CONTRACTS II (PROF. HABL), SPRING ‘04
A. The Bargain Contract: Promise + Consideration. Quid pro quo.
1. Doctrine of Consideration: No promise to another will be legally enforceable
unless it is supported by sufficient consideration.
a) At Common Law, consideration was litmus test for enforceability of K’s
b) Now, consideration is not the only test: will, reliance, efficiency, fairness,
bargain theory, and statutory exceptions.
2. Essential elements of consideration:
a) Bargain. Consideration is a bargain for exchange. Each party must be
bargaining with the other for something he would not ordinarily be legally
entitled to—an act, promise to act, etc.
b) Value. The bargained-for element must be legally sufficient. Promise must
have legal value, which can be either:
(1) Legal Detriment: Any relinquishment of a legal right by the
(2) Legal Benefit: Promisor got what he bargained for.
c) There ONLY needs to be: EITHER benefit or detriment. Having BOTH
is NOT essential: many times the promisee’s detriment translates easily
into a benefit to the promisor.
3. RSC § 71: Bargain theory of consideration.
(1) To constitute consideration, a performance or a return promise must be
(2) A performance or return promise is bargained for if it is sought by the
promisor in exchange for his promise and is given by the promisee in exchange for
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to
some other person. It may be given by the promisee or by some other person.
4. The bargain element.
a) Conditional promise to make a gift not enforceable as K.
Kirksey v. Kirksey (AL 1845)
(Widow moves onto bro-in-law’s property, later booted.)
(1) Rule: To be enforceable, a promise must be supported by
sufficient bargained-for consideration.
(a) Gratuitous promise is not an offer. Because there was
no bargain for exchange.
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(b) A promise to make a gift on the condition that
something happens (i.e., give up your home and
move on down to my property) is not a contract just
because that condition occurs. Gifts on condition are
not offers; offers seek a price—gifts on condition don’t
(c) Occurrence of a condition is of benefit to promisor –
if the promisor imposes a condition and the occurrence of
this condition is a benefit to the promisor, then the bargain
element will probably be present. Further a bargain can be
present even though the promisor doesn’t receive an
economic benefit from the transaction.
(d) NOTE: Consideration is only when you look at offers. If
dealing with promises you must look at reliance.
b) Sufficiency of consideration.
Hamer v. Sidway (NY 1891)
(Young man gives up legal right—to smoke, drink, etc.--‘til 21 on promise
of grant from uncle.)
(1) Rule: Valuable consideration consists of either (a) some right,
interest, benefit or profit accruing to one party or (b) some
forbearance, detriment, loss or responsibility assumed by the
(a) Rule (LBC): Forbearance of something you have the legal
right to do is valuable consideration. Here, P gave up his
legal rights as the price of the K—the forbearance was
sought as the price of the promise (distinguished from
(2) Habl: Traditionally, a bifurcated test for consideration:
benefit to promisor and/or detriment to promisee. Here,
decedent can be viewed as having benefited, even though the
consideration in question had no economic value: he got his
nephew’s abstinence. And in any case, the nephew forbore a legal
entitlement (doesn’t have to be hurt per se—just face a detriment
in a legal sense). Still too early for promissory estoppel/reliance.
c) Adequacy of consideration. As a rule, the exchange need not be fair, as
long as it’s bargained for. (Peppercorn theory.)
(1) Altruistic pleasure not sufficient – the fact that one promises
to make a gift to receive love and affection from the gift does not
constitute a bargain.
(2) Executed gifts- it is only the promise to make gifts not the actual
gift giving that is unenforceable. One cannot give a gift and then
ask for it back.
(3) Nominal consideration.
In re Greene (SDNY 1930)
(Depression Era palimony case.)
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(a) Rule: Purely nominal consideration will not make an
agreement enforceable. A dollar will not support an
executory promise to pay thousands of dollars, especially
where other alleged “good and valuable considerations” in
fact have no value.
(b) Rationale: The house was bought in P’s name—D never
had a claim on it and was never legally responsible for
taxes, upkeep, etc. Thus, he didn’t forbear from anything
or take on a detrimental responsibility. A promise to
forbear a claim that has no merit is a promise w/o legal
(c) Exception: Options. Won’t fail for nominal nature of
(4) Promise to forgo lawsuit.
Fiege v. Boehm (Md. Ct. App. 1956)
(Pay for my bastard, you bastard!)
(a) Rule: While a promise to forbear a claim that the party
knew or should have known to be invalid will not constitute
sufficient consideration to enforce a K, a good-faith
promise to forbear such a claim will serve as consideration,
even if the claim later fails on its merits.
(b) Rationale: P genuinely believed D was the father of her
baby. Thus, her promise to forbear a bastardy suit was
made in good faith, as was D’s promise to support the
child. That D later turned out not be the father did not
invalidate the consideration provided by P’s forbearance;
thus, there was a valid contract.
(c) HABL: Q here: When does forbearance = consideration …
and when does it not? A: when it’s made in good faith.
(And Habl thinks Hilda’s good faith here was highly
5. Pre-existing duty. At C/L, if a party does or promises to do what he is already
legally obligated to do, or if he forbears or promises to forbear from doing
something which he is not legally entitled to do, he has not incurred a detriment
for purposes of consideration (no gain nor loss)
a) Modification. General rule is that if parties to an existing K agree to
modify the K for the sole benefit for one of them, the modification will
usually be unenforceable at common law, for lack of consideration. The
test is good faith.
(1) Example: Contractor agrees to take $5000 for building Owner’s
garage. Contractor refused to perform unless Owner agrees to
pay an additional $1000. He promises to pay it. Is the promise
enforceable? Traditional answer is NO. There is NO consideration
for owner’s promise to pay the $1000 because the contractor did
no more than that which he was already obliged to do.
(2) K to modify rent.
Levine v. Blumental
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(a) Rule: A promise of modification is NOT enforceable unless
it is supported by good consideration (promise must give
something that has legal value)
(b) Rationale: D was already under a duty to pay $200. P’s
promise to take $175 instead of $200 had no legal value
because the promise gives nothing that disadvantages him
or advantages the landlord.
(c) Test: whether there is an additional consideration
adequate to support an ordinary K, and consists of
something which the debtor was not legally bound to do.
(3) GOL 5-1103: Written Agreement for Modification or
An agreement, promise, or undertaking to change or modify a K
(or discharge K) shall not be invalid because of the absence of
The agreement to modify or discharge must be in writing and
signed by the party against whom it is sought to enforce the
change, or by his agent.
(4) UCC 2-209: Modification, Rescission, and Waiver. NO
Consideration required for modification: a modification of a sales K
does not require consideration to be binding.
(5) Modification of employment K.
Alaska Packers Association v. Dominico.
(NO more $ for Alaskan fishermen’s extortionate tactics.)
(a) Rule: The party who refuses to perform, and thereby
coerces the other party to promise to pay him omroe for
doing what he was legally bound to do takes unjustifiable
advantage of the other party. There can be no
consideration for the promise of the other party and it
cannot be legally enforced, even though the first party has
completed his contract in reliance upon it. Promise by
employer to pay more for what the workers were already
contractually obligated (pre-existing duty) to perform lacks
consideration and is not enforceable.
(b) Note: Extra duties. Even under the traditional pre-
existing duty rule, if the party who promises to do what he
is already bound to do assumes the slightest additional
duties (or even different duties), his undertaking of these
does constitute the required detriment.
(6) Unexpected changed circumstances.
Angel v. Murray.
(Sanitation Company and Enforceable Raise)
(a) Rule: Courts should enforce agreements modifying K’s
when unexpected or unanticipated difficulties arise during
the course of the performance of a K, even though there is
no consideration for the modification, as long as the
parties agree voluntarily.
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(b) Restatement 2-89: A promise modifying a duty under a
K not fully performed on either side is binding if the
modification is fair and equitable in view of the
circumstances not anticipated by the parties when the K
(c) Assumption of Risk: If you can say that the
circumstances that compelled the negatively affected party
were anticipated, the Restatement test is NOT met. (SO:
If there was any implication that the population would
grow like this, P would argue that the garbage man
assumed the risk because he was alert to the potential of
B. Mutuality of Obligations. Applies only bilateral Ks. Promises require the element of
commitment. A promise that is illusory (“I promise to perform if I want to”) is not a
promise at all, although it looks like one, because it doesn’t commit the promisor to any
1. Illusory promise: All one desires v. all one requires.
Rehm -Zeiher Co. v. F.G. Walker Co.
(I’ll buy all the whisky I want from you and can cancel anytime.)
a) Rule: A requirements contract is enforceable, because it sets up
obligations for both sides: I’ll buy all I need from you, and you’ll supply me
with all I need.. Where, however, a K grants unfettered discretion to one
side—I’ll buy all I desire from you—there is no mutuality of obligation, no
commitment. There is no consideration, because the plaintiff’s promise has
no worth; it is an illusion.
2. Output/requirements Ks. Ks made to purchase all of one’s requirements or sell
all of one’s output are not illusory. Each party must in good faith tender or
demand any amount of goods not unreasonably disproportionate to estimate
outputs or requirements.
a) Reasonable best efforts.
McMichael v. Price
(All the sand you need…)
(1) Rule: There is a K, because court says that when P made the
promise to buy all that he needed, it implies that he would
exercise reasonable best effort to have needs at all.
(2) UCC 2-306(1): Addresses the problem of requirement contract
and output contracts. A promise to buy and a promise to deliver
your entire output is a promise to have output or to requirements
in an implicit obligation to exercise reasonable and best effort to
perform. §2-306 contemplates that the buyer in a requirement K
will deal exclusively with the seller with whom he has K’ed. This
promise, coupled with the buyer’s good faith constitutes
consideration for the seller’s counter promise to meet buyer’s
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3. Implied promises. Even where a bi-K apparently contains no promise at all on
one side (i.e. no mutuality of obligation), the K may still be upheld if the
surrounding facts and the nature of the agreement fairly imply a promise of
performance by that party.
a) Exclusive dealing: reasonable efforts implied.
Wood v. Lucy, Lady Duff-Gordon
(Exlusive K to market Lady’s fashions.)
(1) Rule: An implied promise by P to use reasonable effort is sufficient
detriment to constitute consideration for a K. Therefore, the K is
binding and D breached it by placing her endorsement on other
(2) Note: This case is codified by UCC § 2-306
4. UCC 2-306: Output, Requirements, and Exclusive Dealings.
(1) A term which measures the quantity by the output of the seller or the
requirements of the buyer means such actual output or requirements as may
occur in good faith, except that no quantity unreasonably disproportionate to any
stated estimate or in the absence of a stated estimate to any normal or otherwise
comparable prior output or requirements may be tendered or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in
the kind of goods concerned imposes unless otherwise agreed an obligation by the
seller to use best efforts to supply the goods and by the buyer to use best efforts
to promote their sale.
a) Terms Measuring Quantity:
(1) Output: Measures the quantity of the K by the seller’s output
(buyer agrees to take all the goods the seller produces).
(2) Requirements: Measures the quantity of the K by the
requirements of the buyer (seller agrees to provide according to
b) Good faith requirement: A term which measures the quantity by the
output of the seller or the requirements of the buyer means such actual
output or requirements as may occur in good faith.
(1) Note: Essential test is whether or not buyer is acting in good faith.
This imposes on parties the obligation to use reasonable best
efforts to produce outputs or requirements. Resolves the
(2) Note: If you have used commercial good faith (reasonable best
efforts) than it is ok not to fulfill the output or requirements K as
long as there is a good reason such as impracticability (huge cost
increases), impossibility (the horse is dead), or going out of
business – you can’t just refuse your obligation because you are
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c) Estimates: if an estimate of output or requirement is included in the
agreement, no quantity unreasonably disproportionate to the estimate
may be tendered by the seller or demanded by the buyer. In absence of a
stated estimate, no quantity which is more than any normal or comparable
prior output or requirement may be tendered by the seller or demanded by
5. “Satisfaction” in good faith as a condition precedent.
Omni Group Inc. v. Seattle-First National Bank
(P foregoes feasibility study; D reneges on land conveyance.)
a) Rule: A contractual condition calling for the subjective satisfaction of a
party imposes a duty for good faith in the exercise of the party’s discretion
and is not illusory. (To buy if I am satisfied is NOT the same as to buy if I
b) Rationale: The “subject to satisfactory feasibility study” clause was
merely a condition precedent to the sale of the land, and this is common
(buyer insulates himself from liability if the land is not satisfactory). This is
NOT an illusory promise because good faith imposes a restriction on an
“unfettered exit.” P did promise to exercise good faith in determining
C. Moral Obligation: Promise + Conferral of Past Benefit. Promisor receives a benefit in
the past and then subsequently promises to pay for that benefit. When it comes time to
perform, the promisor will say he has no legal obligation because what he made was a
promise and not an offer, and there was no consideration to support. Moral obligation is
somewhere between a gift and a K
1. Enforceability. Generally, a promise made in recognition of a prior moral or legal
obligation is unenforceable.
2. Past consideration: Common Law v. GOL v. RSC:
a) At C/L, if the promise is made in return for detriment previously suffered
by the promisee, there is no bargain, and thus no consideration. Thus,
promises to pay a pre-existing debt, and promises to pay for services
already received, usually lack the bargain element (but these may be
binding even without consideration).
b) GOL §5-1105. Past consideration. A promise in writing and signed by
the promisor or by his agent shall not be denied effect as valid K’ual
obligation on the ground that consideration for the promise is past or
executed, if the consideration is expressed in the writing and proved to
have been given or performed and would be a valid consideration but for
the time when it was given or performed.
c) RSC 2-86:
1) A promise made in recognition of a benefit previously received by the
promisor from the promisee is binding to the extent necessary to prevent
2) A promise is NOT binding under Subsection (1):
a) If the promisee conferred the benefit as a gift or for other reasons
the promisor has not been unjustly enriched OR
b) To the extent that its value is disproportionate to the benefit.
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3. Quasi–Contract (Contract Implied in Law): Not a true contract but rather is
one created by the courts. It is a legal action in restitution when A has received a
benefit from B and equity would call for B to compensate A to avoid unjust
a) Elements of a Quasi-K (K implied in Law):
(1) P has rendered service or expended property such that Δ has
received a benefit.
(2) P rendered performance with an expectation of payment.
(3) P is not a volunteer/meddler.
(4) D had an appreciation or knowledge of the benefit;
(5) Circumstances that would make it unjust for the D to retain the
benefit without paying P for it.
b) Distinguished from: Promise to Pay for benefits received. Elements
of a K implied in Fact (true K):
(1) The Δ requested the Π to perform work;
(2) The Π expected the Δ to compensate him;
(3) The Δ knew or should have know that the Π expected
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c) Promise to pay for past debts: Most states enforce a promise to pay a
past debt, even though no consideration for the promise is given. Thus
promises to pay debts that have been discharged by bankruptcy, or that
are no longer collectible because of the statute of limitation, are
enforceable in most states. Most states require a signed writing, at least
where the promise is to pay a debt barred by the statute of limitations.
The debt of a bankrupt can’t be revived unless it is in writing.
4. Gift theory: Moral obligation is not consideration.
Mills v. Wyman
(P took care of D’s sick son of his own volition. D subsequently promised to pay,
a) Rule: Moral obligation is insufficient consideration to enforce a gratuitous
promise. Things done in the past which are met with a subsequent
promise to pay are generally gratuitous promises…. Although the D had a
moral obligation to keep his subsequent promise, he did not have a legal
c) Murky area. If it’s a gift, we’re done. But if it’s done with a reasonable
expectation of payment … we might have a K-implied-in-fact.
d) GOL 5-1105: D’s promise was in a signed letter. If service rendered was
gratuitous … then there was never consideration under 5-1105; thus, not
enforceable. Can’t be past consideration if it never was once consideration.
e) Exceptions: statute of limits, bankruptcy, infancy. Obligation to pay,
be it acknowledged or promised, in writing and signed: no problem with
(1) Infancy: no signed writing required.
(2) Bankruptcy: different situation. Promise to later pay debt
discharged in bankruptcy; in writing—enforceable? Was under the
common law. But not now, thanks to Congress. See Note 2, p. 144
re “reaffirmation agreements” for bankrupts.
5. Material-benefit rule: Where promisor has received something of value, or a
material benefit, from promisee, such benefit serves as consideration to make an
a) RSC 2-86: Material-benefit rule applies where…
(1) Promisor has been…
(a) Unjustly enriched…
(b) By a benefit previously received from the promisee; and
(2) The benefit was not given as a gift; and
(3) The promisor subsequently makes a promise in recognition of the
(4) THEN: Promise is binding to extent necessary to prevent injustice.
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b) Majority view: Moral obligation alone is not enough.
Manwill v. Oyler
(P paid D’s farm debt. Must D pay him back?)
(1) Rule: If it was done in the past gratuitously, it will not be
enforceable now for want of consideration. D’s moral obligations
alone are not adequate considerations to support a contract.
Material-benefit rule will not apply to services rendered in the
absence of a reasonable expectation of compensation: If you make
a gift, you don’t expect to be paid back.
(2) Application: Promisor received benefit and promised at the time
to compensate for said benefit (legal obligation). Subsequently,
the ability to collect passes (due to S.O.L. or bankruptcy) and now
he has only a moral obligation. Then the promisor renews his
promise to pay. Traditionally, the new promise to pay a debt
discharged in bankruptcy was unenforceable, but now it usually is.
(a) GOL 5-1105: Post-bankruptcy promise to pay debt must
be signed by the moral obligor in order to make the
promise become a legal obligation again.
c) Minority View: Moral obligation is enough.
Webb v. McGowin
(P is injured rescuing D; D promises to pay P $15/week for life.)
(1) Rule: Substantial benefit subs for consideration. An ex post
facto promise to pay for unrequested services is enforceable if the
recipient has incurred a substantial benefit from those services and
provider has suffered a material detriment. A moral obligation is
sufficient consideration to support a promise because of the
material benefit received.
(2) But: Gratuitous humanitarian aid is not enough.
Harrington v. Taylor
(P loses hand defending D’s wife.)
(a) Rule: Voluntary humanitarian aid is not adequate
consideration for a subsequent promise. This help was
merely gratuitous – no more than a moral obligation. You
cannot expect compensation for voluntarily acting
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D. Promissory Estoppel = promise + unbargained-for reliance.
1. RSC § 90: Promise Reasonably Inducing Action or Forbearance
(1) A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce
such action or forbearance is binding if injustice can be avoided only by
enforcement of the promise. The remedy granted for breach may be limited as
(2) A charitable subscription or a marriage settlement is binding under Subsection
(1) without proof that the promise induced action or forbearance.
a) RC 90: Reliance had to be “definite and substantial.”
b) RSC 90:
(1) Reliance no longer has to be substantial—just reasonably
(2) Sub2: Eliminates demonstrable reliance on part of charities—
throwing Cardozo a bone. (See Allegheny, below.)
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2. Equitable estoppel re inducement to act or forbear action.
Ricketts v. Scothern (NE 1898) [Pre-RC90]
(Old man promises granddaughter a living.)
a) Rule: Where a D makes a promise that induces the P to rely thereon,
equity demands that the court estop the D from arguing that the promise
is unenforceable for want of sufficient consideration.
b) Rationale: In making his promise to his granddaughter, Old Man Ricketts
“suggested that she might abandon her employment and rely in the future
upon the bounty which he promised. He, doubtless, desired that she
should give up her occupation, but whether he did or not, it is entirely
certain that he contemplated such action on her part as a reasonable and
probable consequence of his gift. Having intentionally influenced the P to
alter her position for the worse on the faith of the note being paid when
due, it would be grossly inequitable to permit the maker, or his executor,
to resist payment on the ground that the promise was given without
3. P/E and charitable contributions.
Allegheny College v. Nat’l Chautauqua County Bank of Jamestown (NY
(Repudiation of donation for “Christian education”)
a) Rule: (Cardozo) A charity’s promise to perpetuate the name of a donor is
not mere acceptance of a gift—it’s a counterpromise that creates certain
obligations by the charity which are sufficient to constitute consideration.
b) Rationale: (Cardozo) “The longing for posthumous remembrance is an
emotion not so weak as to justify us in saying that its gratification is a
negligible good. We think the duty assumed by the P to perpetuate the
name of the founder of the memorial fund is sufficient in itself to give
validity to the subscription within the rules that define consideration for a
promise of that order….”
c) Habl: Cardozo was a master of finding consideration. Why does he want
to find a true contract implied in fact as opposed to P/E? Because college
didn’t forego other opportunities. There was no significant reliance by the
college; they just put the money aside. So it didn’t really live up to P/E (a
non- or extra-traditional notion), either. That’s why Cardozo is a master:
No reasonable, foreseeable and substantial reliance (as req’d by Williston’s
forumulation in RC90) => no signif change of position => no P/E => no
protection for the college. The only way to save this thing is to find a
4. Gratuitous pension plans.
Feinberg v. Pfeiffer Co. (SLMo. CoA 1959)
(Faithful employee shafted on promised pension.)
a) Rule: Where an employer induces an employee to retire based on the
gratuitous promise of a pension and then reneges on that promise when
the employee is no longer employable, employee’s reasonably foreseeable
reliance will be considered sufficient consideration to enforce the boss’s
promise and thereby avoid injustice.
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(1) Critical that P/E cases involve gratutitous promises—
promises that seek no price. There can’t be an offer.
(2) Up to now, P/E had been construed narrowly—charities,
marriage, etc. Thus, Feinberg is a landmark decision: First case
to come out flat-footedly that P/E may be applied in the
world at large. Brings P/E into the 20th century, as it were—
RSC 90 gets legs; Williston’s notion becomes firmly a part of the
5. P/E: Emphasis on the avoidance of injustice.
Cohen v. Cowles Media Co. (MN 1992)
(Minn. Star-Trib burns confidential source.)
a) Issues: Was reporter’s promise (of anonymity) clear? Yes. Was there both
an expectation of reliance … and actual reliance? Yes. Is enforcement of
the agreement the only way to avoid injustice? Yes.
b) Rule: Under the doctrine of P/E, a court should consider all aspects of a
transaction to determine whether enforcement is necessary to avoid
6. Detrimental reliance on revocable offer (not promise).
a) C/L: Reliance does not make an offer irrevocable.
James Baird Co. v. Gimbel Bros. Inc. (2nd Cir. 1933)
(Who eats linoleum error—GC or sub?)
(1) Issue: Does a general contractor’s use of a potential
subcontractor’s bid in preparing his own bid constitute acceptance
of the subcontractor’s bid?
(2) Holding/Rule: No. This wasn’t a situation where P’s use of D’s
figures created an irrevocable offer. Rather, acceptance of sub’s
offer was conditioned upon a formal acceptance by gen’l K’er after
award of K by state of PA—that is, in constructing his bid, P’s use
of D’s prices bid did not create an irrevocable offer by D.
Moreover, D was able to revoke before P was able to accept. Thus,
no K. Moreover, no P/E, either: D’s offer did not induce reliance—it
asked for a traditional acceptance. If P wanted to protect himself,
she should have insisted on an option K before submitting his bid.
(a) Latent error, not patent error: If the mistake is too
good to be true, there’s no offer; but this one is just really
good, not too good to be true.
(b) Hand: You don’t bring an offeror to K by relying, you
do so by accepting; to do otherwise is stupid—reliance is
for dummies in relation to a regular price-seeking offer. If
there’s risk of revocation, accept, or get an irrevocable
option. No room for P/E in the world of offers.
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b) Reliance creates subsidiary promise not to revoke (i.e., option K).
Drennan v. Star Paving Co. (CA 1958)
(Kiss my asphalt—sub back out of school paving bid.)
(1) Issue: Is a sub bound to his bid, if he informs the GC of his
revocation after the GC already has been awarded the job?
(2) Holding: Yes. Technically, D did not promise to make his offer
irrevocable. Nor was there an option supported by consideration.
However, P did rely to his detriment on D’s offer, which D should
have reasonably expected. Such reliance created an implied
subsidiary promise not to revoke, which D violated.
(3) Reliance as part performance (RSC 90 => RSC 45). Hand (in
Baird): Reliance in face of traditional offer is stupid: If you have a
problem with the sub, get yourself a firm offer. Or get a legislative
act a la the NY GOL. Or get a bid bond. But: Here, we’re a
generation away … and in California. How does Traynor, J., go
about converting a revocable offer into an option? Reliance req’d
by RSC 90 subs for partial performance (see RSC 45).
(4) Duration of option. GC wins K: He still has not accepted sub’s
offer; he’s merely on the right side of an option (all rights, no
duties). Sub’s bid must remain irrevocable for a reasonable time,
(a) GC goes shopping for cheaper subs. Signals he’s no
longer relying on sub’s bid; converts sub’s bid back into
(b) GC chisels, tries to get sub to do it for less than his bid.
Treated as a counteroffer—and thus rejection of the bid.
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II. AVOIDANCE OF CONTRACT
A. RSC § 12: Capacity to Contract.
(1) No one can be bound by contract who has not legal capacity to incur at least
voidable contractual duties. Capacity to contract may be partial and its existence in
respect of a particular transaction may depend upon the nature of the transaction or upon
(2) A natural person who manifests assent to a transaction has full legal capacity to
incur contractual duties thereby unless he is
(a) under guardianship, or
(b) an infant, or
(c) mentally ill or defective, or
B. Infancy. Objective incapacity.
1. Capacity to K. Infants don’t have capacity—they’re improvident. (Most
jurisdictions have reduced age of infancy from 21 to 18.)
2. Voidability. In general, the Ks of minors are voidable at the option of the infant,
though the minor may hold an adult to a deal. (In some states, Ks by minors are
void, not merely voidable.)
3. Quasi-K liability for “necessaries.” Minors are always liable for the reasonable
value of the necessaries of life. This is based on quasi-K, not regular contractual
liability. Encourages others to provide necessaries to minors. Necessaries are
protected under a theory of unjust enrichment/reasonable value.
a) Traditionally necessaries:
(1) Health care.
(5) Basic education.
b) More recently:
(1) Show biz kids: Talent coaching is a necessary.
(2) Emancipation is an issue. Where the infant is unemancipated,
there is a presumption that the provider of the necessary must
overcome—that thing the kid needs are provided by a parent or
guardian. How do you overcome presumption? By proving that the
parent couldn’t provide what kid needed.
(a) NY has chosen to legislate the matter: Where the K with
the infant is over performing arts or sports, the employer
may present K to a court for approval. If approved, K will
not be voidable for reasons of infancy.
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c) Determining what’s a “necessary.”
Bowling v. Sperry (Ind. Ct. App. 1962)
(Kid returns junk car to dealer.)
(1) Rule: In Indiana, the Ks of minors are voidable and may be
rescinded at any time before the minor reaches the age of
majority. It is not necessary that other party be returned to the
status quo: the minor need not tender back the money or
(2) Rationale: The only exception to the rule is that infants are
responsible under a theory of quasi-K for the reasonable value of
necessaries. What’s a necessary will vary with the minor—where
he lives, his station in life, etc.—but there’s nothing here to
indicate that Larry couldn’t survive without that Plymouth.
(3) Habl on restoration to status quo: Here, Larry returned what
he had received in at least close to the condition in which he got it.
But what if he had cracked it up? Infants, b/c they are
improvident, are perfectly capable of dissipating the asset. Will
their inability to restore the other party to status quo affect ability
to disaffirm? No. But court will often require infant to return what’s
left of consideration, even if it won’t restore other party to status
quo. As a condition of finding judgment for the infant.
4. Infancy is a shield, not a sword.
Rice v. Butler (NY App. Div. 1898)
(Servant girl returns busted bike and wants back her installment payments.)
a) Rule: An infant’s employment of the doctrine of capacity must be
defensive; it may not be used to impose upon another party. Thus, while
an infant may rescind a conditional executory contract for the sale of a
chattel, providing for payment in weekly installments, she may not recover
the payments which she has made thereon, except after deductions for
her use of said chattel and/or for damages which have been occasioned to
it by such use (together deterioration value).
5. Restoration of consideration not req’d for rescission by infant.
Green v. Green (NY 1877)
(Ne’er-do-well son wants his land back.)
a) Rule: Where a son, during infancy, conveys his real estate to his father,
receiving and expending, or wasting the consideration therefor before his
arrival at full age, and has no other property with which to replace it, he
may disaffirm his deed after he arrives of age, without restoring or offering
to restore the consideration.
(1) Also: Mere acquiescence, by the son, without any affirmative act,
for three years, is not a ratification of a conveyance he made to to
his father while a minor.
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b) Rationale: “The right to repudiate is based upon the incapacity of the
infant to contract, and that incapacity applies as well to the avails as to
the property itself, and when the avails of the property are improvidently
spent or lost by speculation or otherwise during minority, the infant should
not be held responsible for an inability to restore them. To do so would
operate as a serious restriction upon the right of an infant to avoid his
contract, and in many cases would destroy the right altogether. A person
purchasing real estate of an infant, knowing the fact, and especially the
father, must and ought to take the risk of the avoidance of the contract by
the infant after arriving at maturity. The right to rescind is a legal right
established for the protection of the infant, and to make it dependent upon
performing an impossibility, which impossibility has resulted from acts
which the law presumes him incapable of performing, would tend to impair
the right and withdraw the protection. Both upon authority and principle
we think a restoration of the consideration could not be exacted as a
condition to a rescission on the part of the defendant.”
(1) How does this case co-exist with Rice/Butler? If young Green
hadn’t spent all the dough, he would have been req’d to return it.
(2) What if the kid lies about his age? And even provided proof of
majority? Adult will still fail unless he can prove reasonable
reliance. You had but to look at him to know he was a kid.
(a) What are the consequences of an infant’s fraud?
Many different approaches. Infants are liable for their torts
(fraud) … but can he disaffirm? Often, kid is estopped from
arguing that he’s an infant.
(i) NY: If the kid intentionally lies about age to an
adult who reasonably relies … adult may void, as
well as kid.
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6. NY CPLR Sec. 3004: Where restoration of benefits before judgment
A party who has received benefits by reason of a transaction that is void or
voidable because of fraud, misrepresentation, mistake, duress, infancy or
incompetency, and who, in an action or by way of defense or counterclaim, seeks
rescission, restitution, a declaration or judgment that such transaction is void, or
other relief, whether formerly denominated legal or equitable, dependent upon a
determination that such transaction was void or voidable, shall not be denied relief
because of a failure to tender before judgment restoration of such benefits; but
the court may make a tender of restoration a condition of its judgment, and may
otherwise in its judgment so adjust the equities between the parties that unjust
enrichment is avoided.
7. NY GOL Article 3-101. When contracts may not be disaffirmed on
ground of infancy. When you’re over 18.
C. Mental Incapacity.
1. RSC § 15: Mental Illness or Defect.
(1) A person incurs only voidable contractual duties by entering into a
transaction if by reason of mental illness or defect
(a) he is unable to understand in a reasonable manner the nature and
consequences of the transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction
and the other party has reason to know of his condition. [Irresistible impulse.]
(2) Where the contract is made on fair terms and the other party is without
knowledge of the mental illness or defect, the power of avoidance under
Subsection (1) terminates to the extent that the contract has been so performed
in whole or in part or the circumstances have so changed that avoidance would be
unjust. In such a case a court may grant relief as justice requires.
a) RSC § 15 = bifurcated test. A little more liberal than common law (b/c
sub2). To prove incapacity, D must demonstrate…
(1) Cognitive deficiency: that D lacked understanding of the
nature, purpose and effect of the transaction. OR
(2) Irresistible impulse.
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2. Judicially declared incompetents. Once a person has been declared an
incompetent, the rest of us are legally on notice. A person judged incompetent has
no ability to K; any alleged K is void; no one is bound.
3. Undeclared incompetents. Ks with undeclared incompetents may be found
voidable (not void) by the incompetent or his guardian—but not by the other
party. (Note: In some states, the Ks of those judged insane are entirely void.)
4. Infancy v. incompetence.
a) Quasi-K for necessaries. Like an infant, an incompetent is liable for the
reasonable value of necessaries under a theory of quasi-K.
b) Restoration to status quo (NY CPLR-3004). Unlike infants, if
incompetent is going to avoid his K, the other party must be restored to
5. Burden of proof: Clear and convincing evidence from D.
6. Heights Realty v. Phillips (NM 1988)
(Crazy old lady liable for realtors’ commission?)
a) Rule: “The test of mental capacity is whether a person is capable of
understanding in a reasonable manner the nature and effect of the act in
which the person is engaged…. The law presumes that every person is
competent. To show the contrary, the burden of proof rests on the person
asserting lack of capacity to establish the same by clear and convincing
7. Incapacity due to intoxication. “The drunkenness of a party at the time of
making a K may render the K voidable, but it does not render it void; and to
render the K voidable, it must be made to appear that the party was intoxicated to
such a degree that he was, at the time of the contracting, incapable of exercising
judgment, understanding the proposed engagement, and of knowing what he was
about when he entered into the K sought to be avoided.
a) Restoration to status quo? Those who deal with an intoxicated person
should know what they’re getting into, so they shouldn’t be able to insist
on status quo. K was not entered into in good faith, so….
(1) Only the intoxicated party can seek to disaffirm upon
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III.FORMALITIES: THE STATUTE OF FRAUDS
A. Background: Promise + Seal.
1. Once upon a time, a sealed promise was binding. “A sealed promise was
enforceable centuries before the evolution of the doctrine of consideration.
Enforceability did not derive from bargain or exchange, but precisely because of
the formal mode in which the promise was cast.”
2. UCC 2-203: Seal no longer counts. “The affixing of a seal to a writing
evidencing a contract for sale or an offer to buy or sell goods does not constitute
the writing a sealed instrument and the law with respect to seal instruments does
not apply to such a contract or offer.”
3. Surprise! RSC § 95: Requirements for Sealed Contract or Written Contract or
(1) In the absence of statute a promise is binding without consideration if
(a) it is in writing and sealed; and….
B. NY gives legal effect to signed writings:
1. NY GOL § 5-1101. Agreements relating to securities
An agreement, promise or undertaking for the purchase, sale, transfer,
assignment or delivery of a certificate or other evidence of debt, issued by the
United States or by any state, or a municipal or other corporation, or of any share
or interest in the stock of any bank corporation or joint stock association,
incorporated or organized under the laws of the United States or of any state, is
not void or voidable, for want of consideration, or because of the nonpayment of
consideration, or because the vendor, at the time of making such contract, is not
the owner or possessor of the certificate or certificates or other evidence of debt,
share or interest.
2. NY GOL § 5-1103. Written agreement for modification or discharge
An agreement, promise or undertaking to change or modify, or to discharge in
whole or in part, any contract, obligation, or lease, or any mortgage or other
security interest in personal or real property, shall not be invalid because of the
absence of consideration, provided that the agreement, promise or undertaking
changing, modifying, or discharging such contract, obligation, lease, mortgage or
security interest, shall be in writing and signed by the party against whom it is
sought to enforce the change, modification or discharge, or by his agent.
3. NY GOL § 5-1105. Written promise expressing past consideration
A promise in writing and signed by the promisor or by his agent shall not be
denied effect as a valid contractual obligation on the ground that consideration for
the promise is past or executed, if the consideration is expressed in the writing
and is proved to have been given or performed and would be a valid consideration
but for the time when it was given or performed.
4. UCC exceptions re signed writings:
a) UCC § 1-107. Waiver or Renunciation of Claim or Right After
Any claim or right arising out of an alleged breach can be discharged in
whole or in part without consideration by a written waiver or renunciation
signed and delivered by the aggrieved party.
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b) UCC § 2-205. Firm Offers.
An offer by a merchant to buy or sell goods in a signed writing which by
its terms gives assurance that it will be held open is not revocable, for lack
of consideration, during the time stated or if no time is stated for a
reasonable time, but in no event may such period of irrevocability exceed
three months; but any such term of assurance on a form supplied by the
offeree must be separately signed by the offeror.
c) UCC § 2-209. Modification, Rescission and Waiver.
(1) An agreement modifying a contract within this Article needs no
consideration to be binding.
C. General scope and effect of SOFs. Based on English Act for the Prevention of Frauds
and Perjuries, 1677. Though originally a statute, comes to US as part of our rec’d common
law from England.
1. Ks “within” the statute. Most oral contracts are valid. Five exceptions that must
be in writing:
a) Sale of goods priced at $500 or more. UCC 2-201 kicks in.
b) Marriage Ks. Any contractual promise made in consideration of marriage,
except mutual promise to marry. E.g., prenups.
c) Real estate Ks. Not just sales—leases and mortgages, too.
d) Suretyship agreements. Promises to answer for or discharge the debts
(1) Applies only to:
(a) Promises made by one is not already liable for the debt.
(b) Promises made to a creditor; and
(c) Promises made to discharge the present or future debts of
a third party.
(a) Promises to debtor. Does not apply to oral contracts if K
is made with the debtor and supported by consideration.
RSC § 191.
(b) Primary debt by promisor. SOF does not apply to
“primary promises.” Thus, if underlying promise was btw
promisor and creditor, oral promise is valid. RSC § 182.
E.g.: A tells C to ship $100 of goods to B and “send the bill
to me.” Primary K is btw A and C; B is only third-party
beneficiary; oral K btw A and C is enforceable.
(c) Collateral promise that benefits guarantor. Where
guarantor guarantees the obligation of another in order to
secure a pecuniary benefit for himself, promise is
enforceable though not in writing.
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e) Ks that cannot be performed within one year. Courts don’t like this
provision and construe it narrowly. Applies only to Ks which, by express
terms, cannot possibly be performed within one year. Time limit begins
upon formation of K, not beginning of performance.
2. Elements of the writing. To satisfy the SOF, there must be a signed writing.
a) The writing must:
(1) reasonably identify the subject of the K.
(2) indicate that a K has been made between parties
(3) state with reasonable certainty the essential terms of the K, AND
(4) be signed “by or on behalf of the party to be charged.”
b) UCC exceptions:
(1) The UCC only requires the quantity term to be stated (less strict
than the common law standard that requires more) Today,
electronic writings, and even voice messages can also satisfy the
(2) The UCC sometimes allows a letter-head to be a sufficient
authentication, but the GOL requires a subscript (signature at
3. 3 Steps to a Statute of frauds analysis:
a) Does the K fall within the statute? Is it one of the five favored types of the
above types of agreements?
b) Is the K reflected in a writing that satisfies the statute (i.e. legally
c) If it falls within the statute and the writing doesn’t satisfy the statute, than
does the K fall within one of the exceptions that permit enforcement
despite non-compliance (partial performance, judicial admissions,
D. UCC § 2-201. Formal Requirements; Statute of Frauds.
(1) Except as otherwise provided in this section a contract for the sale of goods for the
price of $500 or more is not enforceable by way of action or defense unless there is some
writing sufficient to indicate that a contract for sale has been made between the parties
and signed by the party against whom enforcement is sought or by his authorized agent or
broker. A writing is not insufficient because it omits or incorrectly states a term agreed
upon but the contract is not enforceable under this paragraph beyond the quantity of
goods shown in such writing.
(2) Between merchants if within a reasonable time a writing in confirmation of the
contract and sufficient against the sender is received and the party receiving it has reason
to know its contents, it satisfies the requirements of subsection (1) against such party
unless written notice of objection to its contents is given within 10 days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) but which is
valid in other respects is enforceable
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(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).
E. NY Statute of Frauds: GOL § 5-701. Agreements required to be in writing.
a. Every agreement, promise or undertaking is void [REALLY VOIDABLE], unless it or
some note or memorandum thereof be in writing, and subscribed by the party to be
charged therewith, or by his lawful agent, if such agreement, promise or undertaking:
1. By its terms is not to be performed within one year from the making thereof or
the performance of which is not to be completed before the end of a lifetime;
2. Is a special promise to answer for the debt, default or miscarriage of another
3. Is made in consideration of marriage, except mutual promises to marry;
* * *
5. Is a subsequent or new promise to pay a debt discharged in bankruptcy;
* * *
6. Notwithstanding section 2-201 of the uniform commercial code, if the goods be
sold at public auction, and the auctioneer at the time of the sale, enters in a sale book, a
memorandum specifying the nature and price of the property sold, the terms of the sale,
the name of the purchaser, and the name of the person on whose account the sale was
made, such memorandum is equivalent in effect to a note of the contract or sale,
subscribed by the party to be charged therewith;
* * *
9. Is a contract to assign or an assignment, with or without consideration to the
promisor, of a life or health or accident insurance policy, or a promise, with or without
consideration to the promisor, to name a beneficiary of any such policy. This provision
shall not apply to a policy of industrial life or health or accident insurance.
10. Is a contract to pay compensation for services rendered in negotiating a loan,
or in negotiating the purchase, sale, exchange, renting or leasing of any real estate or
interest therein, or of a business opportunity, business, its good will, inventory, fixtures or
an interest therein, including a majority of the voting stock interest in a corporation and
including the creating of a partnership interest. "Negotiating" includes procuring an
introduction to a party to the transaction or assisting in the negotiation or consummation
of the transaction. This provision shall apply to a contract implied in fact or in law to pay
reasonable compensation but shall not apply to a contract to pay compensation to an
auctioneer, an attorney at law, or a duly licensed real estate broker or real estate
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F. NY GOL § 5-703. Conveyances and contracts concerning real property required to
be in writing.
1. An estate or interest in real property, other than a lease for a term not exceeding one
year, or any trust or power, over or concerning real property, or in any manner relating
thereto, cannot be created, granted, assigned, surrendered or declared, unless by act or
operation of law, or by a deed or conveyance in writing, subscribed by the person
creating, granting, assigning, surrendering or declaring the same, or by his lawful agent,
thereunto authorized by writing. But this subdivision does not affect the power of a
testator in the disposition of his real property by will; nor prevent any trust from arising or
being extinguished by implication or operation of law, nor any declaration of trust from
being proved by a writing subscribed by the person declaring the same.
2. A contract for the leasing for a longer period than one year, or for the sale, of any
real property, or an interest therein, is void unless the contract or some note or
memorandum thereof, expressing the consideration, is in writing, subscribed by the party
to be charged, or by his lawful agent thereunto authorized by writing.
3. A contract to devise real property or establish a trust of real property, or any interest
therein or right with reference thereto, is void unless the contract or some note or
memorandum thereof is in writing and subscribed by the party to be charged therewith, or
by his lawfully authorized agent.
4. Nothing contained in this section abridges the powers of courts of equity to compel
the specific performance of agreements in cases of part performance.
G. NY EPTL [Estates Powers & Trusts Law] § 13-2.1. Agreements involving a
contract to establish a trust, to make a testamentary provision of any kind, and
by a personal representative to answer for the debt or default of a decedent,
required to be in writing.
(a) Every agreement, promise or undertaking is unenforceable unless it or some
note or memorandum thereof is in writing and subscribed by the party to be
charged therewith, or by his lawful agent, if such agreement, promise or
(1) Is a contract to establish a trust.
(2) Is a contract to make a testamentary provision of any kind.
(3) Is a promise by a personal representative to answer for the debt or default
of his decedent.
(b) (Added, L 1983) A contract to make a joint will, or not to revoke a joint will,
if executed after the effective date of this paragraph can be established only by an
express statement in the will that the instrument is a joint will and that the
provisions thereof are intended to constitute a contract between the parties.
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H. Real estate:
1. Oral Ks—void or merely voidable?
Reedy v. Ebsen (SD 1932)
(Land buyer reneges on oral K, wants d/p back.)
a) (Minority) Rule: Void per se. In SD, which follows the minority view,
an oral K that falls within the SOF is void, not merely voidable. “The
settled construction of the statute of frauds in this state seems to us to
compel the conclusion that the parol agreement, being in all respects a
nullity, did not constitute a consideration for the partial payment and that
the plaintiff was entitled to judgment (i.e., to get his money back).”
(1) Where the vendor is at fault, vendee may recover, SOF
notwithstanding. “The purchaser of land under a contract which
does not satisfy the statute of frauds may recover, as upon an
implied promise, the amount he has paid upon the purchase price,
when, without fault on the part of the vendee, the vendor refuses
or is unable to perform the contract by conveying such title or
interest as he has agreed to convey.
b) Majority rule: Voidable, not void. “The original English statute of frauds
provides that no action shall be brought upon contracts which are specified
therein, unless the parties comply with the requirements of the statute.
This form in substance has been adopted in a great many states, and
under this form of statute a contract specified therein is valid, but not
enforceable, and relates only to the remedy. Under this type of statute, it
is manifest that the vendee may not recover money paid in part
performance if the vendor is ready, able, and willing to perform the oral
agreement on his part.”
(1) SD takes the view that the SOF is substantive: no K, a
nullity, thus one person is holding the other’s money with no good
(2) Most states: SOF is procedural. Thus it’s an affirmative defense
and if not raised, it’s out of the case.
(3) NY: Courts say a K within SOF here is voidable … yet the statute
itself clearly says a K made in violation of SOF is void. We’ve
chosen not to construe the K literally (as they’ve done in SD); we
treat void as voidable.
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I. One-year rule:
1. Express duration term … or it’s outside SOF.
C.R. Klewin Inc. v. Flagship Properties Inc. (Conn. 1991)
(Uconnn developer pulls plug on oral K with contractor.)
a) Rule: “An oral K that does not say, in express terms, that performance is
to have a specific duration beyond one year is, as a matter of law, the
functional equivalent of a K of indefinite duration for the purposes of the
statute of frauds. Like a K of indefinite duration, such a K is enforceable
because it is outside the proscriptive force of the statute regardless of how
long completion of performance will actually take.”
(1) A K to work for a week beginning 52 weeks from now is within the
(2) UConn projo is outside the SOF because there’s nothing in its
terms that rules out the possibility of performance within a year.
(3) This is the direction the country is going … except NY. Which is a
quagmire. See GOL 5-701(1). NY has carved out certain long-term
agreements as within the statute—long term commission
arrangements, e.g.—that wouldn’t be within SOF in other states.
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2. Condition possible to satisfy w/in a year removes K from SOF.
North Shore Bottling Co. v. C Schmidt & Sons Inc. (NY 1968)
(Brewer turns off tap on local distributor.)
a) Rule: (Fuld, J.) Possibility of performance within a year, even by
contingency, blows up SOF. The Statute of Frauds only applies to
agreements which are, by express stipulation, not to be performed within
a year. It does not apply to an agreement which appears by its terms to
be capable of performance within the year; nor to cases in which the
performance of the agreement depends upon a contingency which may or
may not happen within the year…. The existence of one of two
contingencies performable within a year is sufficient to take the case out of
the Statute of Frauds.
b) Rationale: “The parties contemplated two possibilities—a long term
distributorship in the plaintiff or a termination should the D decide to
discontinue beer sales in the NY area. The first contingency is not, in the
ordinary course, performable within a year, the second is. The existence of
one of two contingencies performable within a year s sufficient to take the
case out of the statute.
3. Full performance by one party within one year removes from SOF.
Mason v. Anderson (Vt. 1985)
(Lender comes after estate of dead borrower.)
a) Rule: Most jurisdictions allow an exception to the SOF whereby “complete
performance by one of the parties to an alleged oral agreement takes the
agreement out of the one-year provision of the SOF.”
b) Rationale: The purpose of the Statute of Frauds is to prevent a party
from being compelled, by oral and perhaps false testimony, to be held
responsible for an agreement he or she claims was never made.
Application of the Statute in the present case would operate to perpetrate
a fraud rather than prevent one. The plaintiff fully performed his
obligations under the agreement. He acted in reliance on the agreement in
lending Miner $ 5,000.00 and thereby changed his position in a manner
which prejudiced himself. In such a situation, to insist on a strict and
mechanical operation of the Statute would defeat its purpose. We
therefore join with those jurisdictions which follow the majority rule and
hold that because the plaintiff had fully performed his obligations under
the alleged agreement, the one-year provision of the Statute of Frauds
does not prevent the plaintiff from proving the existence of the contract
by parol evidence.
c) Habl: Mason notwithstanding, SOF is gen’lly an affirmative defense: if you
don’t raise it, you waive it.
4. Performance must be unequivocally and solely linked to oral K.
Burns v. McCormick (NY 1922)
(Couple tends old man on promise of his land.)
a) Rule: For a P’s full performance of an oral K for the purchase of release
estate to qualify as an exception to the SOF, that performance must be
unequivocally and solely understood to tend toward an ownership interest
in the property. :
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(1) “Unequivocally referable” standard. “Not every act of part
performance will move a court of equity, though legal remedies
are inadequate, to enforce an oral agreement affecting rights in
land. There must be performance "unequivocally referable" to the
agreement, performance which alone and without the aid of words
of promise is unintelligible or at least extraordinary unless as an
incident of ownership, assured, if not existing. "An act which
admits of explanation without reference to the alleged oral
contract or a contract of the same general nature and purpose is
not, in general, admitted to constitute a part performance"”
(1) Doctrine of part performance that creates exception to SOF re
land sales. Elements of part performance: (1) Payment, (2)
Possession, (3) Improvement. Here, there’s only payment; thus,
part performance doesn’t come in.
(2) Cardozo: Part performance must be “unequivocally referable to
the existence of the oral K alleged.” If you can do that, we’ll estop
invocation of the SOF.
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J. Writing requirement:
1. Writing need not be formal; may be pieced together.
Crabtree v. Elizabeth Arden Sales Corp. (NY 1953)
(No kiss and makeup over salesman’s broken K.)
a) Rule: Where an oral K falls within the SOF, it will not fail for want of a
signed writing, where there exist various memos that outline all the
material terms of the agreement, at least one of which must be signed by
the party against whom enforcement is sought. In such a situation, parol
evidence may be used to clarify the writings, though no term may exist
solely in terms of parol evidence.
2. Affidavit of no K may defeat oral K withing SOF.
DF Activities Corp. v. Brown (7th Cir. 1988)
(No K for Frank Lloyd Wright chair.)
a) Issue: Where a P brings a suit for breach on the basis of an alleged oral K
that, by its price term, brings it within the SOF, may the D obtain a
dismissal by swearing out an affidavit that no such agreement existed?
b) Rationale: Where as in this case the defendant swears in an affidavit that
there was no contract, we see no point in keeping the lawsuit alive…. A
plaintiff cannot withstand summary judgment by arguing that although in
pretrial discovery he has gathered no evidence of the defendant's liability,
his luck may improve at trial…. Mrs. Brown…has sworn under oath that she
did not agree to sell the Willits Chair to DF. DF wants an opportunity to
depose her in the hope that she can be induced to change her testimony.
But if she changes her testimony this will be virtually an admission that
she perjured herself in her affidavit (for it is hardly likely that her denial
was based simply on a faulty recollection). She is not likely to do this.
What is possible is that her testimony will be sufficiently ambiguous to
enable DF to argue that there should be still further factual investigation --
perhaps a full-fledged trial at which Mrs. Brown will be questioned again
about the existence of the contract. With such possibilities for protraction,
the statute of frauds becomes a defense of meager value….. Once the
defendant has denied the contract under oath, the safety valve of section
2-201(3)(b) is closed. The chance that at a deposition the defendant might
be badgered into withdrawing his denial is too remote to justify prolonging
an effort to enforce an oral contract in the teeth of the statute of frauds.
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IV. THIRD PARTY BENEFICIARIES
A. Creditor may sue 3PB.
Lawrence v. Fox
1. Facts: Holly owes Lawrence (L) money. Holly (H) enters into a K with Fox (F),
whereby H agreed to render F a service if F would agree to pay H’s debt to
Lawrence. F doesn’t pay and L wants to get his money from F. F claims no privity
between him and L – if anyone can claim against me it is H not L.
2. Rule: A creditor or promisee (L) for whose benefit the K was entered into may
bring an action against the promisor despite lack of privity. (First case to hold
3. Problem: Is the 3PB (Lawrence) intended or incidental?
a) Intended: Has standing to sue. The circumstances indicate that the
promisee intends to give the beneficiary the benefit of the promised
performance. (Holly enters into the K with Fox intending to benefit
Lawrence because Lawrence will receive the benefit of Holly’s service. An
intended beneficiary can sue even if he had no idea the K existed at the
time it was entered into.
b) Incidental: The parties did not enter into the K to explicitly benefit the
third party beneficiary E.g.: A and B enter into a K to build a beautiful
building on B’s land. C’s land is adjacent to B’s so the building will
increase the value of C’s property but this agreement was NOT entered
into for C’s benefit, so he can’t sue
c) Tests: To determine whether beneficiary is intended or incidental (If the
intention is not clear from the language of the K)
(1) Intention Test: Did the parties demonstrate and/or intend to
invest the 3rd party with the right to sue (derived from the benefit
of the K)
(2) To whom performance is to be rendered: If the performance
(money) is to run directly to from the promisor (Fox) to the 3rd
party (Lawrence) than the 3rd party probably has standing. BUT:
If the performance runs directly to the promisee, the 3rd party
probably has no standing.
(3) Reliance: If the beneficiary would be reasonable in relying on the
K as having been intended to confer a right on him, he is an
(4) These tests are changes from the RC, which distinguished between
creditors and donees (who could not sue) – now, the intention test
is used more frequently. BUT: don’t be surprised to see continued
reference to the donee/creditor distinction. Both have standing.
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4. What the hell happened to privity?? 2 ways to analyze these situations:
a) The law recognizes this relationship (3rd party and promisor) as an
exception to the privity requirement in the law of K’s. OR
b) K between promisee and promisor brings the 3rd party into privity.
c) Either view can work, it doesn’t really matter how you look at it.
B. Don’t confuse 3PB with surety (SOF). In surety situation, the promise to answer for
the debt is made directly to the creditor, but here, the promise is made to the promisee
(debtor) and the 3rd party is benefited – this promise does NOT need to be in writing.
C. Common example of 3rd party beneficiary: Mortgagor/mortgagee.
1. Mortgagor gives the bank (mortgagee) an interest in his property secured by a
promissory note. If mortgagor sells the property, he has to pay the remaining
balance of the mortgage: used to be able to assign the debt, but now most
mortgages have a due-on-sale clause that says when you sell, the balance is due)
2. Without a due-on-sale clause, the buyer (grantee) can either assume the
mortgage or take the property “subject to” the mortgage.
a) Assume: The buyer can take the property and assume the mortgage (this
is Lawrence v. Fox). The grantee (buyer) is the promisor and promise to
pay the remaining balance to the creditor bank.
(1) As to the creditor: The mortgagor AND the grantee are both
principle obligors (creditor can sue either of them on foreclosure
and will probably join both in a suit).
(2) Between the mortgagor and grantee: there is surety implied
by law, where grantee is the primary and the mortgagor is the
surety (you don’t get off the hook simply by selling your property).
If the grantee can’t pay, the mortgagor is responsible.
(3) ALSO: The surety can implead the grantee (principal) but not the
other way around.
b) Subject To: With this option, the buyer (grantee) does not promise to pay
the remainder of the promissory note. (This is NOT Lawrence v. Fox.)
The grantee will contact the bank and inform them that he has taken
ownership “subject to” the mortgage. The bank does not like this, because
there is now no promise by which they are a 3rd party beneficiary. On
default, the bank (creditor) has the option to foreclose (repossess) the
property or he can sue the mortgagor on the note for breach of K. The
grantee can pay off the mortgage if he wants, but he doesn’t have to.
(1) Foreclosure: If the mortgagor defaults, the property will be sold
and the proceeds will either be a:
(2) Deficiency: Grantee doesn’t owe a cent, the mortgagor does.
(3) Wash: It’s equal, no problem.
(4) Surplus: Goes to the owner of the land, the grantee.
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c) Change Hypo: Mortgagee is confronted with a default in a subject to
transfer and decides who to sue. The mortgagor has conveyed the land
already to the non-assuming grantee. The bank can foreclose, but instead
they sue the mortgagor on the note (his name is still on it, and grantee
didn’t promise to pay). The mortgagor will implead the land itself
and say that between him and the land, the bank must foreclose first
before they sue him. (Surplus goes to grantee/deficiency paid by
D. Now it gets interesting: Landlord/Tenant.
1. Covenant of Assumption: Assignment of the lease. Buyer (grantee) promises
tenant that he will pay the landlord rent (L v. F again). If the new owner
(grantee) breaches the covenant to pay rent, a lawsuit will ensue (against both
2. Tenant is the surety: Only will have to pay if the grantee can’t—he he can
implead the grantee (just as the surety can implead the principal obligor in the
E. Member of class intended as beneficiaries.
Johnson v. Holmes Tuttle Lincoln-Mercury, Inc.
(Victim of car wreck sues car dealer for failing insure driver at fault.)
1. Rule: A 3rd party beneficiary may enforce a K if he can show that he is a member
of a class intended to be benefited by the K. (It is not necessary that the 3rd party
be named as an individual). Intent will be determined by the terms of the K.
F. Intended beneficiary of a will.
Hale v. Groce
(Lawyer screwed up will, left out decedent’s intended beneficiary.)
1. Rule: The intended beneficiary of a gift (donee) that an attorney failed to include
in the will can recover as a 3rd party beneficiary. (Policy: Lawyer’s fiduciary
2. Rationale: Pretty much the same as the last case. Given the reasonable
expectations of the parties when they made the K, it was fair to expose the lawyer
to liability even though performance was to run directly to the decedent and not to
the 3rd party because there was an intent to benefit the 3rd party on the
G. Beneficiaries of govt Ks.
Zigas v. Superior Court:
(LL charges rent in excess of HUD K; Ts want rebate.)
1. Held: The tenants were intended beneficiaries because they were directly
benefited from the K—the K was intended to benefit individuals (as was the case in
Shell with the veterans), rather than an entire neighborhood (as was the case in
Martinez with the East LA ‘hood – the city would be compensated if the contract
went into default). Also, the money is not taken from the government but from the
tenants, so they deserve to get it back. The landlord only had to pay back what he
overcharged, so he is not hurt that much. Finally, the agreement itself suggests
that tenants were to be benefited because of the specific rent provision that was
a) In deciding liability court must look at who is hurt, how much they are
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2. Gov’t Ks and the public as 3PBs: The government frequently makes K’s with
private companies for the performance of services that will presumably benefit the
public. As general rule, members of the public who are injured by the fact that the
contractor does not perform may not sue. EXCEPTIONS:
a) A member of the public may sue if the party contracting with the
government has explicitly promised to undertake liability to members of
the public for breach OR
b) If the government has a duty of its own to provide the service that is
H. Vesting of 3PB’s rights.
Tweeddale v. Tweeddale
(Mom loaned D (Son 1) money to buy a house. D promises that if he sells, he’ll give some
money to Son 2. Before Son 2 learned he was a beneficiary, D and mom modified K to
eliminate D’s obligation to his brother. D then sold, gave nothing to bro. Bro sued.)
1. Rule: Under RC, donee beneficiaries vested immediately, thus prohibiting
modification of the agreement without the beneficiaries prior assent.
a) Contemporary view: The 3rd party does not have vested rights until the
elements of the 2nd restatement are satisfied. Once the 3rd party finds out
that he is a 3PB, he must take action to vest his rights before he receives
notice of a discharge or modification (since the original parties reserve the
right to discharge or modify the contract without the beneficiary’s
b) RSC 2-311: Vesting postponed until:
(1) Beneficiary materially changes position on justifiable reliance on
the promise OR
(2) Brings suit to enforce the promise OR
(3) Manifests assent to the promise
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V. ASSIGNMENT AND DELEGATION
1. In gen’l, all K rights are assignable. Public policy favors free flow of commerce
and assignability of commercial obligatons.
a) Accounts receivable may be assigned. If a party to a K assigns, he’s
assigning his right to get paid (for what he’s done or what he will do.
b) A/R (monies earned) v. contract rights (monies yet to be earned):
UCC used to make a distinction—but now both are referred to as
“accounts.” Accounts may be sold or may be pledged for credit; also may
be donated as a gift. Or simply to expedite collection of unpaid obligations.
2. Assignment/delegation distinguished from other 3-party concepts.
a) 3PB K. In a 3PB K, the original K contemplates that performance will be
made to a 3rd party.
b) Novation. 3-party K whereby oblige agrees to discharge original obligor
and accept another. Difft from assignment/delegation in that the original
obligor is released from liability for performance if new party fails.
3. Nature of an assignment. You assign rights. An assignment is the transfer of a
K right or benefit that operates to extinguish the right in the transferor (assignor)
and to set it up exclusively in the transferee (assignee).
a) Assignment is the hallmark of a credit economy.
b) Parties to an assignment:
(1) Non-assigning party.
c) Effect. A proper assignment gives the assignee direct K rights against the
d) Real party in interest. Assignee is real owner of the right transferred to
4. Nature of delegation. You delegate duties. Not really a transfer of duties,
because delegant will still remain responsible if delegate fails to perform. Just an
appointment of another to perform in his stead.
5. You can both assign rights and delegate duties: you can have the money, but
you must do the work. Also, you can assign only part of a K.
B. UCC § 2-210: Delegation of Performance; Assignment of Rights.
(1) A party may perform his duty through a delegate unless otherwise agreed or unless
the other party has a substantial interest in having his original promisor perform or control
the acts required by the contract. No delegation of performance relieves the party
delegating of any duty to perform or any liability for breach.
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(2) Unless otherwise agreed all rights of either seller or buyer can be assigned except
where the assignment would materially change the duty of the other party, or increase
materially the burden or risk imposed on him by his contract, or impair materially his
chance of obtaining return performance. A right to damages for breach of the whole
contract or a right arising out of the assignor's due performance of his entire obligation
can be assigned despite agreement otherwise.
(3) Unless the circumstances indicate the contrary a prohibition of assignment of "the
contract" is to be construed as barring only the delegation to the assignee of the
(4) An assignment of "the contract" or of "all my rights under the contract" or an
assignment in similar general terms is an assignment of rights and unless the language or
the circumstances (as in an assignment for security) indicate the contrary, it is a
delegation of performance of the duties of the assignor and its acceptance by the assignee
constitutes a promise by him to perform those duties. This promise is enforceable by
either the assignor or the other party to the original contract.
(5) The other party may treat any assignment which delegates performance as creating
reasonable grounds for insecurity and may without prejudice to his rights against the
assignor demand assurances from the assignee (Section 2-609).
C. UCC § 9-318. Defenses Against Assignee; Modification of Contract After
Notification of Assignment; Term Prohibiting Assignment Ineffective;
Identification and Proof of Assignment.
(1) Unless an account debtor has made an enforceable agreement not to assert
defenses or claims arising out of a sale as provided in Section 9-206 the rights of an
assignee are subject to
(a) all the terms of the contract between the account debtor and assignor and any defense
or claim arising therefrom; and
(b) any other defense or claim of the account debtor against the assignor which accrues
before the account debtor receives notification of the assignment.
(2) So far as the right to payment or a part thereof under an assigned contract has not
been fully earned by performance, and notwithstanding notification of the assignment, any
modification of or substitution for the contract made in good faith and in accordance with
reasonable commercial standards is effective against an assignee unless the account
debtor has otherwise agreed but the assignee acquires corresponding rights under the
modified or substituted contract. The assignment may provide that such modification or
substitution is a breach by the assignor.
(3) The account debtor is authorized to pay the assignor until the account debtor receives
notification that the amount due or to become due has been assigned and that payment is
to be made to the assignee. A notification which does not reasonably identify the rights
assigned is ineffective. If requested by the account debtor, the assignee must seasonably
furnish reasonable proof that the assignment has been made and unless he does so the
account debtor may pay the assignor.
(4) A term in any contract between an account debtor and an assignor is ineffective if it
prohibits assignment of an account or prohibits creation of a security interest in a general
intangible for money due or to become due or requires the account debtor's consent to
such assignment or security interest.
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D. NY GOL § 5-1107. Written assignment
An assignment shall not be denied the effect of irrevocably transferring the assignor's
rights because of the absence of consideration, if such assignment is in writing and signed
by the assignor, or by his agent.
E. Motivation of assignor is immaterial.
Fitzroy v. Cave (KB 1905)
(P takes assignment of D’s debts in effort to bankrupt him.)
1. Rule: The motives of an assignee for suing on a debt that is owed and past due
are immaterial to the validity of the assignment. (N.B. Prior to this case there were
strong C/L objections to maintenance and champerty—the buying or supporting of
lawsuits. This was the first UK case to make assignment legally acceptable.)
a) Property, not privity. Threshold Q: Is the right assigned in fact
assignable? Think privity of K. You go to K with someone. They perform,
you owe them. Then someone else shows up to collect. Debtor: I owe, but
not you; I owe Schmutz; go away. Here, court decides that a debt isn’t
protected by K privity. Rather, it’s a property right, which is fundamentally
assignable. That’s the critical importance of this case.
F. RSC § 332. Revocability of Gratuitous Assignments
(1) Unless a contrary intention is manifested, a gratuitous assignment is
(a) the assignment is in a writing either signed or under seal that is
delivered by the assignor; or
(b) the assignment is accompanied by delivery of a writing of a type
customarily accepted as a symbol or as evidence of the right assigned.
(2) Except as stated in this Section, a gratuitous assignment is revocable
and the right of the assignee is terminated by the assignor's death or
incapacity, by a subsequent assignment by the assignor, or by notification
from the assignor received by the assignee or by the obligor.
(3) A gratuitous assignment ceases to be revocable to the extent that
before the assignee's right is terminated he obtains
(a) payment or satisfaction of the obligation, or
(b) judgment against the obligor, or
(c) a new contract of the obligor by novation.
(4) A gratuitous assignment is irrevocable to the extent necessary to
avoid injustice where the assignor should reasonably expect the
assignment to induce action or forbearance by the assignee or a
subassignee and the assignment does induce such action or forbearance.
(5) An assignment is gratuitous unless it is given or taken
(a) in exchange for a performance or return promise that would be
consideration for a promise; or
(b) as security for or in total or partial satisfaction of a pre-existing
debt or other obligation.
G. § 321 Assignment of Future Rights
(1) Except as otherwise provided by statute, an assignment of a right to
payment expected to arise out of an existing employment or other
continuing business relationship is effective in the same way as an
assignment of an existing right.
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(2) Except as otherwise provided by statute and as stated in Subsection
(1), a purported assignment of a right expected to arise under a contract
not in existence operates only as a promise to assign the right when it
arises and as a power to enforce it.
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H. What constitutes an effective assignment? Words manifesting present intent.
“Assign” not necessary—“sell,” “transfer,” “convey,” etc. will usually suffice.
1. Exception: Personal service Ks are generally not assignable. Personal
services imply a personal relationship between obligor and obligee that courts will
2. Exception: Output and requirement Ks. Where A can compel B to buy all the
goods A can produce, or where C promises to buy all he needs from D, the rights
are not assignable. Because the assignee might have much more or much less
output, the assignment would materially alter the duty of the other party to the K.
I. Validity of Ks that prohibit assignment.
Allhusen v. Caristo Constr. Corp. (NY 1952)
(Painting sub-Ker assigns rights despite clause barring assignment.)
1. Rule: “While the courts have striven to uphold freedom of assignability, they have
not failed to recognize the concept of freedom to contract. In large measure they
agree that, where appropriate language is used, assignments of money due under
contracts may be prohibited. When clear language is used, and the plainest words
have been chosen, parties may limit the freedom of alienation of rights and
prohibit the assignment.”
a) N.B. Allhusen would have been rejected under UCC 9-318(4): “…(4)
A term in any contract between an account debtor and an assignor is
ineffective if it prohibits assignment of an account or prohibits creation of a
security interest in a general intangible for money due or to become due
or requires the account debtor's consent to such assignment or security
2. Habl: Just an attempt to sell receivables here—no delegation of duties. P’s
argument: that he should be entitled to collect, no-assign clause notwithstanding,
and that Caristo should be able to sue Kroo for breach. Seems like court wants to
find for P but can’t because of the language of the no-assign clause. Too specific to
allow fallback on old position: that such a prohibitory clause is only a personal
J. Irrevocable assignments—rights and liabilities thereunder.
1. Effective assignment extinguishes K rights of assignor and vests them in
assignee. Thereafter, assignee alone is entitled to performance by obligor.
2. Assignee’s rights against obligor:
a) Right of direct action. Assignee, as real party in interest, may sue
obligor on his own (unless it’s a partial assignment, in which case he must
join the assignor).
b) Effect of notice on obligor: Continue paying assignor at your own
Continental Purchasing Co. v. Van Raalte Co. (NY AppDiv 1937)
(Lady signs over her paycheck to pay back sporting goods co.)
(1) Rule: If an obligor, having received notice of a valid assignment,
continues to pay the assignor, he does so at his own peril.
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(2) Rationale: While the assignee of a chose in action succeeds to all
the rights of the assignor, a debtor is not affected by the
assignment until he has notice thereof. If he pays his indebtedness
to the assignor in ignorance of the assignment, he is relieved from
all liability to the assignee…. After notice of the transfer, however,
the debtor is put on his guard, and if he pays the assignor any
money which, under the assignment, belongs to the assignee, or if
he does anything prejudicial to the rights of the latter, he is liable
for the resulting damage.
(a) Are payments to the assignor a defense? Turns on
notice. Payments before notice are available as a defense;
those made after notice are not a defense. See UCC 9-
(b) Counterclaims and setoffs. Let’s say the nonassigning
party is confronted by assignee for payment. But the job
wasn’t done or done properly. May the nonassigning party
assert counterclaim against the assignee? Yes. Up to the
point of a wash, not an affirmative judgment.
(c) Modification of K after notification of assignment.
Governed by UCC 9-318(2). Ordinarily, a K can’t be
modified after assignment w/o consent of assignee…but 9-
318 allows some flexibility (at least in the context of
subcontractors in building Ks).
1. See UCC 2-210 (above).
2. RSC § 318. Delegation of Performance of Duty.
(1) An obligor can properly delegate the performance of his duty to another
unless the delegation is contrary to public policy or the terms of his promise.
(2) Unless otherwise agreed, a promise requires performance by a particular
person only to the extent that the obligee has a substantial interest in having that
person perform or control the acts promised.
(3) Unless the obligee agrees otherwise, neither delegation of performance nor a
contract to assume the duty made with the obligor by the person delegated
discharges any duty or liability of the delegating obligor.
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3. Limits. Any K duty is delegable…unless delegatee’s performance would so differ
from that of the original obligor as to materially change the obligee’s position. In
such a case, the duty may not be delegated.
4. Habl hypo by way of introduction: Fred is in the ice cream biz. He has a
requirements K to buy all the ice he needs from Terminal Ice on credit for 10 days.
Fred decides to quit and retire to Fla. Sells his biz to Crane Ice Cream and assigns
his requirements K to Crane: assigns his right to get his ice and delegates his duty
to pay Terminal. Terminal refuses to deal. Requirements are personal and not
assignable; and his duty is not delegable because it’s based on his credit. Real
case: Crane Ice Cream v. Terminal Freezing. Court found for Terminal: rights and
duties were personal and nonassignable or delegable. But: we’ve deprived Fred of
a significant right—how can he sell his biz without the ice rights.
a) UCC 2-306(1) and 2-609: Probably would have led to a different
(1) UCC 2-609: Re duty being nondelegable because a credit term is
involved. Nonassigning party can demand commercially reasonable
assurances from assignee/delegatee. If credit is good no problem;
if not, can demand, say, a performance bond.
(2) UCC 2-306(1): Re requirements. We know Fred’s needs, not
5. Promisee’s power to prevent delegation to a competitor.
Sally Beauty Co. v. Nexxus Products Co. (7th Cir. 1986)
a) Rule: The duty of performance under an exclusive distributorship may not
be delegated to a competitor in the market place -- or the wholly-owned
subsidiary of a competitor -- without the obligee's consent.
(1) UCC, not C/L, applies: “A distributorship agreement is more
involved than a typical sales contract, but courts apply the Uniform
Commercial Code (UCC) nonetheless where the sales aspect in
such a contract is predominant. Although most distributorship
agreements, like franchise agreements, are more than sales
contracts, the courts have not hesitated to apply the UCC to cases
involving such agreements.
(2) UCC 2-210(1) bars delegation to a competitor of the
obligee. Such a rule is consonant with the policies behind UCC §
2-210, which is concerned with preserving the bargain the obligee
has struck. Does Nexxus have a substantial interest in having Best
perform the K as opposed to Sally, a competitor? Yes. Thus, the
duty is not delegable because it was PERSONAL. Personal duties
(3) 2-306(2): governs exclusive distributorship duties. Recall
Lucy v. Lady Duff Gordon.
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VI. THE PAROL EVIDENCE RULE
A. The rule: Where an agreement has been reduced to a writing that both parties intend as
the final and complete expression of their agreement, evidence of earlier oral or written
expressions is not admissible to vary the terms of the writing.
B. P.E.R. applies only to prior or written or oral agreements or contemporaneous
oral. Applies to nothing else. Why? It protects the writing from whatever else may have
gone before or alongside.
C. UCC § 2-202. Final Written Expression: Parol or Extrinsic Evidence.
Terms with respect to which the confirmatory memoranda of the parties agree or which
are otherwise set forth in a writing intended by the parties as a final expression of their
agreement with respect to such terms as are included therein may not be contradicted by
evidence of any prior agreement or of a contemporaneous oral agreement but may be
explained or supplemented
(a) by course of dealing or usage of trade (Section 1-205) or by course of performance
(Section 2-208); and
(b) by evidence of consistent additional terms unless the court finds the writing to have
been intended also as a complete and exclusive statement of the terms of the agreement.
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D. Central rule of P.E.R.: Is the writing integrated? Magic question. Only invocable only
if fully or partly integrated.
1. First hurdle: getting parol evidence in.
2. Then: it must be believed. Sufficiently credible to persuade trier of fact that it
trumps the written K.
E. 3 assumptions re P.E.R.
1. A K exists.
2. The writing is integrated. (This is probably the trickiest assumption.) If the
writing is not integrated, the evidence may come in so long as it is relevant.
3. The writing is clear, meaningful and unambiguous. If the writing is
ambiguous, unclear or not meaningful, parol evidence may come in to explain—
because you’re using the words to modify or reform the existing K.
H. The rationale: The law favors written Ks—they’re more reliable. The rule operates
1. A rule of evidence. Indicates what evidence may be admitted.
2. A rule of substantive K law. Indicating what constitutes the K btw the parties.
3. Habl on application of parol evidence. Think of it as a cookie cutter: This is the
cookie…and this ain’t. First we define the parameters (substantive law) and then
we decide what to excluse (evidence).
I. Determining integration. Tests:
1. Face of the agreement. Old view that parties’ intent must be discerned from the
writing itself. If apparently final and complete, no parol evidence allowed.
2. Any relevant evidence. Many courts now allow any evidence to be submitted to
prove whether parties intended K to be final and complete expression of their
3. Merger clause. Many Ks contain a clause providing that the agreement is
complete and final. Such a clause usually does the work.
4. When the K is partly oral, partly written, is the writing integrated? Does it
reflect all the terms? Does it say all the court believes it should say about the
totality of a term? If so, it’s integrated. Doesn’t really matter whether the K says
its integrated? There isn’t a clear litmus test. See Mitchell v. Lath, the granddaddy
of all integration cases—imminent jurists disagreed re whether the agreement was
J. Exceptions to the Parol Evidence Rule.
1. To show a collateral oral agreement. Where a party claims there are two Ks—
the written one and a second oral one supported by the consideration of the first
agreement. (Meaning that the collateral agreement is contingent upon satisfactory
performance of the first K? Or literally that the consideration exchanged for the
first K suffices as consideration for the second?)
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a) Parol evidence is admissible to show a collateral oral agreement if:
(1) Its terms do not conflict with the written K; and
(2) The collateral oral agreement covers a subject that would not
ordinarily be included in the written agreement.
b) Oral K must be collateral in form.
Mitchell v. Lath (NY 1928)
(Get that icehouse off my property!)
(1) Rule: Where the subject matter of an oral K is closely related to
that of a written agreement, the oral K is not collateral, and thus
parol evidence may not be admitted.
(2) Rationale: “Before an oral agreement is received to vary a written
contract at least three conditions must exist: (1) the agreement
must in form be a collateral one; (2) it must not contradict express
or implied provisions of the written contract; and (3) it must be
one that parties would not ordinarily be expected to embody in the
writing. Or, put in another way, an inspection of the written
contract, read in the light of surrounding circumstances, must not
indicate that the writing appears to contain the engagements of
the parties, and to define the object and measure the extent of
such engagement. Or again, it must not be so clearly connected
with the principal transaction as to be part and parcel of it.” Here,
if removing the icehouse were part of the deal, it presumably
would have been incorporated into the written K.
(a) Effect of UCC 2-202. In a sale of goods, additional terms
are admissible unless the relate to matters that certainly
would have been included in the prior agreement.
(3) Is the written K integrated?
(a) First, and original test: Is there a merger clause
(a.k.a. integration clause)?
(i) With emergence of UCC, the sanctity of merger
clause begins to wane—b/c focus on consumer
protection; unequal bargaining power, Ks of
adhesion, etc. Just because it’s there, doesn’t
mean its kosher.
(b) Examine four corners of agreement. Then:
(c) Examine surrounding circumstances before, during
and after execution.
(d) If the term would be expected to be in the main K—
too close—PER kicks in.
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2. To show that the writing was only a partial integration. If the writing was a
final expression of agreement only to the terms therein, the integration is only
partial and parol evidence may be admitted re matters not covered by the writing.
a) Parol evidence as proof of matters outside the writing.
Masterson v. Sine (Cal. 1968)
(Bankrupt wants to keep his land in the family.)
(1) Holding/Rule: “When only part of a written contract is
integrated, parol evidence cannot be used to add to or vary the
terms of that part, but parol evidence may be used to prove
elements of the agreement not reduced to writing.”
(2) Habl: Was the writing integrated insofar as the right to exercise
the option was concerned? No. Traynor concludes that the option
term was not integrated, so evidence of contemp oral agreement
may be admitted. How does Traynor get there? (1) Look at the
instrument. (2) Look at the circumstances under which the
agreement was executed.
b) Parol evidence may not contradict integrated terms.
Alaska Northern Dev. Inc. v. Aleyska Pipeline Service Co. (AK
(Falling out over deal re surplus Caterpillar parts.)
(1) Rule: The parol evidence rule bars the admission of extrinsic
evidence that contradicts the integrated terms of a written
(2) Rationale: “An earlier agreement may help the interpretation of a
later one, but it may not contradict a binding later integrated
agreement. Whether there is a contradiction depends on whether
the two are consistent or inconsistent. This is a question which
often cannot be determined from the face of the writing; the
writing must first be applied to its subject matter and placed in
context. The question is then decided by the court as part of a
question of interpretation. Where reasonable people could differ as
to the credibility of the evidence offered and the evidence if
believed could lead a reasonable person to interpret the writing as
claimed by the proponent of the evidence, the question of
credibility and the choice among reasonable inferences should be
treated as questions of fact. But the asserted meaning must be
one to which the language of the writing, read in context, is
reasonably susceptible. If no other meaning is reasonable, the
court should rule as a matter of law that the meaning is
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3. To show additional consistent terms. See UCC 2-202.
4. To show a subsequent oral agreement. The parol evidence rule covers only
prior and contemporaneous negotiations, not ex post facto.
5. To prove the existence of a condition precedent to a written K.
a) Habl: Heller v. Tower (Teller?) Roofing case. Sign now or lose the price.
OK, but it’s conditional on a reference check. Reference was terrible.
Homeowner says sorry. Roofer sues for breach. Contemp oral agreement
re express condition precedent to the existence of K. No PER problem—
parol evidence comes in because it comes into prove no viable K exists;
doesn’t contradict language of existing K.
b) Luther Williams Jr. Inc. v. Johnson (DC 1967)
(Homeowner reneges on K after failing to secure financing.)
(1) Rule: No. “A written contract may be conditioned on an oral
agreement that the contract shall not become binding until some
condition precedent resting in parol shall have been performed.”
(2) Rationale: “Parol testimony to prove a condition precedent is
admissible when the contract is silent on the matter, the testimony
does not contradict nor is it inconsistent with the writing, and if
under the circumstances it may properly be inferred that the
parties did not intend the writing to be a complete statement of
their transaction.” That is, if oral condition precedent fails, no K:
parol evidence ain’t innit.
6. To clarify ambiguities. Basic rule: If K is ambiguous on its face or becomes
ambiguous in performance, parol evidence is admissible to clarify parties’ intent.
(If the ambiguity is so fundamental that determining intent is impossible, there
may be no K.)
a) Minority/modern view: Parol evidence admissible where terms are
susceptible to the interp of the party offering such evidence.
Pacific Gas & Elec. v. G.W. Thomas Drayage & Rigging (CA 1968)
(Broad indemnity clause in turbine-repair K.)
(1) Rule: “The test of admissibility of extrinsic evidence to explain the
meaning of a written instrument is not whether it appears to the
court to be plain and unambiguous on its face, but whether the
offered evidence is relevant to prove a meaning to which the
language of the instrument is reasonably susceptible.”
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(a) “Although extrinsic evidence is not admissible to add to,
detract from, or vary the terms of a written contract, these
terms must first be determined before it can be decided
whether or not extrinsic evidence is being offered for a
prohibited purpose. The fact that the terms of an
instrument appear clear to a judge does not preclude the
possibility that the parties chose the language of the
instrument to express different terms. That possibility is
not limited to contracts whose terms have acquired a
particular meaning by trade usage, but exists whenever
the parties' understanding of the words used may have
differed from the judge's understanding.”
(b) “Rational interpretation requires at least a preliminary
consideration of all credible evidence offered to prove the
intention of the parties. Such evidence includes testimony
as to the circumstances surrounding the making of the
agreement, including the object, nature and subject matter
of the writing, so that the court can place itself in the same
situation in which the parties found themselves at the time
of contracting. If the court decides, after considering this
evidence, that the language of a contract, in the light of all
the circumstances, is fairly susceptible of either one of the
two interpretations contended for, extrinsic evidence
relevant to prove either of such meanings is admissible.”
b) Limitation on Pacific Gas (traditional view?).
A. Kemp Fisheries v. Castle & Cooke (9th Cir. 1988)
(Chartered boat no good for herring and salmon season.)
(1) Rule. No. Parol evidence may be admitted only if it advances an
interpretation to which an integrated written K is reasonably
(2) Rationale: The charter agreement was an integrated K, and the
warranties D claimed were not the sort to be found in a collateral
agreement; thus, the P.E.R. applied. Moreover, because the
evidence offered by P did not conform to an interpretation to which
the written agreement was not susceptible, there was no exception
allowing the admission of parol evidence to clarify ambiguity. D
promised only to make sure the boat was surveyed and in “good”
condition—D did not promise seaworthiness or that the freezers
engines were in good working order.
(a) Note: Intent in K is based on an objective, not
subjective, standard. Thus, the court focuses on
external conduct, not the thoughts of the parties—that is,
it looks to what the parties appear to have agreed to.
c) Burden of persuasion on party seeking a particular interp.
Frigaliment Importing v. BNS Int’l Sales (SDNY 1960)
(If it looks like a duck and quacks like a duck … it’s chicken.)
(1) Rule: A party who seeks to invoke trade usage to narrow the
definition of a term in a K bears the burden of persuading the
court that such usage “is so generally known in the community
that [the other party’s] actual individual knowledge of it may be
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(2) Peerless case. There happened to be two Peerlesses in UK
merchant fleet. Buyer and seller agree to buy cotton from India via
Peerless. Price/qty stipulated. Then unfolds that two ships were
called Peerless. One said from Bombay in Oct; the other in
December. Court assumed the diff between the two ships was a
material mistake. No K. Friendly could have resolved Frigaliment
this way; and then reimbursed seller on basis of quantum meruit.
(3) See RSC 201(2): If one party knew or should have known
the meaning ascribed to the subject matter by the other
party then the construction favors the other party. But if you
neither knew nor should have known, no K. Brings Peerless and
Frigaliment together: Habl thinks it’s a good merger.
(4) Really goes to A/R: what did the buyer know or should he have
known? Buyer here should have known, esp. given price factor.
d) Deceptive exclusionary clauses in insurance Ks.
Gray v. Zurich Ins. Co. (CA 1966)
(Insurer refuses to cover policyholder in early road rage case.)
(1) Rule: “In interpreting an insurance policy, the court applies the
general principle that doubts as to meaning must be resolved
against the insurer and that any exception to the performance of
the basic underlying obligation must be so stated as clearly to
apprise the insured of its effect.” Thus, “an exclusionary clause
must be conspicuous, plain and clear.”
(2) Rationale: Unequal bargaining power in Ks of adhesion. “In
dealing with standardized contracts courts have to determine what
the weaker contracting party could legitimately expect by way of
services according to the enterpriser's calling, and to what extent
the stronger party disappointed reasonable expectations based on
the typical life situation.”
(3) Doctrine of Reasonable Expectations. The language may not
be problematic for a lawyer or judge, but what is the layman’s
expectation of his insurer? This was a contract of adhesion. Court’s
objections go to the reasonable expectations of the buyer:
(b) Conspicuousness of the fine print.
(c) What the language means to the layman to whom it is
(d) Intentional tort: How do we know until the case if over?
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K. RSC § 201: Whose Meaning Prevails.
(1) Where the parties have attached the same meaning to a promise or agreement or a
term thereof, it is interpreted in accordance with that meaning.
(2) Where the parties have attached different meanings to a promise or agreement or a
term thereof, it is interpreted in accordance with the meaning attached by one of them if
at the time the agreement was made
(a) that party did not know of any different meaning attached by the other, and the
other knew the meaning attached by the first party; or
(b) that party had no reason to know of any different meaning attached by the other,
and the other had reason to know the meaning attached by the first party.
(3) Except as stated in this Section, neither party is bound by the meaning attached by
the other, even though the result may be a failure of mutual assent.
L. RSC § 202: Rules in Aid of Interpretation.
(1) Words and other conduct are interpreted in the light of all the circumstances, and if
the principal purpose of the parties is ascertainable it is given great weight.
(2) A writing is interpreted as a whole, and all writings that are part of the same
transaction are interpreted together.
(3) Unless a different intention is manifested,
(a) where language has a generally prevailing meaning, it is interpreted in
accordance with that meaning;
(b) technical terms and words of art are given their technical meaning when used in a
transaction within their technical field.
(4) Where an agreement involves repeated occasions for performance by either party
with knowledge of the nature of the performance and opportunity for objection to it by the
other, any course of performance accepted or acquiesced in without objection is given
great weight in the interpretation of the agreement.
(5) Wherever reasonable, the manifestations of intention of the parties to a promise or
agreement are interpreted as consistent with each other and with any relevant course of
performance, course of dealing, or usage of trade.
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VII. PERFORMANCE OF THE CONTRACT
A. Express Conditions. Problems of performance are ultimately about breach. For a party to
be in breach, that party must be under an absolute duty to perform and have failed to do
so. Critical issue is determining whether such a duty exists or whether there are conditions
on performance (and, if so, their type and legal effect. If duty is conditional, the promisor
is bound to perform only after the contingency occurs (conditions precedent and
concurrent) or until it occurs (conditions subsequent).
1. Types of express conditions:
a) Conditions precedent. Condition MUST occur in order to create absolute
duty to perform—that is, there’s no duty until the fact or event happens.
b) Conditions concurrent. Mutually dependent and nearly simultaneous
performance. E.g., typical sales contract: payment and delivery are
typically concurrent—no duty to pay w/o delivery; no duty to deliver w/o
payment. Tender of either payment or delivery creates absolute duty in
the other party. Effect is similar to that of condition precedent.
c) Condition subsequent. Occurrence of condition extinguishes absolute
duty to perform. E.g., A will work for B for five years unless A is called up
for military service; being called up is a condition precedent that
extinguishes A’s duty to work for B.
2. Conditions v. covenants.
a) Covenant. An absolute, binding promise to perform, with no conditions
attached. Failure to perform a covenant is always breach per se.
b) Condition. A fact or event, the happening (or failure to happen) of which
extinguishes a duty to perform. Failure of a condition is not breach; it’s no
c) When in doubt…. If it’s unclear whether a provision of a K is a condition
or a covenant, the court will look to the parties’ intent. Where intent is
unclear, the court will look to:
(1) Words used. Conditional (if, when, etc.) or unconditional (promise,
(3) Which interp best protects expectations of parties? Most important
question. Doubtful provisions are usually treated as covenants,
because treating them as conditions would be unjust to the party
that already had held up its end of the deal.
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3. Effect of substantial performance.
Jacob & Youngs v. Kent (NY 1921)
(Pipe installed in new home was not of brand specified.)
a) Issue: Where a construction K calls for complete performance in accord
with specifications as a condition precedent to payment of the contractor,
will substantial performance forgive a minor error with regard to the K’s
b) Holding/Rule: Yes. Where the departure from specifications is minor and
unintentional, P may invoke the doctrine of substantial performance.
Whereby for damages in construction Ks, the owner is entitled merely to
the difference between the value of structure if built to specifications and
its value as constructed.
c) Promise or condition? Cardozo: Words were not apt and certain. And
court has no truck with oppressive retribution. Where there’s ambiguity in
construction, courts will interp a clause as a promise, not a condition,
because the law hates a forfeiture. The words have to be apt and certain
to establish a condition precedent. If you want to impose the risk of loss
on a party, you’d better make it clear that failure to comply literally will
result in forfeiture.
4. UCC on express conditions and breach thereof.
a) UCC § 2-601. Buyer's Rights on Improper Delivery. [A.k.a. Perfect
Subject to the provisions of this Article on breach in installment
contracts (Section 2-612) and unless otherwise agreed under the sections
on contractual limitations of remedy (Sections 2-718 and 2-719), if the
goods or the tender of delivery fail in any respect to conform to the
contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.
b) UCC § 2-608. Revocation of Acceptance in Whole or in Part.
[Shades of Cardozo re substantial performance]
(1) The buyer may revoke his acceptance of a lot or commercial unit
whose non-conformity substantially impairs its value to him if he has
(a) on the reasonable assumption that its non-conformity would be
cured and it has not been seasonably cured; or
(b) without discovery of such non-conformity if his acceptance was
reasonably induced either by the difficulty of discovery before acceptance
or by the seller's assurances.
(2) Revocation of acceptance must occur within a reasonable time after
the buyer discovers or should have discovered the ground for it and before
any substantial change in condition of the goods which is not caused by
their own defects. It is not effective until the buyer notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with regard
to the goods involved as if he had rejected them.
(1) Habl on Perfect Tender rule:
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(a) Failure “in ANY respect” allows buyer to reject. If
buyer accepts and discovers defect, 2-608 kicks in. If good
substantially complies and you accept, you can’t reject the
whole but must settle for adjustment.
(b) 2-612: substantial performance in installment Ks. If
nonconformity is minor, cannot reject.
(i) Series of minor defect in installments:
something’s never quite right. The buyer is entitled
to draw a line: if minors amount to major, there’s
a material breach for which buyer can seek
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c) UCC § 2-612. "Installment Contract"; Breach.
(1) An "installment contract" is one which requires or authorizes the
delivery of goods in separate lots to be separately accepted, even though
the contract contains a clause "each delivery is a separate contract" or its
(2) The buyer may reject any installment which is non-conforming if the
non-conformity substantially impairs the value of that installment and
cannot be cured or if the non-conformity is a defect in the required
documents; but if the non-conformity does not fall within subsection (3)
and the seller gives adequate assurance of its cure the buyer must accept
(3) Whenever non-conformity or default with respect to one or more
installments substantially impairs the value of the whole contract there is a
breach of the whole. But the aggrieved party reinstates the contract if he
accepts a non-conforming installment without seasonably notifying of
cancellation or if he brings an action with respect only to past installments
or demands performance as to future installments.
5. A condition is not a warranty.
In re Carter (PA 1957)
(Company drops in value btw negotiation and final sale.)
a) Rule: An express condition precedent to a party’s performance of a K may
not be treated as a warranty.
b) Rationale: This was a meticulously prepared K. The warranty clause
clearly was aimed at occurrences outside the normal course of biz. The
net-worth provision was clearly a condition precedent, not a warranty.
Thus, in going forward with the sale, P had no claim to damages re a
6. K conditions will be strictly enforced.
Dove v. Rose Acre Farms (IN 1962)
(Egg farm puts strict rules on bonuses.)
a) Rule: A party is bound to perform all conditions knowingly accepted under
a K, and unless such conditions are met, performance by the other party is
b) Rationale: D didn’t receive all he bargained for—in addition to timely
completion of the construction project, the bonus was strictly predicated
on perfect attendance by P. The terms are harsh, it is true, but P knew the
rules when he signed on. That he could not fully perform is immaterial;
what matters is that he did not perform.
c) Habl: Dove actually invokes Cardozo on substantial performance. Why
didn’t recover (as Jacob & Youngs did)? No room for substantial
performance in world of express conditions—express conditions must be
literally met. RAF used “apt and certain words”: do it this way or don’t get
paid at all. RAF imposed, and Dove assumed, the risk of forfeiture. (Didn’t
hurt that Rust wasn’t an oppressor and offered him alternatives to make
up the lost time, which Dove declined.)
7. Conditions for waiver of conditions.
Clark v. West (NY 1908)
(Boozehound legal prof sues publisher.)
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(1) A party who is owed performance under a K may waive a condition
precedent to the other party’s performance.
(2) A party’s acceptance of proffered performance does not constitute
a waiver of a condition precedent to that performance.
b) UCC § 2-209. Modification, Rescission and Waiver.
[…] (5) A party who has made a waiver affecting an executory portion of
the contract may retract the waiver by reasonable notification received by
the other party that strict performance will be required of any term
waived, unless the retraction would be unjust in view of a material change
of position in reliance on the waiver.
B. Constructive Conditions of Exchange.
1. Implied-in-fact conditions: “Necessary conditions,” conditions of “good faith
a) Test: Would an RP understand that unstated facts exist?
(1) “Deliver to Loading Dock 2” presupposes the existence of said
(2) LL and T enter into a lease. LL promises to keep premises in good
repair. Presupposes implied-in-fact condition precedent that T will
notify LL of need for repairs and will admit him to do so.
c) Implied condition of good faith. So fundamental to K that it goes without
2. Implied-in-law conditions. “Constructive conditions.” Not expressly agreed
upon by implied by courts in the interest of fairness and justice.
a) Early view: No such thing as constructive condition. In a bilateral K,
each party made independent covenants to perform regardless of the
performance of the other. If one party did not perform, the other was not
relieved of his obligations; he still had to perform and then sue the first
party for breach on an indep’t covenant.
b) Birth of constructive conditions.
Kingston v. Preston (KB 1773)
(Silk mercer refuses to go through with sale for apprentice.)
(1) Rule: In a K for the conveyance of a business, P’s failure to come
up with agreed-upon security constitutes the violation of condition
precedent, which thereby relieves D of his obligation to perform.
(2) Rationale: There are three kinds of covenants/conditions…
(a) Mutual and independent [indep’t covenants]. Either
may recover damages for breach, and alleged breach by
either party does not relieve the other of the obligation to
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(b) Conditional and dependent [conditions precedent].
Performance by one party depends on prior performance
by the other. (Kingston.)
(c) Simultaneous [conditions concurrent]. If one party
tenders and the other fails to perform, first party has
action for default.
3. Types of conditions implied in law.
a) Implied-in-law condition precedent. Where one party promises to
perform prior to the other.
b) Simultaneous performances: conditions concurrent.
Palmer v. Fox (MI 1936)
(Was paving a condition of getting paid?)
(1) Rule: P’s failure to perform a dependent concurrent condition
relieves D of his obligation to counterperform.
(2) Rationale: The courts will construe covenants to be dependent,
unless a contrary intention clearly appears. A party should not be
forced to pay out his money, unless he can get that for which he
stipulated. Where the acts or covenants of the parties are
concurrent, and to be done or performed at the same time, the
covenants are dependent, and neither party can maintain an
action against the other, without averring and proving
performance on his part.
(a) Substantial performance applies to constructive
conditions—promises—but not to express conditions.
Substantial performance is a constructive condition—a
creature of the law—precedent to duty to pay.
(b) How do you tell a condition from a promise?
Transactional view: Take a good look at the circumstances
under which it was made. Must be abundantly clear that a
condition is just that, a condition. We need to draw rings
around conditions b/c if a term is a condition, it has the
potential for serious venom—huge forfeitures. Before you
drop that potential on a party, that party must be fully
aware of the magnitude of the potential loss. (That risk
was not assumed by builder in Jacob & Youngs, for e.g.)
4. Measure of damages
a) Where doctrine of substantial performance applies:
(1) Cost of repair/replacement to bring up to K spex.
(2) Diff btw value as built and its value if built per spex.
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b) Where doctrine of substantial performance does not apply: Quasi-K
(1) Majority: No recovery for partial performance by party in breach.
(2) Minority: Net-benefit rule.
Britton v. Turner (NH 1834)
(Recovery for value of labor?)
(a) Rule: Party in breach may recover for partial performance
up to the value of the benefit conferred. Because the law
abhors a forfeiture.
(b) Quantum meruit for labor. If a party to a K for labor
actually receives useful labor, and thereby derives a
benefit and advantage, over and above the damage which
has resulted from a breach of the contract by the other
party, the labor actually done, and the value received,
furnish a new consideration, and the law thereupon raises
a promise to pay to the extent of the reasonable worth of
(i) Set-off for damages to nonbreaching
party. In case such contract is broken, by the fault
of the party employed after part performance has
been received, the employer is entitled, if he so
elect, to put the breach of the contract in defence,
for the purpose of reducing the damages, or
showing that nothing is due…. The implied promise
which the law will raise, is, to pay such amount of
the stipulated price for the whole labour, as
remains after deducting what it would cost to
procure a completion of the whole service, and
also any damage which has been sustained by
reason of the non fulfillment of the contract.
(c) Habl: Given dependent covenants, P has no action on the
K: condition precedent to D’s duty to pay has failed. But
the law abhors a forfeiture, thus P seeks quasi-K relief.
Very appealing from a commonsense point of view. Law
should compensate the nonbreaching pary but not punish
the party in breach.
c) Effect of willful breach. Intentional breach or bad faith will prevent
“substantial” performance and may impair the party in breach’s ability to
recover in quasi-K.
(1) Majority: No recovery for willful defaulter.
(2) Minority: Recover in quasi-K, even for willful breach. This view is
more concerned with unjust enrichment by the owner than breach
by the contractor.
(3) Retention of downpayment.
Maxton Builders v. Lo Galbo (NY 1986)
(Buyer stops check on d/p, seller sues to keep it.)
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(a) Rule: Yes. “In New York, a buyer who defaults on a real
estate contract without lawful excuse [i.e., willfully] cannot
recover the down payment.” Lawrence v. Miller (1881).
(b) Rationale: Although the [modern/RSC § 34] rule
permitting a party in default on a contract to seek
restitution for part performance has much to commend it
in its general applications, as applied to real estate down
payments approximating 10% it does not appear to offer a
better or more workable rule than the long-established
"usage" in this State that a vendee who defaults on a real
estate contract without lawful excuse, cannot recover the
(c) Habl: Biggest exception to net-benefit rule defined in
Britton; Wachtler decides to say with Lawrence decision.
Wachtler’s logic: difficult to estimate damages in R/E. 10%
is a figure of convenience; no point in litigating to figure
out actual damages where price will be in flux during
period of litigation. Valuation is a can of worms. Thus, an
exception to net-benefit rule of Britton v. Turner. (If the
d/p had been 15%, Wachtler might not have decided the
case this way.)
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(4) UCC § 2-718. Liquidation or Limitation of Damages;
(1) Damages for breach by either party may be liquidated in the
agreement but only at an amount which is reasonable in the light
of the anticipated or actual harm caused by the breach, the
difficulties of proof of loss, and the inconvenience or nonfeasibility
of otherwise obtaining an adequate remedy. A term fixing
unreasonably large liquidated damages is void as a penalty.
(2) Where the seller justifiably withholds delivery of goods
because of the buyer's breach, the buyer is entitled to restitution
of any amount by which the sum of his payments exceeds
(a) the amount to which the seller is entitled by virtue of
terms liquidating the seller's damages in accordance with
subsection (1), or
(b) in the absence of such terms, twenty per cent of the value
of the total performance for which the buyer is obligated under the
contract or $500, whichever is smaller.
(3) The buyer's right to restitution under subsection (2) is
subject to offset to the extent that the seller establishes
(a) a right to recover damages under the provisions of this
Article other than subsection (1), and
(b) the amount or value of any benefits received by the buyer
directly or indirectly by reason of the contract.
(4) Where a seller has received payment in goods their
reasonable value or the proceeds of their resale shall be treated as
payments for the purposes of subsection (2); but if the seller has
notice of the buyer's breach before reselling goods received in part
performance, his resale is subject to the conditions laid down in
this Article on resale by an aggrieved seller (Section 2-706).
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1. Breach, defined: A promisor commits a “breach” of K when he or she fails
without justification to perform when a promised performance is due. If the
promise has fully performed the agreed exchange, the remedy for beach is limited
to an action for damages or specific performance. If the promise still has duties to
perform under the agreed exchange, the breach is material may also discharge
those remaining duties. Thus, for a material breach by the promisor, the promise
has both affirmative remedies (sue for damages for total breach) and defensive
remedies (cancel the K).
2. Breach by repudiation: A promisor commits a breach of K when, by words or
conduct, he or she repudiates a performance not yet due under the agreed
exchange. Affirmative and defense remedies may be invoked prior to time set for
3. Material v. minor breach:
(1) Whether breaching party has already performed. (Breach at outset
more likely to be material.)
(2) Whether breach was willful, N or innocent. (Willful breach—
including repudiation—is more likely material.)
(3) Level of uncertainty re whether party in breach will fulfill remaining
(4) Extent to which nonbreaching party has/will obtain the substantial
benefit he bargained for.
(5) Extent to which nonbreaching party can be adequately
(6) Degree of hardship on breaching party by holding breach to be
b) Effect of material breach:
(1) Excuses counterperformance.
(2) Immediately entitles nonbreaching party to remedies for breach of
c) Effect of minor breach:
(1) Does not excuse counterperformance.
(2) Damages only for harm caused by breach, not for breach of whole
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4. Remedies for material breach:
a) Damages. Pay up.
b) Specific performance. Do what you’re obligated to do, dammit.
c) Rescission/restitution. End K and gimme back my money.
d) Quasi-K. Quantum meruit/quantum valebant.
e) Tort action. Where there’s foreseeable harm to promisor.
B. Breach via anticipatory repudiation.
1. The basic doctrine.
Hochster v. De La Tour (QB 1853)
(Traveler bails on hired courier.)
a) Rule: Lord Mansfield: “The man who wrongfully renounces a K into which
he has deliberately entered cannot justly complain if he is immediately
sued for compensation in damages by the man whom he has injured; and
it seems reasonable to allow an option to the injured part, ether to sue
immediately or to wait till the time when the act was to be done.”
b) Rationale: P was caught between a rock and a hard place—either sit on
his hands until date of performance and then sue for breach; or find
another gig ASAP and lose his right of action, because he would not longer
be ready/willing to hold up his end. Thus, the court decided that the
repudiation was an excuse of the constructive condition that P be ready,
willing and able to perform on 6/1, thus preserving his right of action
against D. Until 6/1, P would have the responsibility to mitigate damages
by seeking other work.
c) Duty of nonrepudiating party to mitigate damages.
(1) Majority: Nonrepudiating party has a duty to mitigate
damages. Failure to do so disallows damages that could have be
(a) Duty to mitigate includes stopping performance
(unless doing so would cause further damages, such as
causing a product that might be resold to go to waste).
(b) Duty to mitigate includes looking elsewhere for
(2) Minority: Nonrepudiating party may ignore repudiation,
finish performance and then sue on the whole.
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2. UCC re anticipatory repudiation.
a) UCC § 2-610. Anticipatory Repudiation.
When either party repudiates the contract with respect to a performance
not yet due the loss of which will substantially impair the value of the
contract to the other, the aggrieved party may
(a) for a commercially reasonable time await performance by the
repudiating party; or
(b) resort to any remedy for breach (Section 2-703 or Section 2-711),
even though he has notified the repudiating party that he would await the
latter's performance and has urged retraction; and
(c) in either case suspend his own performance or proceed in accordance
with the provisions of this Article on the seller's right to identify goods to
the contract notwithstanding breach or to salvage unfinished goods
b) UCC § 2-611. Retraction of Anticipatory Repudiation.
(1) Until the repudiating party's next performance is due he can retract
his repudiation unless the aggrieved party has since the repudiation
cancelled or materially changed his position or otherwise indicated that he
considers the repudiation final.
(2) Retraction may be by any method which clearly indicates to the
aggrieved party that the repudiating party intends to perform, but must
include any assurance justifiably demanded under the provisions of this
Article (Section 2-609).
(3) Retraction reinstates the repudiating party's rights under the
contract with due excuse and allowance to the aggrieved party for any
delay occasioned by the repudiation.
(1) Habl: Rare instance where you can unbreach a K.
c) UCC 2-609: Repudiation via failure to provide adequate assurance
AMF Inc. v. McDonald’s Corp. (7C 1976)
(Cash register mfr and McDonald’s tussle over defective registers.)
(1) Rule: Per UCC 2-609(1), “when reasonable grounds for insecurity
arise with respect to the performance of either party the other
may in writing demand adequate assurance of due performance
and until he receives such assurance may if commercially
reasonable suspend any performance for which he has not already
received the agreed return.” If no assurance in 30 days, party
seeking assurance may consider the other in breach by
repuditation, per UCC 2-609(4), and resort to remedies outlined in
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(2) UCC § 2-609. Right to Adequate Assurance of Performance.
(1) A contract for sale imposes an obligation on each party that
the other's expectation of receiving due performance will not be
impaired. When reasonable grounds for insecurity arise with
respect to the performance of either party the other may in writing
demand adequate assurance of due performance and until he
receives such assurance may if commercially reasonable suspend
any performance for which he has not already received the agreed
(2) Between merchants the reasonableness of grounds for
insecurity and the adequacy of any assurance offered shall be
determined according to commercial standards.
(3) Acceptance of any improper delivery or payment does not
prejudice the aggrieved party's right to demand adequate
assurance of future performance.
(4) After receipt of a justified demand failure to provide within a
reasonable time not exceeding thirty days such assurance of due
performance as is adequate under the circumstances of the
particular case is a repudiation of the contract.
d) No anticipatory breach in Ks for future payment.
John Hancock Mutual Life Ins. Co. v. Cohen (9C 1958)
(Insurer fights judgment on installment payoff.)
(1) Rule: “The doctrine of anticipatory breach has no application to
suits to enforce contracts for future payment of money only, in
installments or otherwise.”
(2) Rationale: Why should the insurer have to pay off any sooner
than he was found to be contracted to?
(a) Hochster was an exception to Kingston; this case is an
exception to Hochster.
(b) Here what started out as a bi-K is now a uni-K by way of
full performance by one party. All that’s left are obligations
on one side and rights on the other.
(c) Anticipatory repudiation: it’s all about accelerated liability.
e) Lease Ks where lessor has unlimited supply.
Locks v. Wade (NJ 1955)
(D backs out on jukebox lease.)
(1) Rule: No. Where a lessee breaches a K for the lease of a chattel
whose supply is unlimited, the lessor is not req’d to reduce his
damages by the amount for which he could or did lease the item in
question to a third party.
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(2) Rationale: P need not mitigate himself out of a claim.
“Where, as here, a plaintiff lessor agrees to lease an article of
which the supply in the market is for practical purposes not
limited, then the law would be depriving him of the benefit of his
bargain if on the breach of the agreement, it required his claim
against the lessee to be reduced by the amount he actually did or
reasonably could realize on a reletting of the article. For if there
had been no breach and another customer had appeared, the
lessor could as well have secured another such article and entered
into a second lease. In case of the breach of the first lease, he
should have the benefit of both bargains or not -- in a situation
where the profit on both would be the same -- be limited to the
profit on the second of them. Theory of the lost sale.
(3) Exception: Realty. We conclude that the proper measure of
damages here is the difference between the contract price and the
cost of performing the first contract, as the court apparently held
below. In the case of realty which (unlike the juke box) is specific
and not to be duplicated on the market, the lessor could not
properly lease it to another for the same period unless the first
lease were broken or terminated. In such a case the lessor should
not be awarded two profits merely because of the first lessee's
(a) Q here : Is D allowed to set off an amount equal to P’s
profit from re-renting of chattel? Theory of the lost sale. If
seller’s supply exceeds demand and a buyer repudiates a K
for seller, then seller is entitled to lost sale, his profit.
(b) Property leases. In K, there’s a duty to mitigate damages.
In property, there’s not. Today residential leases are more
and more considered Ks, but property still controls in
commercial leases. So look out if you bail on an office
f) UCC § 2-708. Seller's Damages for Non-acceptance or Repudiation.
(1) Subject to subsection (2) and to the provisions of this Article with
respect to proof of market price (Section 2-723), the measure of damages
for non-acceptance or repudiation by the buyer is the difference between
the market price at the time and place for tender and the unpaid contract
price together with any incidental damages provided in this Article (Section
2-710), but less expenses saved in consequence of the buyer's breach.
(2) If the measure of damages provided in subsection (1) is inadequate
to put the seller in as good a position as performance would have done
then the measure of damages is the profit (including reasonable overhead)
which the seller would have made from full performance by the buyer,
together with any incidental damages provided in this Article (Section 2-
710), due allowance for costs reasonably incurred and due credit for
payments or proceeds of resale.
(1) Expectation Damages: If the buyer des not accept or repudiates,
the seller damages are (subject to subsection 2):
(a) The market price at the time and place for tender MINUS
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(b) The unpaid K price PLUS
(c) Any incidental damages provided in this article (2-710)
(d) Expenses saved in consequence of the buyer’s breach.
(2) Lost Profit: If the measure of damages in sub(1) is not enough to
put the seller in as good a position as he would have been had the
buyer performed (Ex: the seller is a lost volume seller) then the
measure of damages is:
(a) The profit (including reasonable overhead which the seller
would have made from full performance by the buyer)
(b) Any incidental damages provide in this article 2-710 PLUS
(c) Due allowance for cost reasonably incurred PLUS
(d) Due credit for payment or proceeds of resale
g) Foreseeability of consequential damages.
Hadley v. Baxendale (Exch 1854)
(Miller sues carrier over crankshaft delivery.)
(1) Rule: “Where two parties have made a K which one of them has
broken, the damages which the other party ought to receive in
respect of such reach of K should be such as may fairly and
reasonably be considered either arising naturally, i.e., according to
the usual course of things, from such breach of K itself, or such as
may reasonably be supposed to have been in the contemplation of
both parties, at the time they made the K, as the probable result
of the breach of it. Now if the special circumstances under which
the K was actually made were communicated by the P to the D,
and thus known to both parties, the damages resulting from the
breach of such a K, which they would reasonably contemplate,
would be the amount of injury which would ordinarily follow from a
breach of K under theses special circumstances so known and
(a) See also 2-719(3).
(b) Why didn’t court buy P’s assertion that he dispatched the
shaft to Gloucester ASAP? Think Cardozo in Jacob &
Youngs v. Kent: apt and certain words. Before you shift
significant loss onto someone, you have to bring it home in
apt and certain words: if I don’t have this back on time,
this is what I stand to lose…. Then seller has option of
saying he can’t do it … or charge more for guarantee.
(c) REASON TO KNOW. That’s the rule here. D did not have
reason to know that the part was so critical; no liability for
consequential damages of which the D had no reason to
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h) UCC § 2-715. Buyer's Incidental and Consequential Damages.
(1) Incidental damages resulting from the seller's breach include
expenses reasonably incurred in inspection, receipt, transportation and
care and custody of goods rightfully rejected, any commercially reasonable
charges, expenses or commissions in connection with effecting cover and
any other reasonable expense incident to the delay or other breach.
(2) Consequential damages resulting from the seller's breach include
(a) any loss resulting from general or particular requirements and
needs of which the seller at the time of contracting had reason to know
and which could not reasonably be prevented by cover or otherwise; and
(b) injury to person or property proximately resulting from any breach
(1) Incidental Damages: Reimbursement for the buyer’s incidental
damage resulting from the seller’s breach include:
(a) Expenses for rejected goods – Expenses reasonable
incurred in inspection, recipt, transportation, care and
custody or goods rightfully rejected AND
(b) Expenses for covering – Any commercially reasonably
charges, expenses or commission in connection with
(c) Expenses for delay or breach – Any other reasonable
expense incident to the delay or other breach.
(2) Consequential Damages: Consequential damages resulting from
seller’s breach include:
(a) Loss – Any loss resulting from general or particular
(a) The seller had reason to know of the need
for the requirement at the time of
(b) The buyer could not reasonable have
prevented such losses by covering or
(a) Particular needs of the buyer must
generally be made known to the seller.
(b) General needs must rarely be made known
to charge the seller with knowledge.
(b) Injury – injury to person or property proximately resulting
from any breach of warranty
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1. Don’t confuse impossibility with impracticability. If it’s impossible, it’s
impossible; if it’s impracticable, it’s doable, just very difficult.
2. Types of impossibility: Impossibility is a DEFENSE, not an offensive weapon.
The horse is dead.
a) Extant. When K was entered into.
c) Supervening: Condition did not exist at time K was entered into; it
supervened following the execution of the K.
3. Test of impracticability:
a) No fault of breacher.
b) Nonoccurrence was basic assumption of K.
c) No A/R by breacher.
B. UCC § 2-615. Excuse by Failure of Presupposed Conditions.
Except so far as a seller may have assumed a greater obligation and subject to the
preceding section on substituted performance:
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with
paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as
agreed has been made impracticable by the occurrence of a contingency the non-occurrence
of which was a basic assumption on which the contract was made or by compliance in good
faith with any applicable foreign or domestic governmental regulation or order whether or not
it later proves to be invalid.
(b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to
perform, he must allocate production and deliveries among his customers but may at his
option include regular customers not then under contract as well as his own requirements for
further manufacture. He may so allocate in any manner which is fair and reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-delivery and,
when allocation is required under paragraph (b), of the estimated quota thus made available
for the buyer.
C. RSC § 263 Destruction, Deterioration or Failure to Come Into Existence of Thing
Necessary for Performance
If the existence of a specific thing is necessary for the performance of a duty, its failure to
come into existence, destruction, or such deterioration as makes performance impracticable is
an event the non-occurrence of which was a basic assumption on which the contract was
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D. Uncontemplated existing condition rendering performance impracticable.
Mineral Park Land Co. v. Howard (Cal. 1916)
(Req. K for sand/gravel—half of which was below water table.)
1. Rule: A D may be released from performance of a requirements K where an
uncontemplated condition makes the cost of performance excessive and
unreasonable, which is to say impracticable?
2. Habl: Who should have born the risk? Landowner or excavator? Shouldn’t it be
the excavator? Court here said no. Very generous to the buyer. Too generous?
3. Technological difficulties.
US v. Wegematic Corp.
(Computer mfr promises tech revolution, can’t deliver.)
a) Rule: If D promises performance based on his own tech breakthrough he
cannot escape liability for breach where said breakthrough fails.
E. Supervening impracticability.
1. Destruction of subject matter.
Taylor v. Caldwell (KB 1863)
(Concert hall burns—who bears the loss?)
a) Rule: Where the performance of a K depends on the continued existence
of a person or thing, a condition is implied that impossibility arising from
the perishing of the person or thing shall excuse the performance of the K.
b) RSC 263 re “basic assumption”: The destruction of a specific thing
which was necessary for the performance must be an event the
nonoccurrence of which was a basic assumption of the agreement.
(1) Default rule: If you don’t address it in the K, this is the way
it will be handled. Implied condition of law, not fact.
(2) Note the no-fault provision. If hall had burned b/c of fault by D,
then P would recover.
2. Foreseeable risk of nonperformance.
Canadian Industrial Alcohol v. Dunbar Molasses (NY 1932).
(Not enough sugar to make alcohol.)
a) Issue: Does the failure of a seller’s supplier constitute impossibility of
b) Holding/Rule: No. D promised to make sure P got his molasses. D should
have foreseen the refinery’s inability to perform and insured himself
against it by securing a K with the refinery.
(1) Specified source. Important in this area of K.
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(2) Is D guilty of any culpability in suppliers’ failure to perform? Yes.
He did nothing to cover his assets. Dunbar was speculating with
Canadian’s exposure. D is guilty of contributing to this loss
because he did not tie up supplier contractually. Contributory fault.
(3) UCC 2-615. If D had a K with Yonkers and Yonkers failed, D would
transfer his right to sue for breach to P. REVIEW THIS.
3. Futility is not impracticability.
Dills v. Town of Enfield (Conn. 1989)
(Who keeps downpayment in industrial-park flop?)
a) Issue: Does the occurrence of an event contemplated by a K constitute
impracticability sufficient to relieve a party’s duty to perform on an
independent provision of the same K? NO.
b) RSC 261: Impracticability forgives performance where:
(1) Event made performance impracticable.
(2) Nonoccurrence of said event was a basic assumption of the K.
(3) Event is not fault of party seeking excuse.
(4) Party seeking excuse is not assuming greater obligation than the
F. Frustration of Purpose.
1. Unforeseeable supervening event.
Krell v. Henry (KB 1903)
(Rental of apt. in order to watch King’s coronation.)
a) Rule: Where the purpose of the K is frustrated by an unforeseeable
supervening event and the purpose was within the contemplation of the
parties when the K was made, performance is excused.
(1) LBC interp: (D did not assume the risk that the value of the
exchange would be so diminished, so he is not liable for full
payment – the attainment of the purpose of the K becomes an
implied condition precedent to performance.
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2. Common Law: At common law, where something frustrates and a party seeks to
be excused, it is an all or nothing decision (he gets excused or not) NOW: It is not
all or nothing:
a) Equitable reformation: The court basically makes the K for the parties,
so there is no more all or nothing (the court did that here to save P from
loosing any more money) – court inserts a more favorable clause (similar
to the court’s discretion in 2-302 – but different because was not in
contemplation at the time the K was made)
b) Damages – Should D absorb the entire loss when the K is excused? – NO,
but the common law did not take into account anything other than yes or
no – until equitable reformation. If you honor the reliance damages, and
take this into account, there might be apportioning (Habl likes this)
3. Factors to consider when arguing Frustration of Purpose Defense:
a) Foreseeability: Was the event that devalued the K foreseeable? Did the
parties contemplate it when they made the K? – The less foreseeable the
event, the more likely you are to get the excuse (REMEMBER—
foreseeability not the main question)
b) Allocation of Risk: Did the parties implicitly allocate the risk of the event
to the promisor – if any risk was allocated to him, he won’t get the excuse.
c) How frustrated?: The court will look at the extent to which ALL of the
promisor’s expected benefits from the K have been frustrated.
d) Fault: The court will also consider whether the party seeking discharge
was responsible for bringing about (or failing to guard against) the event –
complete fault eliminates the defense.
4. Termination of essential govt. program.
Wash. St. Hops Producers v. Goschie Farms.
(USDA ends market for hops allotments.)
a) Issue: May the termination of a govt program that created a market for
farming permits constitute a supervening frustration of a K to purchase
b) Holding/Rule: The central purpose of the K was to buy and sell hops
allotments, but now the allotments are not worth anything anymore – the
value of the K was severely diminished and so the purpose was frustrated.
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