Contract final 1 by MincAM


									What is a contract? A contract is a promise or set of promises, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. What law governs contracts? 1) Common law 2) Article 2 of the Uniform Commercial Code – FOR GOODS ONLY Common law still applies to goods, but the UCC trumps. 3 Types of Contracts: 1) Express Contract 2) Implied Contract 3) Quasi-Contract Questions to Determine if a Contract Exists: 1) Was there mutual assent? 2) Was there consideration (or a substitute for consideration)? 3) Are there any defenses to creation of the contract?

What is mutual assent?  An objective “meeting of the minds.”  There is offer & acceptance.

What is an Offer?
     An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. An offer must create a reasonable expectation in the offeree that the offeror is willing to enter into a K on the basis of the offered terms. Lonergan v. Scolnick – no offer Lefkowitz v. Great Minneapolis Surplus Store – offer existed Leonard v. Pepsi Co. – no offer

Questions to determine if there is an offer: 1) Was there an expression of a promise or commitment to enter into a K? 2) Were there certainty and definiteness in the essential terms? 3) Was there communication of the above to the offeree? How do you determine if an expression of promise exists?  Always use reasonable person standard!  Language  Surrounding circumstances  Prior practice and relationship of parties  Method of communication  Industry custom  Certainty & definiteness of terms



o The more definite the terms of communication are, the more reasonable the receiver‟s expectation that the sender has expressed an intention to contract. o The more inquiries that are required, the more likely it is that the court will view the communication as merely part of preliminary negotiations not amounting to an offer. Reasonable/Objective Standard in Common law: o Embry v. Hargadine Dry Goods o Lucy v. Zehmer o Hawkins v. McGee

How do we find certainty and definiteness in the essential terms?  Identity of offeree  Identity of the subject matter  Price to be paid  Time of payment, delivery, or performance  Quantity  Nature of the work to be performed How do you know if the terms & expression of promise were communicated to the offeree?  To have the power to accept, the offeree must have knowledge of the offer. o Glover v. Jewish War Veterans (not communicated to offeree, so no K)

How do you terminate an offer?
Termination by Offeror = Revocation  A revocation is the retraction of an offer by the offeror.  A revocation terminates the offeree‟s power of acceptance if it is communicated to her before she accepts.  A revocation is generally effective when RECEIVED by the offeree. Methods of Revocation 1) Revocation by Direct Communication 2) Revocation by Indirect Communication  The offer may be terminated if the offeree indirectly receives: o Correct information o From a reliable source o Of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer.  Dickenson v. Dodds Limitations to Revoking 1) Options o Dickenson v. Dodds – no option K existed because not supported by consideration o Humble Oil v. Westside Investment o Marchiando v. Scheck


2) Firm Offers Under the U.C.C. o An offer by a MERCHANT to buy or sell goods in a SIGNED WRITING that gives assurances that an offer will be held open. o It does NOT need consideration. o It is either held open for the time stated, or if no time stated, then for a reasonable time. o Time left open cannot exceed three months. o If offeree offers form with time limit, then it must be separately signed by the offeror in order to become effective. 3) Detrimental Reliance o Where the offeror could reasonably expect that the offeree would rely to her detriment on the offer, it will be held irrevocable as an option contract for a reasonable length of time. This might be limited to those situations in which the offeror would reasonably contemplate reliance by the offeree in USING THE OFFER BEFORE IT IS ACCEPTED (subcontractor bids). o Likely remedy: expectancy damages ( Ricketts v. Scothorn) o Very least: offeree would be entitled to relief measured by the extent of any detrimental reliance. 4) Part Performance  Typically in unlilateral contract, the offer may be revoked after the offeree has begun performance in reliance on the offer and before offeree has completed the performance. However, courts try to mitigate this harsh penalty for the offeree.  What is part performance? o Offeree must have embarked on performance (preparations are not enough).  Modern Courts‟ ways to avoid offeree being screwed: o Implied K for a Reasonable Time o Series of Acts – Divisibility o Offeree Compensated to Extent of Performance o If K does not require consideration to be full performance, then beginning performance will equal consideration. Termination by Offeree = Rejection  An express rejection is a statement by the offeree that she does not intend to accept the offer. This terminates the offer.  Rejection must be received by the offeror. Counteroffer as a Rejection  A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but difers in its terms. A counteroffer serves as a rejection of the original offer as well as a new offer.  UCC 2-207 Counteroffers o Minneapolis v. Columbus Rolling o Pevar v. Evans


o Textile v. BMH Things Disguised as Rejections of K‟s that Are Not  Inquiries o Inquiries do not terminate the offer when they are consistent with the idea that the offeree is still keeping the original proposal under consideration o Test to determine if inquiry/counteroffer/rejection = reasonable person.  Rejection of an Option o A rejection or a counteroffer to an option does not constitute a termination of the offer. The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree‟s rejection. Offeree can Terminate through Lapse of Time  Offeree must accept the offer within the time period specified, or if not specified, within a reasonable time.  If offer will expire within a specific time period, when does that period commence? o When the offer is received by the offeree.  What happens if the offer is delayed in transmission? o If the fact is or should have been apparent to the offeree, then the offer terminates at the time it would have expired had there been no delay. Termination by Death or Insanity  If either party dies or is declared insane, the K usually terminates & it is not necessary to communicate this to the other party.  There can be exceptions if rules limiting an offeror‟s power to terminate are applicable.

What is acceptance?
 An acceptance is a manifestation of assent to the terms of an offer in the manner prescribed or authorized in the offer.

Acceptance by Promise o Ever-Tite Roofing Corp. v. Green o LaSalle National Bank v. Vega o Hendricks v. Behee Acceptance by Performance o Carlill v. Carbolic Smoke Ball o Glover v. Jewish War Veterans What if the acceptance contains additional or different terms?  Common law rule: any different or additional terms make the response a rejection and a counteroffer (Mirror Image Rule). o This does not include:  Making implicit terms explicit


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Grumbling Acceptance Request for Clarification

 U.C.C. Rule (2-207)
o The proposal of additional or different terms by the offeree in an acceptance does not constitute a rejection and counteroffer UNLESS it is expressly made conditional on assent to the additional or different terms. o What if one or both parties are not merchants?  Additional or different terms are considered to be mere proposals that do not become part of the K unless the offeror agrees. o What if both parties are merchants?  Additional terms automatically become part of the K unless:  They materially alter the original terms  The offer expressly limits acceptance to the terms of the offer  The offeror has already objected to the particular terms or objects within a reasonable time.  Different terms are either treated as additional terms OR the “knockout rule” is applied.  Knockout rule: conflicting terms are knocked out of the K, and the U.C.C. fills in the gaps. o When writings do not form a K, then a K does not exists UNLESS performance begins. Prior to performance, either party may back out of the deal with impunity.  Once performance begins, a K has been created under the UCC consisting of all terms on which their writings AGREE, plus supplementary terms supplied by the UCC (2-207(3)) How does acceptance come to be?  Generally, acceptance must be communicated.  It is not necessary to communicate acceptance when: o Express Waiver in Offer  Offeror may expressly waive any communication of acceptance. An example would be: “Your order is an offer only, pending acceptance by our home office.”  Offeree becomes the offeror, and his new offer incorporates the terms of that it is subject to acceptance by the home office. o Act as Acceptance  Offeror might require offeree to perform an act to signal performance. When offere performs the act with the intent of accepting, a K is formed (cannot be accidental). o Silence as Acceptance  If the oferee silently takes offered benefits, the courts will often find acceptance.  This is especially likely if prior dealings between the parties or trade practices are known to both; this creates a commercially reasonable expectation by the offeror that silence represents an acceptance.



In this case, the offeree is under a duty to notify the offeror of she does not intend to accept.

When do communicated acceptances become effective?  If delayed in mail: o If offeree addresses it correctly, then it is effective upon dispatch. o If offeree screws up, then it is effective upon receipt.  Common law rule: o If offeree uses authorized mode of communication: effective upon dispatch by offeree o If offeree uses unauthorized mode of communication: effective upon receipt by the offeror  Modern Rule (UCC 2-206 & 2nd Restatement): o An offer may be accepted by any medium reasonable in the circumstances. o Offeror may limit acceptance to particular means, but he must do so unambiguously since any ambiguity will allow the offeree to use any reasonable means.

 Mailbox Rule
o Acceptance occurs at the moment the offeree dispatches the acceptance.  Exceptions are:  The offeror stipulates that acceptance is not effective until received; or  An option contract is involved. These are only effective upon receipt.  Adams v. Lindsell o What happens when offeree sends both acceptance & rejection?  If offeree sends rejection then acceptance, whichever one is received 1st is effective.  If offeree sends acceptance, then rejection, then a K is created upon dispatch of the acceptance (mailbox rule applies).  An exception to this is if the offeror received the rejection first an changed his position in reliance. Then, the offeree will be estopped from enforcing the K. What are the Two Types of Acceptance? 1) Unilateral K: offer makes acceptance possible only by performing a stipulated act.  Unilateral K is accepted when the offeree acts with knowledge of the offer and is motivated by it. 2) Bilateral K: exchange of promises  Bilateral K is usually sufficiently accepted by any objective manifestation of the offeree‟s counterpromise, whether by words or acts.  Important UCC Provision (2-206(2)): o Notification requirement: Where the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not


notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. Incomplete Contracts o Varney v. Ditmars o Lefkowitz o Empro Manufacturing o Hoofman v. Red Owl Stores, Inc. o Copeland v. Baskin Robbins Shrink, click, & Internet K‟s o Hill v. Gateway o Klocek v. Gateway o Specht v. Netscape

What is consideration?  Consideration is the price for enforceability in the courts. What are elements of consideration?  Bargained-for exchange o That which is bargained for must be considered of legal value; i.e. it must constitute a benefit to the promisor or a detriment to the promisee What is a detriment to the promisee?  Legal detriment will result if the promisee does something he is under no legal obligation to do or refrains from doing something that he has a legal right to do. o Hamer v. Sidway (1891) (40) What is a benefit to the promisor?  It is a forbearance or performance of an act by the promisee which the promisor was not legally entitled to expect or demand, but which confers a benefit on the promisor. What is bargained-for exchange?  A promise must induce the detriment and the detriment must induce the promise.  It is not enough that the promisee incurs detriment; the detriment must be the price of the exchange, and not merely fulfillment of certain conditions for making the gift.  The benefit to the promisor need not have economic value; peace of mind, gratification, etc. can establish bargained-for consideration, provided that the promisee is not already legally obligated to perform the requested act. o Hamer v. Sidway (1891) (40)  Forbearance to sue is consideration if the claim is valid. If the claim is invalid but the claimant reasonably and in good faith believes his claim to be valid, then forbearance to sue constitutes detriment and consideration. What are examples of NOT bargained-for exchange?


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Gifts Past/Moral Consideration o If something is already given or performed before the promise was made, it will not satisfy the “bargain” requirement.  Mils v. Wyman – no K  Webb v. McGowin – K only because of substantial benefit  Harrington v. Taylor – no K

What makes consideration adequate?  Courts don‟t care about adequacy; bad bargains are still upheld by Courts o Bolin v. American Cotton o All that is needed is a detriment.  However, if the bargain is unconscionable (or any other defense exists), then the Court will deny an equitable remedy. o Jones v. Star Credit Corp.  Nominal Consideration is not Consideration o In re Greene – mistress offered a lot for $1 consideration  Where there is possibility of value in the bargained-for act, adequacy of consideration will be found even though the value never comes into existence.  Very little consideration is needed for an option K. What happens if there is a preexisting legal duty?  Performance or promise to perform an existing legal duty is not sufficient consideration. o Alaska Packers‟ Association v. Domenico (already under preexisting duty to perform at initial K price)  Exceptions to preexisting duty rule exist: o If the consideration for changed act is in any way new or different, then sufficient consideration may be found. o K‟s can be modified.  Consideration is found where the obligations of both parties are varied.  Under UCC, no consideration is necessary to make a modification binding. Mutual and Illusory Promises – the Requirement of Mutuality  Consideration must exist on both sides of the contract; the promises must be mutually obligatory. If one party is bound, and the other is not, then at least one of the promises is ILLUSORY. Consideration fails.  Unlimited discretion for one party = illusory Can mutuality be found even when the promisor has some choice?  Yes.  Requirements and Output Contracts o Requirement K: Promise to buy “all that I require” o Output K: Promise to sell “all that I manufacture”  Quantities in K‟s may not be unreasonably disproportionate. o McMichael v. Price (1936) (98-100) - Sand Case – K exists



o Rehm-Zeiher Co. v. F.G. Walker Co. (1913) (95-98) – whiskey – no K Conditional Promises o Conditional promises are enforceable, no matter how remote the contingency, unless the „condition‟ is entirely within the promisor‟s control. o A promise to buy “if satisfied” is not illusory since one cannot reject the goods unless dissatisfied. Good faith is required. o Courts find implied promise to use best efforts and sustain agreements that might otherwise appear illusory in conditional promises (for justice purposes).  Wood v. Lucy, Lady Duff-Gordon o Promise to pay the debt of another person (suretyship contract)  Haigh v. Brooks (1840) o Choosing among multiple alternatives:  A promise to choose one of several alternative means of performance is illusory unless every alternative involves some legal detriment to the promisor.  Unless he actually chooses the detriment alternative!  If the power to choose rests with the promisee or some third party not under the control of the promisor, the promise is enforceable as long as at least one alternative involves some legal detriment.

What are substitutes for consideration? 1) Promissory Estoppel or Detrimental Reliance  Elements of promissory estoppel: o (i) the promisor should reasonably expect to induce action or forbearance o (ii) Of a definite and substantial character [sometimes omitted] o (iii) and such action or forbearance is in fact induced (section 90). o The remedy “may be limited as justice requires.”  Ricketts v. Scothorn  Feinberg v. Pfeiffer  Grouse v. Group Health Plan  Cohen v. Cowles Media  All-tech  Hoffman v. Red Owl Stores, Inc.  Copeland v. Baskin Robbins (got reliance damages but not expectancy damages) Reliance on Bids o Baird v. Gimble Bro‟s Inc. – subcontractor not held to bid o Drennan v. Star Paving – overturns Baird – K is binding b/c of reliance o SKB Industries, Inc. v. Insite (2001) (389-391) – no K, but it is binding under promissory estoppel o Bids are going to be binding until general contractor picks. Temporarily irrevocable. 2) Some promises in writing do not require consideration o UNDER UCC  Modification of a K 



Consideration is not necessary to a good faith written modification of a K.

Consideration Cases:  Consideration & Bargain

Kirksey v. Kirksey Langer v. Superior Steel Corp. Bogigian v. Bogigian Thomas v. Thoams Haigh v. Brooks Bernstein

o Adequacy of Consideration

Apfel v. Prudential-Bache Securities, Inc. Jones v. Star credit In re Greene Fiege v. Boehm
o Pre-Existing Duty Rule

Levine v. Blumenthal Alaska Packers‟ Association v. Domenico Angel v. Murray
o Mutuality of Obligation

Rehm-Zeiher Co. v. F.G. Walker Co. McMichael v. Price Wood v. Lucy Lady Duff Gordon Omni Group, Inc. v. Seattle-First National Bank

When can a K with valuable consideration or a substitute be unenforceable? 1) Defense to formation of the K exists 2) Defect in capacity 3) Defense to enforcement of certain terms exists What are defenses to formation? 1) Absence of mutual assent 2) Absence of consideration 3) Public policy considerations that deny contractual status to the agreement - Illegality What is Absence of Mutual Assent? 1) Mutual Mistake o Occurs when both parties are mistaken about facts relating to the agreement. The K may be voidable by the adversely affected party if: o 1) the mistake concerns a basic assumption on which the K is made o 2) the mistake has a material effect on the agreed-upon exchange o 3) the party seeking avoidance did not assume the risk of the mistake o Mutual mistake is not a defense if the adversely affected party bore the risk that the assumption was mistaken. Where the parties had DOUBT, there will not be mutual mistake. o Conscious ignorance is not grounds for rescission 10

o Often in terms of understanding, rather than of actual substance. o Sherwood v. Walker (quality of cow was in question) 2) Unilateral Mistake o When only one of the parties is mistaken, the mistake will not prevent the formation of a K. o Exception: clerical errors can void a K. o For rescission: o 1) effect of the mistake is such that enforcement of the K would be unconscionable; or o 2) the other party had reason to know of the mistake or his fault caused the mistake o However, if the nonmistaken party knew or had reason to know of the mistake made by the other party (at time of making K), he will not be permitted to snap up the offer. o Mistake cases are all about allocating risk: does the burden go on the bidder or on the nonbidder? 3) Mistakes in Common law o Boise v. Mattefs Construction o Beachcomber Coins v. Boskett o Sherwood v. Walker o Lenawee Board of Health v. Messerly o Ayer v. Western Union Telegraph 3) Mistake by the Intermediary o Where there is a mistake in the transmission of an offer or acceptance by an intermediary (i.e. telegraph company makes a mistake in transmission), the message as transmitted is operative unless the other party knew or should have known of the mistake. 4) Mutual Misunderstanding o This occurs where the expression of the parties‟ agreement appears perfectly clear at the time the K is formed, but because of subsequently discovered facts, the expression may be reasonably interpreted in either of two ways. Following possibilities may occur: o 1) Neither Party is Aware of Ambiguity  NO K  Raffles v. Wichelhaus  Konic v. Spokane o 2) Both Parties are Aware of Ambiguity  No K  There could be a K only if both parties intended the same meaning. o 3) One Party Aware of Ambiguity  K EXISTS  A K will be enforced according to the intention of the party who was unaware of the ambiguity. o Latent ambiguity requires a SUBJECTIVE TEST. This is different from almost all other realms of contracts. 5) Misrepresentation o FRAUDULENT misrepresentation


o If a party induces another to enter into a K by using fraudulent misrepresentation, the K is voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation. This is “fraud in the inducement.” o concealment  active hiding of facts from victim; there is scienter & damage claim will lie o fiduciary cases  fiduciary as matter of law (attorney dealing with client) or fact has duty of candor; duty to speak o half truth  person who speaks on a topic must tell whole truth o response to question  silence may be misrepresentation; duty to correct misimpression (Laidlaw) o superior knowledge  duty to reveal information casually acquired but not deliberately acquired; duty to speak about “redistributive facts” but not “productive facts” o There is also “fraud in the factum” where a party is tricked into giving assent to the agreement under circumstances that prevented her from appreciating the significance of her action. This is void. o You can assert fraud as a defense or for rescission. o You can sue after you perform: defense. o You can sue before you need to perform: affirmative claim. o Laidlaw o Vokes v. Arthur Murray o Hill v. Jones o NONFRAUDULENT misrepresentation voidable if material o Even if a misrepresentation is not fraudulent, it is voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material. o A misrepresentation is material if either:  1) the information asserted would induce a reasonable person to agree; or  2) the maker of the misrepresentation knew the information asserted would cause a particular person to agree. o The innocent party does not need to wait until she is sued on the K, but she may take affirmative action in equity to rescind the agreement. 6) Impossibility o Building burns down. o Unforeseeable consequences. 7) Impracticality What if the consideration or the subject matter is illegal? o If either the consideration or the subject matter of a K is illegal, this will serve as a defense to enforcement. Illegal Ks are void. o However, if a K is for an illegal purpose, but the consideration and the subject matter are legal, then the K is only voidable by the party who did not know of the purpose or knew but did not facilitate the purpose and the purpose does not involve serious moral turpitude. o If both parties knew of the illegal purpose, then the K is void.


What are defenses based on lack of capacity? 1) Infants 2) Mental Incapacity 3) Intoxicated Persons 4) Lack of volitional consent What are defenses to enforcement of certain terms? 1) Statute of Frauds o What Contracts Fall under the Statute of Frauds? o Sale of land or interest in land o Contracts not performed within a year and that cannot be performed in this time o Contracts for s ale of goods over $500 (proposed revision requires $5000) o Contracts that fall under statute of frauds must satisfy the statute in order to justify reliance on the contract o Contracts for transfer of an interest in land are not enforceable unless there is a writing that identifies the land and spells out the transaction and that writing is "signed by the party to be charged", i.e., by the defendant in the lawsuit (the party who doesn't want to go forward with the deal). o What written agreements satisfy the Statute of Frauds? o Written memorandum o Mentions both parties o Contains enough information to show that a K has been made o State with reasonable certainty the essential terms o Specify the term of quantity in the case of sale of goods (price can be determined by market value) o If the paper is lost by trial time, it is still valid if you can prove its existence. o Must be signed by the party against whom the K is to be enforced  Can be enforced against the party that DID NOT sign it if ALL of these apply:  Both are merchants  Within a reasonable time of the oral contract, a confirmation is sent and signed by the enforceing party  The recipient (party enforced against) has a reason to know its contents without signing it  The recipient does not give written objection to it within 10 days of receiving the confirmation. 2) Unconscionability What is uncoscionability? o UCC section 2-302 allows a court to refuse to enforce a provision or an entire K (or to modify the K) to avoid unconscionable terms. o Courts look to see if the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time the K was formed. o 1) Inconspicuous Risk-Shifting Provisions o 2) Contracts of Adhesion – “Take it of Leave It” o 3) Price Unconscionability


How do you establish that a breach has occurred? o Must be able to answer yes to: o 1) Has a present duty to perform arisen? o 2) Has the duty to perform been discharged? What is the difference between Promise & Condition? o Promise  A promise is a commitment to do or refrain from doing something. o Unconditional promise  absolute  Failure to perform according to these terms is a breach of K. o Conditional promise  may become absolute by the occurrence of the condition. o Condition  a condition is an event, other than the passage of time, the occurrence or non-occurrence of which will create, limit, or extinguish the other contracting party‟s absolute duty to perform. o In other words, a condition is a promise modifier. o The failure of a contractual provision that is only a condition is not a breach of contract, but it discharges the liability of the promisor whose obligations on the conditional promise never mature.  THIS IS IMPORTANT! FAILURE TO MEET CONDITION DOES NOT AMOUNT TO A BREACH, BUT IT DOES DISCHARGE OBLIGATIONS OF THE PROMISOR! What is the test to determine if something is a promise or a condition? o “Intent of the Parties” test looks at: o Words of Agreement o Prior Practices o Custom o Third-Party Performance  If performance is to be rendered by a 3rd party, it is more likely to be a condition. o In doubtful situations, most courts will hold that the provision in question is a promise. o A helpful question to ask is, “does the performance of the stipulation go to very root of the contract‟s consideration?” If yes, then it is likely a condition. o Jacobs & Young v. Kent What are the different types of conditions? o Sorted by time: o Condition Precedent  Must occur before an absolute duty of immediate performance arises in the other party.  Party‟s satisfaction as Condition Precedent   If the K involves fitness, utility, or marketability, then the party‟s performance is judged objectively (must satisfy a reasonable person).



If the K involves personal taste or judgment, then it must satisfy a particular party and is a subjective test. This must be in good faith. Burden of proof on the Plaintiff (generally)


o Condition Concurrent  Are capable of occurring together, and parties are bound to perform at the same time. o Condition Subsequent  Is when the occurrence of which cuts off an already existing absolute duty of performance.  Burden of proof on the Defendant o Other Conditions: o Express  Actually expressed in the K  Dove  Wal-Noon  Carter‟s Claim o Implied  Are fairly to be inferred from evidence of the parties‟ intention  Often called “implied in fact” conditions o Constructive  Read into a K by a court without regard to or even despite the parties‟ intention in the interest of fairness to ensure that both parties receive the performance for which they bargained.  Often called “implied in law” conditions.  Courts also read in constructive conditions relating to the time for performing under the K.  Constructive Conditions Concurrent o Where both performances can be rendered at the same time, they are constructively concurrent. o Each is a condition precedent to the other.  Constructive Conditions Precedent o Where one performance will take a period of time to complete while the other can be rendered in an instant, completion of the longer performance is a constructive condition precedent to execution of the shorter performance.  Kingston v. Preston  Palmer v. Fox What is the effect of a condition? o If a K is not enforceable due to the failure or occurrence of a condition, the party who provided benefits to the other party can usually recover under unjust enrichment theories, although the measure of damages in that case may be less advantageous than the K price.


How do we know if conditions have been excused? 1) Excuse by Hindrance or Failure to Cooperate o If a party having a duty of performance that is subject to a condition prevents the conditions from occurring she no longer has the benefit of the condition if the prevention is wrongful. o Wrongful: the other party would not have reasonably contemplated or assumed the risk of this type of conduct. It is not necessary to show bad faith or malice. 2) Excuse by Actual Breach o Breach of the K will excuse the duty of counterperformance ONLY if the breach is material. A minor breach may suspend this duty, but it will not excuse it. o With minor breaches, the court will make the non-breaching party whole or mitigate his promised performance so as to account for the breach. 3) Excuse by Anticipatory Repudiation o Anticipatory repudiation stems from the words or conduct of the promisor UNEQUIVOCALLY indicating that he cannot or will not perform when the time comes. The statement must be positive. o Mere expression of doubt or fear does not suffice. o Only applies where there is a bilateral K with unperformed duties on both sides. o Nonrepudiating party has 4 alternatives: o 1) treat it as total repudiation & sue immediately o 2) suspend performance & wait to sue until the performance date o 3) treat the repudiations as an offer to rescind and treat the K as discharged o 4) Ignore the repudiation and urge the promisor to perform (this does not waive the nonrepudiating party‟s right to sue!). o Repudiation may be retracted until the nonrepudiating party has accepted the repudiation or detrimentally relied on it. 4) Excuse by Prospective Inability or Unwillingness to Perform o Prospective failure of consideration occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. o This is of a lesser degree than anticipatory repudiation b/c it only raises doubts. It does not say a party cannot perform unequivocally. o Reasonable person standard is used to decide if the conduct suffices for prospective inability or unwillingness. o Prospective failure means the innocent party can suspend further performance on her side until she receives adequate assurances that the performance will be forthcoming. o Retraction is possible if defaulting party regains his ability or willingness to perform. This must be communicated to the other party in order to be effective. o If the other party has already changed her position in reliance on the prospective failure, an attempted retraction may be ineffective. 5) Excuse by Substantial Performance o The condition of complete performance may be excused if the party has rendered substantial performance. o This is only applied when a constructive condition is involved, not when an express condition exists. o Performance is substantial if the breach of K by the performing party is minor. 16

o Even though the party who has substantially performed is able to enforce the K, the other party will be able to mitigate by deducting damages suffered due to the 1st party‟s incomplete performance. o Jacobs Young v. Kent 6) Excuse by Divisibility of Contract o Where a party performs one of the units of a divisible K, he is entitled to the agreed-on equivalent for that unit even though he fails to perform the other units. o The other has a cause of action for failure to perform the other units and may withhold his counterperformance for those units. o What is a divisible contract? o 1) the performance of each party is divided into two or more parts under the K o 2) The number of parts due from each party is the same o 3) The performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party. o ALL OF THE ABOVE 3 MUST BE SATISFIED o Courts are looking to have fairness, so if the K can be divisible, and it is fairer, then the court will make the K divisible. o If a K says it is indivisible, then a court cannot construe otherwise. o Another example of a divisible K is an installment K, where the K authorizes or requires deliveries in separate lots. Specific rules apply to these (UCC 2-307), 2-612). 7) Excuse by waiver or estoppel o One having the benefit of a condition may indicate by words or conduct that she will not insist on it. o While a waiver severs the right to treat the failure of the condition as a total breach excusing counterperformance, it does not waive the right to damages. o 1) Estoppel Waiver o Anytime a party indicates that she is “waiving” a condition before it is to happen, or she is “waiving” some performance before it is to be rendered, and the person addressed detrimentally relies on such an indication, the courts will hold this to be a binding waiver. o The promise to waive a condition may be retracted any time before the other party changed his potion to his detriment. o 2) Election Waiver o When a condition or a duty of performance is broken, the beneficiary of the condition or duty must make an election. She may:  1) terminate her liability; or  2) continue under the K  If she chooses (2) then she has waived the condition or duty o Does not require consideration or estoppel. o Clark v. West o What conditions may be waived? o You cannot waive the entire or substantially entire return performance. o If a waiver has no consideration, then the condition waived must be ancillary or coolalteral to the main subject and purpose of the K. What are Covenants?


o Kingston v. Preston (1773) (769-770) o Goodison v. Nunn (1792) (770-771) o Palmer v. Fox (1936) (772-773) How are ways that duty to perform can be discharged? 1) Death or Physical Incapacity o Death or the physical incapacity of a person necessary to effectuate the K serves to discharge it. o It the services could be delegated, then the K is not discharged by the incapacity of the person who was to perform them. 2) Discharge by Rescission o Rescission may be either mutual or unilateral. o Mutual Rescission o The K may be discharged by an express agreement between the parties to rescind. An agreement to rescind is a binding K supported by consideration because both parties give up his right to counterperformance. o Contract must be Executory on both sides in order to be effectively discharged by rescission.  This makes it difficult to rescind a unilateral K because only one party still has a duty to perform. Parties can rescind a unilateral K if ONE of the following can be met:  1) An offer of new consideration by the nonperforming party  2) Elements of promissory estoppel  3) Manifestation of an intent by the original offeree to make a gift of the obligation owed her o Can be made orally unless under statute of frauds or UCC. o Mutual rescission cannot be used where the rights of 3 rd-party beneficiaries have already vested. o Unilateral Rescission o Where one party desires to rescind it, but the other party wants the K to be performed according to its terms. o Party that desires rescission must have adequate legal grounds such as:  1) mistake  2) misrepresentation  3) duress  4) failure of consideration 3) Partial Discharge by Modification of Contract o Modifications only discharge the specific terms within the modification; it does not discharge the entire K. o Partial discharge requires: o Mutual Assent (unless mistake or misrepresentation) o Consideration  However, no consideration is necessary where the effect of the modification is merely to correct an error in the original K.  No consideration is needed for the modification of a K for the sale of goods under the UCC. 4) Discharge by Accord & Satisfaction 18

o Accord  an agreement in which one party to an existing K agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing K, some other, different performance. o Must have consideration o Does not discharge the prior K. It merely suspends the right to enforce it in accordance with the terms of the accord K. o Satisfaction  the performance of the accord agreement. It discharges not only the original K but the accord K as well.

What is a minor breach? o If the obligee gains the substantial benefit of her bargain despite the obligor‟s defective performance, then the breach is minor. o Examples: insignificant delays; small deficiencies in quality or quantity where precision is not critical. o The effect of a minor breach is to provide remedy for the immaterial breach to the aggrieved party. o The aggrieved party is NOT RELIEVED of her duty of performance under the K. o If a minor breach is coupled with anticipatory repudiation, then the nonbreaching party may treat it as a material breach. What is a material breach? o If the obligee does not receive the substantial benefit of her bargain as a result of failure to perform or defective performance, the breach is considered material. o The nonbreaching party may treat the K as at an end, discharging any duty of counterperformance, and the nonbreaching party will have an immediate right to all remedies for breach of the entire K, including total damages. o O.W. Grun How do you determine the materiality of the breach? 1) Amount of Benefit Received 2) Adequacy of Damages 3) Extent of Part Performance 4) hardship to Breaching Party 5) Negligent or Willful Behavior 6) Likelihood of Full Performance How do you determine materiality of breach by failure of timely performance? What must a nonbreaching party do to be able to sue? o A nonbreaching party who sues for breach of K must show that she is willing and able to perform but for the breaching party‟s failure to perform. What are the remedies for a breach? 1) Damages o Expectation Damages o The point is to put the nonbreaching party where she would have been had the promise been performed. So, it is the POST-K POSITION.






o o o

o Sufficient damages for plaintiff to buy a substitute performance o Cost-expectancy equation o Includes incidental damages Reliance Damages o They are designed to put the plaintiff in the position she would have been in had the K never been performed. o Based on non-breaching party‟s costs. o Leatherberry says that for promissory estoppel detrimental reliance, the P will often get expectancy. It COULD be limited to just reliance, which is going to be less. Restitution Damages o Based on value conferred o Happens in 3 situations:  1) benefit was conferred  2) there was a losing K  3) no K but benefit was conferred in pre-K stage (negotiations) o Sullivan v. O‟Connor o New Era o Rivers v. Deane o Peevyhouse v. Garland Mining o American Standard v. Schechtman Specific Performance o Used when what is bargained for is unique. o Requires breacher to peform K  Curtice Brothers Co. v. Catts  ABC v. Wolf Consequential Damages o Courts will also hold the breacher liable for any further losses resulting from the breach that any reasonable person would have foreseen would occur from a breach at the time of entry into the K. o Plaintiff has the burden to prove that both parties were aware of the special circumstances that existed at the imte of K formation. o Hadley v. Baxendale o Spang v. Aetna Nominal Damages o Nominal damages may be awarded where a breach is shown but no actual loss is proven. Liquidated Damages o If agreed to by both parties at the time of the K, and if they are not punitive, then they are enforceable. Sale of land Damages o The standard measure of damages for breach of land sale Ks is: Difference between the K prie and the fair market value of the land.

Construction Contracts
1) Breach by Owner o Breach before Construction Started o The builder will be entitled to the PROFITS he would have derived from the K. o Breach During Construction


o The builder will be entitled to ay PROFIT he would have derived from the K PLUS and COSTS he has incurred to date. o Contract price – cost saved – amount paid o Breach After Construction Completed o The builder is entitled to the full CONTRACT PRICE PLUS INTEREST thereon. 2) Breach by Builder o Breach Before Construction Started o The Owner‟s measure of damages is the COST OF COMPLETION (the amount above the K price that it will cost to get the building completed) PLUS REASONABLE COMPENSATION for any delay in performance. o Breach During Construction o The owner is entitled to the COST OF COMPLETION PLUS REASONABLE COMPENSATION FOR ANY DELAY in performance. o If completion would involve undue economic waste: damages will be the DIFFERENCE between the value of what the owner would have relieved if the builder had properly performed the K and the value of what the owner actually received. o Breach by Late Performance o Where the builder completes performance but is late, the owner has a right to damages for any loss incurred by not being able to use the property when performance was due. o If the damages for lost use are difficult to foresee or determine, then the owner can recover only for the INTEREST on the value of the building as a capital investment. What guidelines are there for determining damages? 1) Duty to Mitigate o The nonbreaching party has the duty to mitigate damages. She must refrain from piling up losses after she receives notice of the breach; she must not incur further costs; she msut make reasonable efforts to cut down her losses by procuring a substitute performance at a fair price. o A party may recover the expenses of mitigation. o Parker v. 20th Century Fox -2) Certainty Rule o The plaintiff must prove that the losses suffered were certain in their nature and NOT SPECULATIVE.

What is a quasi-contract? o A quasi-contract is not really a contract. It is a legal fiction designed to avoid injustice by preventing unjust enrichment of the defendant to the detriment of the plaintiff. What are the requirements for a quasi-contract? o Failed Contract must result in unjust enrichment of one of the parties o Look for the defendant‟s benefit or the plaintiff‟s detriment


o Where no Contact is Involved, all of the following must be met to establish a quasi-K  o 1) plaintiff has conferred a benefit on the defendant by rendering services or expending properties o 2) the plaintiff had a reasonable expectation of being compensated o 3) the benefits were conferred at the express or implied request of the defendant o 4) if the defendant is allowed to retain the benefits without compensating the plaintiff, he will be unjustly enriched. What are remedies for a quasi-contract? o 1) economic gain; OR o objective standard – gain in market / increased value o subjective standard – value to defendant o 2) market value of goods


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