardel
                       assumed the risk by entering into a sweeping settlement K; even if mistake
                       was unilateral, R2d § 154 says K is enforceable if party assumed risk) …???
        o Collateral assumption of fact (computational errors) – NOT GOVERNED BY

                                 Generally: cts are more willing to grant relief to the mistaken party
                                 Policy: [more likely to have documentary corroboration in this type of mistake
                                 less chance of fraud]***
                                 Typically unilateral mistakes by subcontractors
                                 Minority of cts liberally allow D to avoid K; an equitable defense is allowed if
                                D can show that
                                         (Requirements for granting relief to mistake party (D)):
                                                     D made mistake in collateral assumption of fact

                                                     Good faith mistake (innocent, but not grossly negligent)

                                                     Material mistake  severe hardship resulting to D

                                                     After discovering mistake, D promptly notified P

                                                     No prejudice suffered by P (only loss is the benefit of the
                                                            o P must be put in the status quo ante
                                          Crenshaw (computational error in bids; notification after acceptance is
                                         given promptly; unilateral mistake; not known or caused by the other party
                                          enforced on D  grants relief for P) CT IS WRONG IN THIS CASE
                                         when it says breach of K despite good faith, inadvertent error, w/o gross
                                         negligence, and promptly communicated to the Board
                                          Elsinor (inadvertent mistake; finds mistake after bid has been accepted;
                                         there was documented evidence that there was an honest mistake; notified
                                         the Board in ample time; Ct held the material difference mattered and
                                         rescinded in time  voidable for D  no relief for P)
                                 When this type of mistake is made, documentation is available [one reason relief
                                is more liberal if conditions are met]
                                 Mistakes as to economic valuation – NOT GOVERNED BY GENERAL
                                          Generally: cts are less likely to grant relief to the mistaken party
                                          Policy: [b/c economic value is subjective, there is an inherent element
                                         of assumption of risk]***
                                          Exceptions: cts will grant relief if party is dealing w/ :
                                                     fiduciary (e.g., trustee) at the time of agt OR

                                                     layperson deals w/ an expert

Economic inadequacy of consideration (in equity)
               Equity courts
                    o Special remedies available for P – will be held in contempt of court if noncompliance;
                    affects personal liberties of D
                              Specific performance decrees
                              Prohibitory injunctions
                    o Special equitable requirements for P to satisfy
                              P must show she has an inadequate remedy at law
                              Possible reasons for inadequate remedy at law
                                        Difficulty of ascertaining market value (e.g. a Picasso; Greenacre, etc.)
                                        Difficulty of ―recovering‖ (e.g., on waiting list for a car)

                    o   Special equitable defenses for D
                             D can show that P gave economically inadequate, albeit, legally sufficient
                                      Q1: As of what point in time do we assess economic adequacy of
                                                   All courts agree – At the time of K formation
                                         Q2: How do we measure adequacy?
                                                   McKinnon case (P assisted D in purchasing Bent’s Camp next
                                               to his land; in exchange, D promised not to improve/cut trees/land;
                                               business was slow and D added trailer park and tent camp; P
                                               sought injunction to prohibit D from continuing improvements for
                                               25 yrs; Ct says consideration of $5000 loan from P to D for a 25-yr
                                               land restriction was inadequate b/c D wouldn’t have the property
                                               but-for P’s loan, thus the terms of agt were grossly unequal)
                                                   Tuckwiller case (farm for nursing services not inadequate; P
                                              agreed to provide nursing purposes in exchange for title to farm;
                                              but Mrs. Morrison died before she added it to the will but asked 2
                                              ambulance attendants on the way to hospital to sign as witnesses; P
                                              asked for specific performance of the agt; Ct decides consideration
                                              was adequate and she intended to give title to farm despite
                                              precariousness of health and possible shortness of services
                                              rendered due to pending death)
                                       Q3: Standing alone, is the economic inadequacy of P’s consideration a
                                      defense? – S/A
                                                   Majority: need more than just economic inadequacy (e.g.,
                                               fraud, duress)
                                                   Minority: economic inadequacy can be a complete defense
                                               (see McKinnon)
                                2 assumptions needed for equitable remedy
                                       Amount of compensation can’t be fairly fixed
                                       Another transaction can’t be substituted
                                Only looked at for enforceability—not legal sufficiency
                                       Note: remember NEVER look at economic inadequacy in consideration

              Doctrine is case study in institutional competence of courts, especially considering failure of
           economic inadequacy
              The legal forte of the branches of the gov't (116)
                    o   The Courts: gradual evolution of legal doctrine
                    o   The Legislature: swift radical shifts in public policy
                    o   Administrative Agencies: expert implementation of legislative policy judgments
                             Black v. Bush (P as middleman to get considerable profit for services; D
                            claiming that P is going to receive ridiculous amount of profit for their ―services‖
                            and this is against public policy; Ct finds nothing illegal in agt and all P did was
                            drive a tough bargain; D claimed admin agencies should’ve stopped in and corrected

                agt b/c they have expertise in public policy… go to legislature for revolution… cts
                are evolutionary and slower)
   Development of doctrine
        o Stage 1: no relief granted for philosophic and pragmatic reasons
        o Stage 2: indirect attack on adhesian Ks by manipulation of traditional doctrines of mutual
        assent and consideration – Llewellyn
                  Klar case (agent left package for wrong person; charged 10 cents for package
                 worth $1000 and owner sued for damages; ticket on front said ―Contract‖ near top,
                 bold and red, saying ―loss or damage, no claim shall be made in excess of $25 for
                 loss or damage; Ct found customer had no bargaining power, thus manipulates
                 mutual assent instead of propelling unconscionability doctrine)
        o Stage 3: R2d § 234 and UCC § 2-302
                  UCC § 2-302: If the ct as a matter of law finds the K or any clause of the K to
                 have been unconscionable at the time it was made, the ct may refuse to enforce the
                 K, or it may enforce the remainder of the K w/o the unconscionable clause, or it may
                 so limit the application of any unconscionable clause as to avoid any unconscionable
   Development of Stage 3:
        o Procedural unconscionability (unreal assent): show assent was apparent rather than
        real; need to prove at least one of the following:
                  Unknowing assent
                           Did not realize he was entering into K at all; should prove that belief
                          was genuine and reasonable (e.g., recept from parking lot attendant) OR
                           Show that clause in question was physically inconspicuous; did not
                          notice clause b/c size of type was small OR
                           Clause’s language was too sophisticated to be understood by lay party
                  Involuntary assent – K of adhesion
                           Other party had vastly superior bargaining power, such as when market
                          condition approaches monopoly (then business person has the bargaining
                           Establish there is no competition among the various producers w/
                          respect to the clause in question
                                      Ex: auto manufacturers use same disclaimer clause even
                                  though they compete against each other; same effect as a
        o Substantive unconscionability – clause has harsh, oppressive effect; will dramatically
        change the normal allocation of risks under the K
                 Ex: manufacturer normally bears risk of personal injuries caused by defects in
                products marketed; negligence, strict tort liability, or warranty; if manufacturer
                permitted to disclaim that liability, it shifts risk from manufacturer to consumer
                 Strong feeling in the US against such disclaimers
                 UCC § 2-719(3): makes such disclaimers prima facie unconscionable by
                proving the following:
                          Statutory presumption
                          Would have unconscionable effect on typical consumer
                          Did have an unconscionable effect on this particular party
                                      Show economic loss party will suffer if judge sustains clause
        o   S/A in evolving doctrine -
        o   Paradigm: unknowing assent + invol assent + substantive uncon

                 Henningsen case (P had no choice but to accept warranty clause, but it was
                buried in small text and never pointed out; language means that if part of car fails,
                anything that happens b/c of the defect is not the responsibility of the manufacturer;
                adhesion K since 95% of the manufacturers used same clause; Ct held
                unconscionability b/c of [procedural uncon. = unknowing assent + involuntary
                assent] + substantive uncon)
        o    Majority view: unknowing assent OR invol assent + substantive uncon
                 Williams case (rent to own furniture clause was too complex to understand;
                conditional sales K w/ a dragnet repossession clause stating you waived your legal
                rights to possession of every item you’ve ever financed if you defaulted on monthly
                installment payments; Ct says unconscionability b/c unknowing assent OR
                involuntary assent + substantive uncon.)
        o    Minority view: substantive uncon standing alone
                 Jone case (P bought $300 retail value freezer for $900; paid installments up to
                $600; Ps were illiterate and on welfare, no indication they knew what they were
                getting themselves into; Ct held unconscionable on substantive uncon alone)
   Cts have remedial flexibility
        o    Can declare entire K void
        o    Strike the unconscionable clause
        o    Limit application to avoid harsh result
   Doctrine extended to Ks b/w merchant
        o Wilson v Ferguson (sales K for yarn saying no claims relating to yarn if made after using
        the yarn or after 10 days after receipt of shipment; but defects in yarn were latent; corporate P
        sued for breach of warranty; contractual limitations upon remedies are generally to be
        enforced unless unconscionable; Ct says the time provision eliminated remedy for defects not
        discoverable before knitting, thus substantive uncon, despite hardship of corporate P to prove
        procedural uncon)
   Cts may refuse to apply doctrine when subject matter is a luxury item

Contracts Outline –          Conditions                                                   Imwinkelried – Fall 2008


   Before P can have a cause of action for breach, P must establish that D had the immediate duty to perform
                   Two ways to show this immediate duty of the D:
                         o   1) D’s duty was unconditional; OR
                         o   2) D’s duty was conditional AND
                                  The condition was fulfilled OR
                                  The condition was excused

   Condition defined: any uncertain fact or event, other than the mere passage of time, which determines whether a
   duty is activated of immediate performance
                   Any uncertain fact or event judged from the perspective of the parties

                   Does not need to be a performance by one of the parties

                   Legal effect of a condition vs. a duty
                         o   If a condition fails, there is no duty of immediate performance for either party
                         o   If D fails a duty, then P has a cause of action for breach for at least nominal damages
                   Possibilities of provisions:
                         o   ―I will sing provided you pay.‖
                                   ―provided‖ = condition
                         o   ―I promise to sing.‖
                                   ―promise‖ = duty
                         o   ―I promise to sing, provided you pay.‖
                                   Promissory condition: both a promise and a duty
                   3 types of conditions: expressed, implied-in-fact, implied-in-law
                         o Luttinger v. Rosen (P contracted with D to buy property if P got a mortgage with
                         particular terms; if P couldn’t get the mortgage with due diligence, D would refund the
                         deposit; P went to one bank (reasonably relied on advice of attorney that this was the only
                         bank that might give him a mortgage) and was turned down; P asked for deposit back and D
                         refused; Ct held D in breach; P fulfilled condition of due diligence, giving rise to D’s duty of
                         immediate performance; P’s duty to pay the entire amount was extinguished by the failure to
                         of the condition to get the mortgage)

   Step 1: Identify the duty on the part of the D that P wants the court to enforce

   Step 2: Determine whether the duty is conditional
                   There has to be a manifestation that a certain promise by one depends on something else

                   If the duty is conditional, go to Step 3

                   If the duty is unconditional  it is a duty of immediate performance

   Step 3: Identify all possible conditions to D’s duty of immediate performance
                   Determine the method of creation for the condition
                         o Did the parties make an express condition (including implied-in-fact)? – Created by
                         words or conduct of the parties, but not always written into the K

 Precise wording of the provision (most important factor) Implied-in-fact OR
implied-in-law are done by the court
          ―provided that‖
          ―unless‖ (conditional) vs. ―until‖ (temporal)
          ―subject to‖
          ―contingent upon‖
          ―on the condition that‖
                     Peacock case (D was contractor for condo; P was a sub; clause
                 said ―payment within 30 days after completion of the work… and
                 full payment by the owner.‖ Owner went bankrupt, didn’t pay D;
                 so D won’t pay P; Ct decided in favor of P; clause is not a
                 condition, ―after‖ only sets a reasonable time for payment; duty to
                 pay still exists)
                           o [Policy]: don’t want subs assuming these risks and
                           bearing these losses; as most subs are small businesses***
   Purpose of the provision (next most important factor)
         If the purpose of provision is interpreted to impose a condition, the
        language of the provision can be overridden
                     Masconi case (P was sub, D was contractor; K provided
                  ―payment to be made and received by owner.‖ Owner failed to pay
                  D; P claimed clause was ambiguous and tried to use PE to show
                  that most of the work was done and D had orally assumed an
                  absolute obligation to pay; D used PE to show P has assumed risk
                  of non-payment as a material part of the exchange (b/c P had
                  looked into the net worth of the owner before signing the K); Ct
                  held in favor of D; P made fatal error of getting PE in, otherwise
                  decision would’ve been same as Peacock; wording indicates
                  setting time for payment, but b/c of evidence of the purpose of the
                  clause, the interpretation was overridden.)
   Materiality or important of the provision
        The more material an event, the more likely ti will be construed as a
       condition; courts will hold something as a condition only if it’s an important
       part of the deal
                     HYPO: sale of house on June 30th is on condiotn of termite
                 inspection by April 3rd; but the buyer turns in the inspection on
                 April 4th; no failure of condition would be found here b/c the date
                 of the inspection wasn’t material; rather the inspection itself was
   Source of the language – i.e., who wrote the clause
         Courts look at who wrote the language and make these presumptions:
                     1) Party who wrote the clause and talks about an act = a duty

                     2) Party who wrote the clause and talks about the actions of
                 the other party = a condition (to activate draftsman party’s duty)
                     General Credit case (GC extended credit to a mortgager for 2
                 cars; mortgager wants money from Imperial; Imperial has 2
                          o 1) In the clause, GC assumed a duty to pay the
                          delinquent premiums owed to Imperial

                                             Ct rejects this; not only did the doc use the
                                            word ―provided‖, but Imperial drafted the
                                            language itself and was talking about the other
                                            party’s actions
                                   o 2) The clause made GC’s payment of the premiums a
                                   condition to Imperial’s duty to pay policy proceeds
                                             Given the chronology, this would have to
                                            operate as a condition subsequent, which is
                                            extremely rare and require explicit language,
                                            which was missing here
            Presumption of duty
                   Ambiguities are resolved as duties—doing so gives both parties
                  reasonable expectations of performance
                   Used as a last resort is to rule against the party who introduced
                  ambiguity  duty (contra proferentem)
o   Did the parties make a constructive condition (implied-in-law)?
         These are created by the court in the interest of justice
         [They maximize the likelihood that the bargained for exchange will occur—
        increase the incentive to perform]***
         At common law, duties were wholly independent; there were no conditions—
        like finding 2 separate Ks; this was overruled by Kingston
         Types:
                   CC precedent: where the K indicates that one party’s performance will
                  precede the other’s, the 1st party’s performing is a condition precedent
                             If one party’s performance will take a substantial period of
                          time and the other’s is instant, the first party’s performance is a
                          condition precedent (like A builds a house and then B will pay)
                             Ex: A will pay for the stereo Jan. 15th; B will deliver the stereo
                          on Jan. 16th; paying for the stereo is a condition precedent for
                  CC subsequent: if concurrent performance is continuous, the actual or
                 prospective failure of one party’s performance will discharge the duty of the
                             Ex: insurance company’s duty to pay will often be discharged
                          if a claimant does not make a claim within a prescribed period of
                  CC concurrent: if a K indicates that parties will perform at the same
                 time, one party must tender performance to put the other in default
         The result of reading in Constructive Conditions of Exchange is the creation of
        Alternating Promissory Conditions, both a condition and a duty (Stewart v.
                  Ex: express duty to work, constructive condition  express duty to
                 pay, cc  etc.
                  The initial duty is unconditional; duty to pay last installment is not also
                 a condition
                  But if there is no express agreement for installments, payment is due at
                 the conclusion of all work
         Exceptions: Aleatory Ks and mutual surety Ks
                  Aleatory Ks – at least one party agrees to assume the risk of a
                 fortuitous event (ex: casualty policy)

                                          No CC here b/c payment is based on a fortuitous event and not on
                                         action of the other party (fortuitous even occurring does not equal
                                          There is no reason to imply conditions b/c this will not maximize the
                                         likelihood of the bargained for exchanged occurring w/o the event taking
                 Determine the legal/operative effect of the condition (affects burden of proof)
                      o Condition precedent – must happen before activation of duty, one party extends credit to
                      the other
                                 Fail or fulfill completely before the performance of a duty
                                 Burden on P to show that CCP was fulfilled or excused
                      o Condition concurrence – performance are concurrently performable
                                 Ex: exchange of $ for deed
                                 All the P has to do is tender; demonstrate/assert that you have the ability to
                                perform and demonstrate that ability and demand immediate counter-performance
                                 Burden on P
                      o Conditional subsequent
                                 Ex: loss, notice of loss, proof of loss are conditions for insurance company to
                                pay policy proceeds, usually accompanied by private S/L; failure to make
                                demand/file suit extinguishes duty to pay
                                 Burden on D to show that P did not make a demand

Step 4: Determine what happened to the condition
Question 1: Was the condition fulfilled?
                 Conditions of satisfaction—interpretative tendencies
                      o    If the condition of satisfaction is ambiguous, it can be interpreted
                                 Objectively: reasonable person point of view
                                 Subjectively: D’s own subjective satisfaction
                                           Dissatisfaction must be in good faith (DeVoine)
                      o Satisfaction can also belong to a 3rd party (ex: owner’s duty to pay general conditioned on
                      the satisfaction of an architect)
                                 They usually require good faith, but not reasonableness (S/A) (it’s thought that
                                3rd parties will have less bias to begin with)
                      o All this can be avoided when drafting the agreement in the first place—just be explicit
                      about what the satisfaction standard will be

                                        Promissor                                  Third Party
Artistic subject matter                 Subjective satisfaction                    Strongest case for subjective
                                        Gibson                                     satisfaction
Commercial subject matter               Strongest case for objective               Subjective satisfaction
                                        satisfaction                               S/A – Second Nat’l
                                        DeVoine                                    -3rd party less likelyt o lie 
                                                                                   -commercial s/m, ascertainable stds
                                                                                    objective

                      o Gibson case (P was asked to paint a portrait of D’s deceased daughter and to be paid only
                      if D liked it; D didn’t like it; Ct held no breach b/c the agt called for subjective satisfaction as
                      a condition to D’s duty to pay P)
                      o DeVoine case (P sold cherries to D with a ―quality satisfactory‖ to the D as a condition
                      for D’s duty to pay P; D accepted some and then refused the rest; P introduced evidence

                      showing that D couldn’t sell the cherries; Ct held yes breach b/c the evidence and fact that D
                      had accepted already showed that D was not backing out in good faith dissatisfaction)
                      o Second Nat’l case (P had a K with D to furnish steel and payments were to be made as
                      the work progressed and upon certification by an architect; after the steel got to the 6 th floor,
                      architect changed the # of holes it wanted in the steel; P refused to change and D refused to
                      pay; Ct held for D, no breach b/c P must show that the architect withheld certificate in bad
                      o Rizzolo case (D’s architect refused to give a certificate after P filed suit against the D for
                      not paying; Ct held in favor of P yes breach b/c D got the benefit of the bargain such that the
                      architect’s certificate would only be evidentiary; there was also fraud on the part of the
                      architect in withholding the certificate)
                Conditions concurrent – can be fulfilled with tender, where tender is the physical ability to
             perform and offer to perform IF the other performs
                Demand as a condition precedent
                      o General rule: a promisee must make demand for performance at activate promisor’s duty;
                      no duty of immediate performance arises until the demand is made
                                Ex: in a warranty K, the car owner must ask the car company to repair the car
                               before a duty to repair becomes immediate
                      o Exception: if promisor is under an otherwise unconditional duty to pay a sum of money
                      on demand, the promisee can sue to collect w/o first making demand; suit = the demand

Question 2: Did the condition simply fail?
                If even one condition is neither fulfilled nor excused the duty never becomes a duty of immediate
                Thus there is no breach of K and no cause of action

Question 3: Was the failure of the condition excused? Identify every possible excuse
Specific excuse doctrines – for P to invoke to say the excuse of condition  D’s duty to perform:
                Substantial performance by P
                      o Defined: virtually all of the bargained for performance is already conferred, but there is a
                      deficiency in the substance of the performance
                                Policy consideration: [Policy of penalizing misconduct and encouraging
                               performance of the bargain; If we don’t excuse, one party will get 100% and the
                               other will get 0%--fairness issue]***
                      o Question 1: What types of conditions does this excuse apply to? SCOPE
                                Majority: doctrine applies to all Ks, but only for constructive conditions of
                               exchange (not express conditions)
                                Minority: only recognized in construction of Ks with constructive conditions
                               of exchange
                                Small minority: don’t recognize the doctrine at all
                      o Question 2: What are the elements of the prima facie case for invoking the excuse?
                                Elements:
                                          Objective: the deficiency must be ―trivial‖
                                                      Broad standard – must not frustrate K’s essential purpose
                                                            o Plante case (P deviated from D’s building plans; D
                                                            claimed a long list of problems, including a misplaced
                                                            wall, and P stopped work; Ct held for P yes breach b/c

                                           there was substantial performance that met the essential
                                           purpose of the K)
                                     Categorical rule that you have no structural defect (i.e.,
                                 weakness in the foundation)
                                     Rule of thumb – 10% of the K price
                         Subjective: the deficient fulfillment of condition must have been
                                     General rule: Can’t be willful or in bad faith; can’t be to cut
                                     Exception: De minimis non curat lex: ―the law doesn’t care
                                 about the trivial‖; if cutting corner saved you $5 of a $5M K
                                           o Jacob case (P’s sub used the wrong brand of pipe
                                           through D’s house; P showed that the pipe was
                                           functionally identical to the one D specified, and that it
                                           was an innocent mistake; P sued D for breach of K when
                                           D refused to pay; Ct held for P yes breach b/c the
                                           deviation was trivial and the evidentiary condition of
                                           getting architect’s approval is excused; policy of
                                           preventing economic waste)
       o   Question 3: What is the effect of invoking substantial performance excuse doctrine?
               S/A
                         Majority:
                                     K price—the cost to bring the building up to the specs
                                           o   Cost of completion
                            Minority:
                                     K price—diminished market value
                                           o Used when the completion of the deviation would be
                                           equal to economic waste

   Waiver by D
       o   D’s conduct may have the effect of waiving P’s fulfillment of a condition
       o   Estoppel waiver
                D’s voluntary conduct BEFORE the failure of condition
                        Elements:
                                     1) D voluntarily engaged in some conduct

                                     2) That conduct led P to reasonably believe that D was not
                                 going to insist on fulfillment of the condition (objective reasonable
                                 belief standard)
                                           o D can revoke this waiver with timely notice by
                                           destroying P’s expectation
                                     3) If D had insisted on strict fulfillment, P could have done it

                                     4) P actually relies on foregoing the opportunity to fulfill the

                  Equitable estoppel: a representation as to a fact
                  Promissory estoppel: a promise that the other party relied on
                  If there is no reliance, it is NOT irrevocable—can reinstate the
                 condition in a timely fashion when it’s still fair and possible for the other
                 party to strictly fulfill the condition
                              McKenna case (D made 6 out of 7 payments made to P w/o P
                          providing an architect’s certificate; P wants 7th payment; Ct held
                          for P yes breach b/c P relied on D not demanding the certificate
                          when P could’ve gotten the certificate if needed.)
o   Election waiver
         After there is a technical failure of condition (usually P’s earlier, material
        breach of duty that puts D to election), D has a choice b/w two inconsistent rights:
                  Choice 1: treat as a material breach, terminate the K, and immediately
                 sue for breach
                  Choice 2: proceed with K and waive condition
                              D may knowingly and voluntarily continue to perform his
                          duties and treat as a minor breach
                              D may knowingly and voluntarily accept performance of
                            benefits under the K that D wouldn’t otherwise be entitled to
             D’s irrevocable waiver of condition  D’s immediate duty to perform
             Acceptance of compliant and non-compliant goods:
                    Common law  waiver as to all
                    UCC 2-601  no waiver
          Ex: landowner says he doesn’t have the money, but the construction workers on-
         site know this; this fork in the road leads to the construction workers saying they’ll
         start work anyway, thus electing the waiver of payment on-the-spot as a condition
o   Intentional waiver
          After failure of condition, D voluntarily relinquishes a known right
                    Majority: persuasive evidence of intent to relinquish; inaction is not
                   enough to show waiver
                    Minority: fictitious interpretation of intent (mere stupidity)
          Ex: a # of conditions; D complains about one condition; by expressly
         complaining about one condition, D is satisfied with the other conditions; enough for
         courts to find intentional waiver
          Scope of the doctrine
                    Majority of courts recognize the doctrine
                              For intent, need to have facts which prove ACTUAL intent

                              Other courts read in more lax intent requirement, only
                            requiring fictitious interpretation of intent
                  Some courts don’t recognize the doctrine
                  Some courts recognize doctrine but only for relatively minor conditions
            Different from estoppel waiver: this waiver occurs AFTER the failure
            Different from election waiver: no inconsistent rights to choose from
                  Phoenix case (P insured with D; D conditioned liability on a protective
                 security system for a vault and an itemized inventory; P was burglarized,
                 but both conditions were broken; D refused to pay at first b/c P failed to
                 fulfill security system condition, but then D offered in a letter to pay for
                 merchandise stolen outside the vault; P wants the entire amount; D refuses
                 b/c P didn’t fulfill the inventory condition; Ct held for P yes breach b/c D

                         saying that it would pay for what was outside the vault = intentional waiver
                         of the inventory defense; no subjective intent by P to waive this in the
                          Dahl case (employees worked for D who sold to another company; the
                         employee manual said that employees were entitled to severance pay if they
                         were laid off w/ no comparable jobs available; 2 yrs after the sale, the
                         company sold goes bankrupt and the employees sue D for severence; D tries
                         to argue that P (employees) had waived the duty of D to pay; Ct held for P
                         yes breach b/c there is no duty to speak and failure to do so will not result in
                         a waiver; also the D could not prove detrimental reliance; not really a
                         waiver of a condition—a waiver of duty; there is a strict standard for waiver
                         of noninsurance cases)
   Prevention by D
        o General rule: D’s wrongful conduct was a but-for cause of P’s failure to fulfill the
        condition; and it is consequently unfair to require P to fulfill the condition
        o Exception: If P could’ve foreseen the conduct, then the court is likelyt o say P assumed
        the risk
                  Wrongfulness:
                            If D’s conduct was intentional or negligent, it is wrongful—subject to
                           qualification, did P assume the risk?
                  Interference: must be a recognized type of interference
                            Active conduct absolutely preventing fulfillment of condition
                                       All cts say this is prevention

                                       This can be negligent or intentional
                             Active conduct substantially hindering fulfillment of condition
                                       Majority of cts say this is an excuse
                             Passive non-cooperation absolutely preventing fulfillment of condition
                                       Most cts recognize this as an excuse, this imposing an
                                  affirmative duty of cooperation
                          Passive non-cooperation substantially hindering fulfillment of
                                       S/A – trend is toward recognizing it as excuse
                 Causation: show that D’s wrongful interference was the cause of P’s failure to
                fulfill the condition; and it is consequently unfair to required P to fulfill the condition
                [policy of fairness]***
                 Kehm case (P and gov’t contracted to build bombs; gov’t loses interest and
                doesn’t uphold its end; Ct held that P gets price and extra compensation for breach of
                an affirmative duty of cooperation; not only was there an express duty to perform,
                but there also was an implied duty of cooperation—the breach of which is powerful
                enough to support the recovery of extras (cost of delay by gov’t)
   Avoidance of forteiture by P – minority doctrine
        o   Allows P to override express condition in case of severe forteiture
        o   Elements:
                 P’s forteiture would be severe
                          Jacobs (once the innocent party is facing a loss of 15% of the cost, it
                         will justify overriding the terms of the K)
                 Condition being excused is relatively immaterial

                           Ex: when do pay (not whether to pay at all)
                 P’s conduct is relatively innocent and inadvertent
        o   Often the question is: is time of the essence?
                 Mortgage payments: don’t want the mortgager to lose all the interest in the
                property b/c the payment was a minute too late—time NOT of the essence here
                (equity ct will rewrite the K in the interest of justice)
                 Installment land Ks: you make payments over a period of time, but the owner
                doesn’t convey to you until all payments are made—time is NOT of the essence here
                 Option Ks: one party pays a fee annually so he can exercise power to buy a
                piece of land—time IS of the essence here
                           Holiday Inn case (Option K for land; P sent money to the wrong party
                          and sent it late; D wants to cancel the option; Ct held for P yes breach b/c
                          Traynor wanted to use the forfeiture doctrine using dynamic interpretation
                          of a CA statute; otherwise P would’ve lost the $$ from the last four yrs,
                          which would’ve been severe)
   Slip of the tongue – minority doctrine (minority view makes the K go away)
        o D’s statement of an unjustifiable reason for refusing performance
        o There is a condition to a duty, and the condition fails, so D would have a perfectly good
        reason for not performing the duty
                  When D opens his mouth and explains why he hasn’t performed the duty, but
                 doesn’t mention the right reason why the condition failed
        o Majority: slip of the tongue is not fatal, must establish a true estoppel waiver—P must
        have detrimentally relied on D using just this one reason for failure
                  New England case (P sub had K with D contractor; K called for conditions of
                 complying with plans/specs AND maintain satisfactory progress; D terminated K b/c
                 P failed to satisfactory progress (as required by the K), thus waiving the condition of
                 complying with the palns/specs; K provided for a 5-day termination period after D
                 terminated P’s right to proceed with the work; at trial D wanted to assert other
                 failures; Ct held for D no breach b/c 5-day period was interpreted as a quitting period
                 for P, not a fixing period, meaning P couldn’t show reliance on just the mention of
                 one failure on a condition and then try to get the others excused.)
        o Minority: slip of the tongue IS fatal and D loses the right to use that failure of condition
        as an excuse—based on intentional implicit waiver (D is implicitly saying he’s satisfied with
        everything other than the excuse that he did give)
                  UCC § 2-605(1)(a): excuses a failure of condition for buyer’s duty to pay under
                 two circumstances: 1) the defect was ascertainable by reasonable inspection, and 2)
                 the seller could have cured it was stated seasonably by the buyer
                  Failure to mention a failure of condition under UCC § 2-605(1)(b)—between
                            1) Seller can demand full and final written list of defects
                            2) If buyer does not furnish list or omits defect, the seller is excused
                           from that condition
                  UCC § 2-607(3)(a): buyer accepted defective goods
                            Unless buyer gives proper notice of defects to the seller, the buyer will
                           be barred from any remedy
                            Notice can be very general
   Impossibility as an excuse – widely recognized
        o A supervening event after K formation made it actually or virtually impossible for P to
        fulfill a condition
        o Elements:
                    Something has happened that renders strict fulfillment of the condition to be

                      Supervening event was not reasonably foreseeable at the time of K formation
                            If it was foreseeable, then P assumed the risk
                   Immaterial condition: D must still receive the benefit of the bargain
                            You can discharge any duty on the basis of impossibility, BUT you
                           cannot excuse a condition on the same basis if that condition is material to
                           the bargain
                            The condition is such a minor part of what D bargained for that it
                           would be unfair to deny P what she bargained for
                   Unless excuse is applied, P will suffer extreme forfeiture
        o Policy of [fairness]***
        o HYPO: construction K where you have to comply to the plans and specs as well as
        fulfilling the evidentiary condition of getting an architect’s certificate of approval; the
        architect die; thus impossibility as an excuse
   D’s prospective non-performance of the conditional duty
        o Most important and Winkie’s favorite excuse doctrine!!!
        o If it becomes clear (or probable) that D will not fulfill his duty, the P is excused from
        fulfilling the condition that will give rise to the duty
                   It would be economically wasteful to make P fulfill if D will never perform***
        o Elements P must show:
                   Something happened that made it objectively reasonable for P to believe that it
                  was improbable (not impossible) that D would perform duty
                            1) D explicitly repudiate his duty
                            2) D voluntarily disabled himself from performing
                            3) D became insolvent
                            4) The duty became illegal to perform
                            5) D’s defective performance in other Ks or other installments of the
                           present K
                                       This could go either way; In Northwest, Ct found that
                                     violation of a separate K is not reasonable grounds for insecurity;
                                     at best, P should’ve asked for written assurance
                  P had the ability to fulfill the condition to D’s duty
        o Legal consequence to flow from a prospective non-performance?
                  If certain that D will not perform  condition immediately and permanently
                  If improbable that D will perform  condition temporarily excused
                            P can suspend or delay performance
                            If D regains ability to perform, condition is reinstated (as long as time
                           limit has not passed when time is of the essence
        o Situations affecting temporary excuse
                  Timely retraction by D eliminates excuse if:
                            1) Done before P detrimentally relies
                            2) Done in time to permit P to fulfill conditions
                  Innocent party reasonably changes position (ordinarily must check with D first
                 to see if D has changed mind and decided to perform)  temporary excuse becomes
                  Lapse of time: if D does not remove uncertainty of performance in time for P to
                 fulfill condition
                            1) Temporary excuse becomes permanent if time is of the essence
                            2) If time is NOT of the essence, court may extend time for P to fulfill
        o Note: cause of action is at normal due date for performance (not accelerated cause of
        action as under anticipatory breach)

o UCC § 2-609: a K for sale imposes an obligation on each party that the other’s
expectation of receiving performance will not be impaired; when reasonable grounds for
insecurity arise, the other may, in writing, demand adequate assurance and until he receives
such assurance, may reasonably suspend performance
           Must not overreact—fatal if you do; that’s why you ask for written assurance
           Whoever invokes the doctrine has the burden of proof with regard to reasonable
o Restatement § 251: when a promisee reasonably believes promisor will breach, he may
be entitled to demand an assurance of performance
           Northwest Lumber case (3 contracts between P and D; P sent pinewood and D
          refused to pay until P sent studs ordered earlier; P refused to send studs until
          pinewood paid for; Ct held for D b/c P can’t refuse performance on one contract
          because of a breach of another; at best P could have asked for written assurance)

Contracts Outline –     DUTIES                                                     Imwinkelried – Fall 2008

               If the duty was unconditional from the outset or all conditions have been fulfilled or excused, now
            determine what happened to the duty of immediate performance
               Performance can be:
                    o    Performance  no cause of action
                              A matter of interpretation
                    o    Discharged  no cause of action
                              This doctrine was developed by R2d in response to early literalism like
                    o    Breached  cause of action
                              Actual, present breach of duty
                              Anticipatory breach of duty

               General impossibility
                    o D is entitled to a discharge if an unforeseeable contingency occurring w/o D’s fault
                    makes the performance of D’s duty objectively impossible and D has not assumed the risk
                    of the occurrence
                              Only discharges a duty; can’t be used to recover restitution
                    o Elements:
                              At the time of K formation, the contingency was unforeseeable
                              The contingency occurred w/o D’s fault
                                       Doesn’t matter if D was acting intentionally or negligently—as long as
                                      there was causation
                              The contingency renders the specific performance called for by the K actually
                             impossible (―I can’t do it‖)  interpretation!
                                       Ex: K asking for file cabinets vs. K asking for file cabinets from a
                                      specific warehouse that later burns down
                              The contingency rendered performance objectively impossible (―It can’t be
                                       Ex: subjective impossibility like financial inability doesn’t count as ―it
                                      can’t be done‖
                              At the time of K formation, D did not assume the risk of the occurrence of the
               Particular applications of impossibility
                    o    Death of serious illness of an essential person
                              Is K premised on the services of a particular person?
                              For personal services:
                                       Death of an employee discharges duty
                                       Death of an employer may discharge if there is a close relationship b/w
                                      employer/employee such that it would be unfair to require employee to
                                      work for someone else (e.g. confidential secretary)
                              Cutter v. Powell (P contracted w/ D to be 2nd mate; K said ―I promise to pay 30
                             guineas provided he proceed, continues, and does his job as 2nd mate.‖; P died
                             halfway on the ship; his estate sued for his pay)
                                       P v. D:
                                                   Duty: D pays $$ to P for journey completed

                                                   Condition: P must be 2nd mate for entire journey

                                     o Fulfilled? No, b/c P died
                                     o Excused? No, impossibility can’t excuse a material
                             Conclusion: D’s duty was never activated  P had no cause
                         of action
                    D v. P:
                             Duty: P must be 2nd mate to D

                             Condition: D must provide P w/ ship, food, water
                                     o   Fulfilled? No, b/c P died
                                     o   Excused? Yes, by PNP
                             Duty discharged? Yes, by impossibility
                  Gold v. Salem (D has an old age home; P contracted to be in this home;
                 P died before he is admitted; P’s estate wants the money back (restitution);
                 Focus on D’s condition to P’s duties; Ct held in favor of D b/c P can’t
                 evoke impossibility as a discharge b/c both parties assumed the risk that P
                 might die, as P was 84.)
o   Destruction, material deterioration, or unavailability of an essential object
         Both parties realized that existence of an object was essential to K
                  The destruction/unavailability was no foreseeable at K formation
                  Without fault of D
                  Risk of loss was not on D
                             Generally, risk is allocated to the person who’s insurance is
                          most likely to cover the loss
                             Object destroyed before risk passes to buyer  seller can
                          invoke impossibility discharge UCC 2-613
                             Object destroyed after risk passes to buyer  buyer must pay
         Taylor v. Caldwell (D contracted w/ P to let P rent music hall; hall burned down;
        P sued for breach and $$ spent on ads; Ct held for D)
                  P v. D
                             Duty; D has to provide P w/ music hall for first date

                             Condition: none for the first date, but later dates were
                          conditioned upon P paying for the 1st date
                                   o Fulfilled? No
                                   o Excused? Yes, for the later dates by PNP
                             Duty discharged? Yes, by impossibility
         International Paper case (D was going to deliver wood to P, but a fire destroyed
        all the wood except a small amount on the top of the hill that would’ve been much
        more expensive to harvest; Ct interpreted the K to mean that would from this land,
        not just any wood)
                   Duty: D must deliver wood to P
                   Condition: P must pay D for wood
                             Fulfilled? No

                              Excused? Yes, by PNP
                  Duty discharged? Yes, but only for the wood that burned down—the
                 rest must be harvested and delivered
                              ~Partial discharge~: to the extent that it is at all possible, D
                            has to perform
                                     o Early common law: no matter how expensive it is to
                                     deliver the rest
                                     o R1st § 463: ―if performance is not made materially
                                     more difficult or disadvantageous than it would have been
                                     if there had been no impossibility‖; antecedent to
                                     financial impracticability
        Canadian Industries v. Dunbar Molasses (D contracted w/ P to provide P w/
       1.5M gallons of molasses from a certain refinery; the refinery produced less than
       500K gallons)
                   Duty: D must deliver molasses to P
                   Condition: none
                   Duty discharged? No b/c it was D’s fault for assuming the risk of being
                  middleman; should’ve ensured that the refinery would make enough or find
                  alternative suppliers
o   Impossibility in construction Ks
        General rule: allocate risk to contractor b/c of expertise
                   Stees v. Leonard (D contracted to build on P’s lot; specs were provided
                  by independent contractor architects; twice the structure collapsed partway
                  b/c the foundation was on quicksand; P promised to drain, but this parol
                  evidence was not admitted b/c the promise was made before the K, which
                  was completely integrated, and there was no consideration for this promise)
                              Duty: D must build house on P’s lot

                              Condition: P must let D on his land
                                   o    Fulfilled? Yes
                              Duty discharged? No, impossibility won’t work as a discharge
                         b/c D assumed the risk
         Exception: implied warranties can shift risk to party providing the plans and
        specs – S/A when 3rd party provides plans and specs
                  K requires contractor to comply w/ the plans and specs
                  The plans speak of the specific problem that materializes
                  Objectively reasonable for contractor to rely on the plans – S/A on
                 whether the doctrine applies only if the landowner has in-house expertise
                              US v. Spearin (P contracted to build drydock for gov’t; a
                          sewer had to be diverted; D made the plans; one year after sewer
                          was diverted, it burst from heavy rain and drydock work had to be
                          evacuated; P stopped work until D made work site safe)
                                  o Duty: D should pay P for work done
                                  o Condition: P must progress w/ work
                                              Fulfilled? No
                                              Excused? Yes, prevention by D
                                  o Duty discharged? No, impossibility wont’ work as a
                                  discharge b/c D assumed the risk of any problems w/ the
                                  sewer when D provided the plans

o   Impossibility in repair Ks
        General rule: repairman will get a discharge if object to repair is destroyed
       (follow the title)
        Look at the role of the person in the market—repairman, not contractor
                   Young v. City of Chicopee (P contracted to repair D’s bridge; K says P
                  can’t begin work until part of the wood for the bridge is at the site; fire
                  destroys bridge and lumber at site; P wants recovery for work done
                  (restitution) and for the wood destroyed; Ct held that P can recover for work
                  done (quasi-K relief), but not for lumber at the site; though having wood
                  there was a condition precedent to performance, the title of the wood
                  remained w/ P)
                              Duty: D must pay P $$ for work

                              Condition: P must repair bridge
                                   o    Fulfilled? No
                                   o    Excused? No
                              Thus, no duty of immediate performance

                              Look to quasi-K relief (look at P’s duties and D’s conditions):
                                    o If we don’t give P a discharge, then P will have to put
                                    the entire bridge back up—converting the repair K into a
                                    construction K
o   Impossibility in technological Ks
        General rule: no discharge, for even unanticipated technological difficulties
       (assumed risk)
                   But what if other party specifies the designs and requirements?
        Note: difference b/w K for sales and K for R&D (here, the Research & Design
       IS the performance, so not required to produce an end product)
                   US v. Wegematic (D promised a revolutionary computer to gov’t P; part
                  of K stressed early delivery and had penalties for days late; D found it
                  technologically impossible to make them and said it would have to spend an
                  extra 1.5M and a year’s delay)
                              Duty: D must build computer for P

                              Conditions: none

                              Duty discharged? No, impossibility doesn’t work as a
                          discharge b/c D assumed the risk; Ct also rejects financial
                          impractibility excuse b/c D would’ve been able to pay w/ the
                          profits from the patent…???
o   Impossibility of contemplated means of performance
        Full discharge if:
                   Both parties contemplated a particular means of performance
                   At the time of K formation, it was unforeseeable that the contemplated
                  means would be destroyed or become unavailable
                   The contemplated means of performance was destroyed or became
                   D was not at fault
                              At this point, D can get a partial discharge, but must be a
                          commercially reasonable substitute

                  No commercially reasonable substitute
            Employee strikes
                  General Rule: factory strike  subjective impossibility; no discharge.
                  Exceptions: industry-wide strike, violent strike  objective
                 impossibility, discharge
         Affect of divisibility of K on recovery
                  Not divisible: no recovery for P on the K, but can get quasi-K recovery
                  Divisible: K rate until the point of the discharge, and then quasi-K for
                 the restitution
         Transatlantic v. US (P agrees to carry D’s wheat to Iran; P can’t take its usual
        route b/c Suez Cancel is blocked by sudden war and has to take a more expensive
        detour; P says it was negatively discharged from its original duty under the K and it
        has an affirmative restitutionary right to recover for the additional $$ it expended in
        taking the longer route)
                  Duty: P must deliver wheat
                  Condition: D had to provide P with wheat
                              Fulfilled? Yes
                    Duty was performed (and this activated D’s duty to pay, which it did)
                    This question: is P entitled to more pay for the longer route?
                              No, this is not a divisible K—D just wanted to the end
                          product, not individual lengths of travel
                    Is P entitled to an impossibility discharge?
                              No, P assumed the risk (could have insured against it)

                              Also, there was no actual impossibility (there were other
                          routes) and the contingency was actually foreseeable
                              ~Partial discharge~ as to the means of performance
o   Legal impossibility
         After K formation, law goes into effect, making subject matter of the K illegal
                   Performance is physically possible, but legally impossible
         Law should give a discharge to parties who did not consider or anticipate this
        change in the law, but only if normal elements of the impossibility discharge are met
         1) Domestic government enacts general law that renders performance of the K
        legally impossible  discharge
         2) Domestic court or agency issues a judgment, decree, or order that targets a K
                   D gets a discharge if the decree isn’t for the intentional misconduct or
                  negligence by D—objective vs. subjective impossibility
         Foreign law
                   Traditional common law view: never get a discharge b/c you assume
                  the risk
                   Modern view (UCC § 2-615): discharge as long as law is applicable to
                  foreign or domestic government regulation
         Swift v. Canadian (P in Canada contracted to sell pelt to D in the US w/ ―FOB
        Toronto‖; US then passes restriction on pelt importation; D says this discharge his
        duty to pay for pelts; ―FOB dictates who is responsible for shipment, when title
        shifts, and when risk of loss shifts, overriding shipping instructions
                   Duty: D must accept pelt and pay
                   Condition: P must deliver FOB in Toronto

                              Fulfilled? No

                              Excused? Yes, by D’s PNP
                   Duty discharged? No, legal impossibility doesn’t work b/c FOB means
                  title would pass in Canada where US restrictions do not affect the K
o   Financial impracticability (minority view at CL)
         D arguing that their cost of performance has skyrocketed (distinguish from
        frustration, where D argues P’s performance is worthless)
         Full discharge if:
                   1) An unforeseen contingency occurred
                   2) The contingency occurred w/o the promisor’s fault
                   3) The contingency increased the expense or difficulty of performance
                   4) The increase is extreme and prohibitive (10-12X)
         Policy: [to discourage economic waste]***
                   Criticism: too vague—no bright line for when financial impracticability
         UCC § 2-615 recognizes this doctrine, with perhaps a more liberal standard than
                   Mineral Park case (D had duty to remove gravel; P’s condition was to
                  grant D access to land; P fulfilled this condition; but D’s duty is discharged
                  b/c as a practical matter, performance was impossible b/c of the cost had
                  gone up 10-12X; technically performance was not impossible)
o   Frustration of purpose (majority view at CL)
         D is arguing that the value of P’s performance is now minimal, almost non-
         Performance is possible, but it has become impossible for the parties to achieve
        the purpose they had in mind when contracting
         1) At the time of K, both parties had a foundational purpose in mind:
                   1) D had purpose in mind
                   2) D communicated purpose to P
                   3) P charged D an enhanced price b/c of the purpose
                   4) D agreed to pay the enhanced price
                   5) Does the subject matter have to be specially suitable? (Krell required
                  this, but later courts ignored it b/c requirements 1-4 sort of imply it)
         2) An unforeseen contingency occurred
         3) The contingency totally or substantially frustrated D’s foundational purpose
         4) D was not at fault
         5) D did not assume the risk of contingency’s occurrence
                   Krell case (D rented his room at extra high price b/c P wanted to watch
                  coronation; King got sick and coronation was postponed)
                              Duty: P must pay for room

                              Condition: D must provide access to room
                                    o   Fulfilled? No
                                    o   Excused? Yes, by P’s PNP
                              Duty discharged? Yes, by frustration of purpose; the duty
                          wasn’t impossible, but the point of paying so much $$ was lost
                          now that the king wasn’t coming.
         Affirmative restitution: Cutter, early common law (0%)  Prof. Seavey (equally
        innocent parties)  R2d § 277 (100%)

           Partial discharge
                 o Means of performance is rendered impossible, but if there is an alternative means of
                 performance that is reasonably available, D will get only a partial discharge
                          See International Paper (extent) and Transatlantic (means)
                 o Is time of the essence?
                 o Three types: partial discharge w/r to the extent of the performance, the means of the
                 performance, and the time of the performance (temporary discharge, as opposed to a
                 permanent one)

           Present breach
                 o   Delay in performance (is time of the essence?)
                          Generally: time is not of the essence (construction Ks, personal services, etc.)
                          Exceptions:
                                   Option Ks for real estate
                                   Unstable markets – Ks for goods, personal property
                 o   Deficiency in performance – perfect tender: ―give me exactly what I contracted for.‖
                          Common law required perfect tender; any deviation was a material breach
                          As a condition – Exception is UCC § 2-508: absolute right to cure if time for
                         performance has not expired—requires substantial impairment and a revocation w/in
                         a reasonable time (this failed in Hays)
                          As a duty
                                   UCC § 2-612: abolishes perfect tender rule for installment Ks
                                               1) Buyer can reject any installment, only if it cannot be cured
                                           and there is substantial impairment in its value
                                               2) Only if nonconformity with one installment substantially
                                           impairs whole K is there a material breach
                                               3) Revocation of acceptance in whole or in part
                                                  o Buyer may revoke his acceptance of a lot of
                                                  commercial unit whose nonconformity substantially
                                                  impairs its value to him
                                                  o Revocation must be within a reasonable amount of
                                      UCC § 2-608: revocation of acceptance in whole or in part
                                               1) Buyer may revoke his acceptance of a lot of commercial
                                           unit whose non-conformity ―substantiall impairs‖ its value to him
                                               2) Notice of revocation must be given w/in a reasonable
                                          amount of time
                             Note: P cannot claim PNP if P’s earlier breach justifies what D said
           Anticipatory breach
                 o P files their action before the due date of the K—not a present breach situation where the
                 due date for performance has already arrived and D is refusing to perform; Here, the breach
                 occurs before the due date
                 o This gives an accelerated cause of action (gives you more than what you were entitled
                 to), unlike PNP, therefore the standard for AB is higher than the standard for PNP
                            Hochster

                  D’s conduct impairs P’s legally protected expectation of future
                 performance of paying him for being a courier
                  Unless the Ct recognizes the AB doctrine, the innocent P will have to
                 remain ready and willing to perform her conditions and perform her duties
                             If can’t use AB doctrine, P can use PNP to excuse her
                             Ct has misgivings about recognizing the AB doctrine—fear of
                            speculative damages that will overcompensate P
o   Common law requirements:
         D repudiates his duty under the K (express repudiation for voluntary
         At time of D’s repudiation, P had remaining conditions to fulfill and/or duties to
        perform – S/A
         D did not retract his repudiation before P’s election
                  P elected to treat the repudiation as a present breach of duty
o   Three types of restrictions imposed by the courts:
         1) At the time of the alleged anticipatory breach
                  What D said or did:
                             D must repudiate or voluntarily disable his duty or himself
                        from performing his duty—―I won’t perform, and I can’t perform‖
                    What P has yet to do:
                             At time of breach, P has to have remaining conditions to
                          fulfill, or some jxs require remaining duties to perform
                                     o This is required b/c of Hochster, but not required
                                     under UCC
                  Common law: positive and unequivocal statement or acts
                  UCC § 2-609: reasonable reason for insecurity of performance (laxer
                 standards that converts PNP into AB)
           2) Interim b/w the alleged anticipatory breach and trial
                  P’s election:
                             P must elect to treat AB as present breach:
                                   o Detrimentally changed position (both material and
                                   reasonable), OR
                                   o File suit, OR
                                   o Tell the other party flat out that you elect to treat this
                                   as an AB
                             P needs to do all this before D retracts or expressly reacquires
                         ability – S/A on recovability of election
                    D’s retraction
                             Required form of retraction: depends on initial form of AB
                                   o If the AB was verbal  retraction must be verbal,
                                   express acknowledgement of the duty repudiated
                                   o Voluntary disablement (like selling the goods to a 3rd
                                   party)  have to regain ability to perform (get the goods
                                   back) and then notify P you have regained the ability
           3) The time of trial
                 Did P lose the ability to perform his or her part of the bargain?

                             If you lose your ability to perform  you lose your cause of action
   If duty was breached, was the breach material or minor?
        o   Specific types of breach
                 Time of the essence  automatically material
                          Ct begins w/ the assumption that time is not of the essence, but if it’s
                         found and there was a delay, that is automatically a material breach
                                      Internatio-Rotterdam (D was to deliver rice to P; P was to tell
                                   D where to ship it and shipment was to be made ―Dec. 1952 w/
                                   two weeks call from buyer.‖; payment was to be made by a letter
                                   of credit that mentioned the Dec. delivery; P didn’t call; D
                                   repudiated the K on Dec. 18 (Dec. 17 was the last day for P to
                                   call); Ct held for D b/c it found time of the essence and breach was
                                   by P, therefore there was an automatic material breach and D could
                                   repudiate; Ct implied time of essence from the K and the letter of
                                             o P v. D
                                                       Duty: D was to deliver rice to P
                                                       Condition: P had to call D w/ shipment info
                                                                  Fulfilled? No
                                                                  Excused? No
                                                       D’s duty was never activated
                                             o D v. P
                                                       Duty: P had to call for delivery by Dec. 17
                                                       Condition: None
                                                       Duty discharged? No
                 Perfect tender  automatically material under common law
                           Continental case (P contracted to buy soybeans from D; D called for
                          shipping instructions and didn’t’ receive them until over 48 hrs later; D
                          repudiated and said no more soybeans delivered; price of soybeans had been
                          rising; Ct held for P b/c combination of deviation from perfect tender and
                          time of essence  automatic material breach; D had no right to repudiate)
        o   An AB is almost always material
        o   Other situations (balance)
                 The probability that P will get essentially what she bargained for if breach is
                treated as minor; factors from P’s perspective:
                           Extend to which the P has already received the benefit of the bargain
                           Probability that the P will receive the balance of the benefit
                           Adequacy of $$ damages as a substitute for the performance that P will
                          not receive
                 The probability that D will suffer an unfair forfeiture if breach is treated as
                material; Factor from D’s perspective:
                           Extent to which the D has already performed the duty: if in limine
                          (early breach), some jxs automatically treat as material breach
                           Character of D’s breach: if intentional, some jxs automatically consider
                          material (minority view)
                           Extent of net hardship that D will suffer if the ct finds a material breach
        o   The first party to materially breach cannot maintain an action against the other
                 Walker v. Harrison (P contracted to install and maintain a sign for D; tomatoes
                and cobwebs on sign, which P doesn’t clean; D repudiates contract b/c P was in
                breach for not maintaining the sign; P sued for damages saying that D could only
                repudiate if the breach was material)

                             Duty: D must pay P for sign (installment payments)
                             Conditions: P must install and maintain sign
                                      Fulfilled? Party (installed, yes)

                                      Excused? What was not fulfilled was excused by PNP (after
                                 D’s repudiation)
                          Duty discharged? D says yes b/c P breached first. If P materially
                         breached, then D would be allowed to discharge his duties
                                      But Ct says no, it was a minor breach; tomato on sign was not
                                   enough, and D could have cleaned it himself—no reason to
                                   repudiate; delay in cleaning was not material b/c time was not of
                                   the essence; D’s repudiation is now a material breach b/c he
                          Wrinkle in PNP: before, it was the unforeseen event or intervening
                         third party that inhibited D’s actions; here it’s P’s failure of condition that,
                         if deemed a material breach, would discharge D’s duty
   Legal consequences of the breach
        o   Minor breach
                K continues
                         So innocent party may:
                Temporarily suspend performance until problem is cured
                Retain cause of action for actual economic damage caused by breach
                In some jxs, they may deduct the actual economic damages from any amount
               owed under K (self-help)
                         UCC § 2-717
                         K & G Construction v. Harris (P hired D as a sub w/ progress
                        payments; D damaged P’s property w/ a bulldozer; P refused to pay until D
                        paid, but let D continue working; D walks off the project; D makes a
                                      Duty: P must pay D

                                      Condition: D must do the work
                                            o Fulfilled? No
                                            o Excused? No, PNP doesn’t work b/c P had a right to
                                            suspend payment until the breach was cured, whether the
                                            breach was material or minor; Ct says the breach was
                                            material, but P had a right to treat it as minor
                                      P’s duty was never activated, D materially breached

                                      By walking off the worksite, D materially breached
                          Stilington v. Fulton (P and D entered into a K for the sale of property;
                         D breached when he didn’t deliver possession; P treated the breach as
                         minor; When D did deliver possession, P said D had to pay extra before P
                         would close the deal; D refused, so P repudiated the K; Ct held for D b/c P
                         had a choice of treating the non-delivery as a material breach and cancelling
                         the K OR continuing the K and suspending performance and suing for
                         damages caused by the dely; P chose the latter, so he can’t repudiate now; P
                         also had no right to self-help.)
        o   Material breach

   Generally innocent party can:
        Treat breach as minor (temporarily suspend), continue w/ K, retain
       action for actual damages, OR
        Immediately terminate K and sue for breach
                     Affirmative – recover full expectation damages

                     Negative – terminate his or her own duties
   Exceptions to innocent party’s right to actually terminate:
        Aleatory Ks: duties are independent
                     Ex: A commits a material breach of duty; can B walk away if
                 it’s a truly aleatory K? No, b/c B’s duty is not conditional on A’s
                 performance; we treat the 2 duties as independent from each other;
                 so A breached her duty, but can still enforce B’s performance of
            Divisible Ks:
                     Look at performance on each side and ask if it’s divided into
                 three parts
                     Compare performances on each side and see if they are paired
                 (unit prices)
                     Does each portion of the K give a proportionate benefit to
                   each side? (each pair represents a mini-K)
 Total damages for material breach of K = (out-of-pocket expenses) + P
(prospective profits)
          This formula puts you int eh net economic position that you would’ve
         been if sans breach
                     Gill v. Johnstown Lumber (P was driving logs down D’s
                 booms; unit prices for each log and tie; flood of the century
                 damages the logs and sweeps some of them away; P wants
                 recovery for what it did deliver; Ct held for P b/c of divisibility)
                         o Duty: D must pay P for delivery
                         o Condition: P must deliver logs to specified
                                    Fulfilled? Some logs were delivered
                                    P argues that the conditions can be treated as
                                              Given the units, can divide
                                             performance so that P can recover for
                                             the logs that actually reached the
                     Pennsylvania Exchange Bank v. US (P fulfilled the first 3 parts
                 of a 4-part K; P then went bankrupt; Ct held for D b/c P
                 anticipatorily breached part 4 by selling all its assets; P wanted to
                 divide the K to get paid for the first three parts it did perform; but
                 Ct holds that the 4th part duty of being ready and willing standby
                 was essential to the K—essential to D’s proportional benefit—and

was not divisible if an essential element of the K hasn’t been


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