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Contracts Outline
Elements of a Contract
Reasonable Person Test
Offer
Duration, Mailbox Rule
Unilateral Contract
Option Contracts
Agreements to Agree
Indefiniteness
Acceptance
Consideration
Causes of Action
Breach of Contract
Breach of Implied in Fact Contract
Form
Promissory Estoppel
Unjust Enrichment
Past-Benefit Promise
Promise-Related Torts
Breach of Warranty
- Breach of express warranty
- Breach of implied warranty of merchantability
- Breach of implied warranty of fitness for a particular purpose
- Strict products liability
- Breach of other warranties
Statute of Frauds
(tort) Negligence
(tort) Fraud (Promissory Fraud)
(tort) Intentional Interference with Contractual Relations
Remedies
Expectancy
Reliance
Restitution
Liquidated
Specific Performance
Unmaking a Contract (Policing Doctrines)
Duress
Modifications
Misrepresentation
Fraud
Concealment
Nondisclosure
Public Policy
K contrast to public policy
Exculpatory agreement
Non-competitive clauses
Mental illness or defect
Unconscionability
Parol Evidence Rule
Interpretation and Past Practice
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Contracts Outline
Gap Fillers
Good Faith
Conditions and Promises
Cessation
Mistakes
Impossibility/Impracticability
Frustration of Purpose
OFFER
• Offers depend on how a reasonable person would interpret the alleged offeror’s language
and behavior
o Must be clear, explicit, definite, leave nothing open for negotiation (Lefkowitz)
o Corbin: “Offer is an expression by one party of assent to certain definite terms,
provided the other party involved in the bargaining transaction will likewise
assent to the same terms”
• Advertisements to General Public as Offers?
o Lefkowitz case: advertisement was an offer because it was clear, definite, explicit
and leaves nothing open for negotiation; house rule defense fails here
o Ford Motor Credit Co. case: Advertisements are invitations for offer; sellers
often do not have inexhaustible supply of product (public policy argument)
o Majority Rule: advertisements are invitations for offers; not actually offers
• Must be a meeting of the minds
o Raffles v. Wichelhause: no meeting of the minds b/c parties had different ships
named Peerless in mind
Case examples
• Lucy v. Zehmer: Reasonable person would have determined that Seller was making an
offer and accepting; inner intentions DO NOT MATTER but outer manifestations and
behavior do
• Morrow v. Morrow (family situations exception)
• Dickey v. Hurd: other communication between parties indicates that seller required an
answer for the offer to be accepted, not a payment
• Courteen Seed: Look at language communication(s) between parties to determine
whether there was an offer
RSC §20: Effect of Misunderstanding
• (1): no manifestation of mutual assent to an exchange if the parties attach materially
different meanings to their manifestations
▪ Neither knows or has reason to know meaning attached by other OR
▪ Both parties know or have reason to know meaning attached
• (2): Manifestations of the parties are operative in accordance with the meaning attached
to them by one of the parties if
o Party does not know of any different meaning
o Party has no reason to know of any different meaning attached by the other
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Contracts Outline
DURATION OF OFFERS
R2K §36: Methods of Termination of the Power of Acceptance
1. Offeree’s power of acceptance may be terminated by…
a. Rejection or Counter-offer by offeree
b. Lapse of time
• No time mentioned by parties? Court will impose reasonable time
c. Revocation by offeror
d. Death or incapacity of offeree or offeror
2. Power of acceptance can also terminate upon non-occurrence of conditions of
acceptance under terms of offer
Lapse of Time
• Akers v. JB Sedberry: court determined that employees’ offers to resign terminated
when the face to face conversation was over (time lapse termination)
o Face to face meeting rule
Qualified Rejection
• Collins: prisoners qualified their rejection by providing two alternatives
MAILBOX RULE
• When the offer is sent by mail, acceptance happens when acceptance is posted (not
when it is actually delivered)
• Offeror cannot revoke offer prior to Offeree’s acceptance
• Offeree cannot reject acceptance after sending acceptance but court will protect offeror
who relies on rejection
• There can be a K even if the offeror does not know that offeree has accepted
Case examples
• Adams v. Lindsell: offeror did not effectively revoke offer b/c he had already posted it
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Contracts Outline
AGREEMENTS TO AGREE
• Agreements to agree are usually not contracts
• Agreements to agree is a defense a party can use
• Courts may look at course of dealing to give meaning to uncertain terms
UCC 2-204(3)
• Even if terms are left open, a K does not fail for indefiniteness if parties have intended
to make a K and there is a reasonably certain basis for giving a remedy
Case examples
• Joseph Martin Jr. Deli: “to be agreed” upon language in K was agreement to agree
between landlord and tenant
• Metropolitan Corp.: parties had a course of performance as to what rate would be
OPTION CONTRACTS
Courts will inquire into the adequacy of consideration for option Ks
Restatement §87(1)
Offer is binding as an option K if it
• Is in writing and signed by offeror, recites a purported consideration for the making of the
offer, and proposes an exchange on fair terms w/in a reasonable time OR
• Is made irrevocable by statute
• Consideration?
o Gross disproportion between the payment and the value of the option commonly
indicates that the payment was not in fact bargained for (was a mere formality or
pretense) and there is no consideration
UCC §2-205: Firm offers
An offer by a merchant to buy/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
not 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
Case examples
• Dickinson v. Dodds: Offeror can close option b/c there was NO consideration for promise
to keep K open
• Marsh v. Lott: Court believes that options are good and that nominal or pretextual
consideration for option is sufficient consideration; 25 cents was good consideration for
option
INDEFINITENESS
Contracts can be formed even though parties envisioned further writing
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Contracts Outline
R2K § 27: Existence of a Contract Where Written Memorial is Contemplated
• Manifestations of assent are not prevented from operating just because the parties
intended to prepare and adopt a written memorial
• BUT circumstances can show that agreements are preliminary negotiations
• It is possible to make a K and one of the terms includes an obligation to execute a final
writing
• If either party knows the K is incomplete and intends that no obligation exist until other
terms are assented or the K is reduced to written form, then there is no K
• Has a K been concluded?
o Extent to which express agreement has been reached on all terms to be included
o Whether the K is of a type usually put into writing
o Whether it needs a formal writing for its full expression
o Whether it has few or many details
o Whether the amount involved is large or small
o Whether it is a common or unusual K
o Whether a standard form of K is widely used in similar transactions
o Whether party takes action in preparing for performance during negotiations
Case examples
• Arnold Palmer: court determines that parties’ intentions were a matter for fact finder to
determine
o The writing was indefinite but the court allows the case to continue to determine
what parties’ intentions were; did they intend to be bound?
• Empro: language in letters indicate that parties did NOT intend to be bound so no K
UNILATERAL CONTRACTS
• When acceptance must occur via performance and not by a return promise
R2K §45: Option Contract Created by Part Performance or Tender
• If Promisor invites performance and NOT promissory acceptance
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Contracts Outline
•
•
An option is created when the Performer tenders OR begins performance OR tenders a
beginning of it
Offeror’s duty of performance under this option contract is conditional on completion
OR tender of the Performer’s performance
Case examples
• Brackenbury: court finds a unilateral contract between mother who promised place to live
and property after her death in exchange for daughter’s performance of caring for her
o Mother prevented performance and was at fault
• Wormser HYPO: A promises B to pay $100 if B crosses Brooklyn Bridge; A can revoke
such promise at any time b/c it is a unilateral K and B must fully perform to get paid
• Wormser would have decided Brackenbury differently than court did: daughter had not
yet completed performance and mother had right to revoke at any time before
performance was complete
• Drennan: Subcontractor tried to revoke bid but Contractor had relied on it and Court
applies Promissory Estoppel for Contractor
o Note the similarity between PE and § 87
R2K § 87 (2)
• If party makes an offer that he should reasonably expect to induce action or forbearance
of a substantial character on the party of the offeree before acceptance
• And such action or forbearance does occur
• Then that offer is binding as an option contract to the extent necessary to avoid injustice
ACCEPTANCE
• When there is an offer, the offeree must communicate his acceptance to the offeror before
there is a contract
Mirror Image Rule
• Acceptance must track identically the terms of the offer (but see battle of the forms)
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Contracts Outline
General Acceptance: Act of “acceptance” must in reasonable time and in the usual course of
events communicate acceptance to offeror
• UCC 2-206 (1)(a): Offer to make a K invites acceptance by any medium reasonable in
the circumstances
• Restatement §32: Offer invites offeree to accept either by promising to perform or by
rendering the performance
• Both UCC and R2K can be contracted around
• Qualified acceptance is usually not acceptance (unless the conditions are independent of
acceptance)
o Ardente case: a counteroffer with new terms is NOT acceptance
o RSC §58: acceptance may not impose conditions or add limitations
• Beginning performance is usually not acceptance
o Corlies v. White: Offeror revokes offer and power of acceptance is terminated;
Offeree cannot recover even though he began working and bought materials
Silence?
• Ducommun: silence does not constitute acceptance
• R2K §69 Silence and Inaction can be acceptance ONLY when
a. Offeree takes benefit and has an opportunity to reject it AND knows they were
offered w/ expectation of compensation
b. Offeror has stated or given offeree reason to understand that assent may be
manifested by silence or inaction AND offeree intends to accept the offer
c. B/c of previous dealings, it is reasonable that offeree should notify offeror if he
does not intend to accept
Case examples
• Embry v. Hargadine: A reasonable person would think “You’re okay. Do not let that
worry you” meant that employer was accepting offer
• Ardente v. Horan: P did not actually accept b/c P imposed new conditions on D for sale
of land
• White v. Corlies: Builder could not accept offer by beginning work
CONSIDERATION
Something sought by the promisor AND given by the promisee in exchange for the promise
•
Is the promisor seeking out a SOMETHING?
o Use the Reasonable Person Test
o The court will use a reasonable person test to determine whether something was a
Something
o Hardesty v. Smith: Rights to lamp invention are a Something given to promisee in
exchange for promise to pay
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Contracts Outline
o
•
•
•
•
Lucy v. Zehmer: promise to pay certain amount is consideration for promise to
give land
o Mattei v. Hopper: use reasonable standard for technical satisfaction clauses
o Restatement (First) of Contracts §75
▪ Consideration can be: an act, a forbearance, creation / modification /
destruction of a legal relation, OR a returned promise
Watch out for gifts, recited consideration, “thank you” consideration, past
consideration, the preexisting duty rule
o Dougherty v. Smith: Aunt’s gift to nephew is not consideration for promised
payment; recited consideration is not consideration
▪ Napoleon gives aunt a kiss after getting gift; this is not consideration
because it was not sought in exchange for promise (thank-you
consideration)
▪ Dougherty v. Smith HYPO: Nephew’s past good behavior is not
consideration for aunt’s promise to pay because it happened in the past
o Hamer v. Sidway HYPO: If nephew was already legally obligated not to smoke,
act of not smoking is not good consideration b/c of preexisting duty rule
Is it a conditional gift? Determine whether something was sought by promisor
o Tramp HYPO: walking around the corner to get a coat is NOT consideration. The
walking around the corner was NOT sought by promisor.
o Maughs v. Porter: attending auction was good consideration for promise to give a
car; the attendance was sought by the promisor (auctioneer)
Manifestation principle and the reasonable person test
o Courts look at the manifestation of parties (so their actions) to determine their
intentions; otherwise it’ impossible to discern internal intentions of parties
o Lucy v. Zehmer
o Restatement (Second) of Contracts §81
▪ If what is bargained for OR promise do not itself induce the making of a
promise, it can still be consideration
▪ More than one motive? Intentions are irrelevant unless both parties knew
that consideration was mere pretense
▪ Promisor can have more than one motive but if both parties know it is
pretense-then the K may be void
What if the consideration seems pretextual (dubious)?
o Though courts do not usually determine the adequacy of consideration, a contract
or term may be unconscionable and therefore the contract may be void
o Haigh v. Brooks: Court holds that giving worthless piece of paper is good
consideration
o Corbin: tomtit or peppercorn may be good consideration; may be pretense
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Contracts Outline
•
Forbearance?
o Court will accept forbearance as consideration if the forbearance was sought in
exchange for the promise
o Corbin: Forbearance to bring a suit is not consideration if one bringing suit
knows the claim is invalid but may be consideration if there is good faith
o Hamer v. Sidway; nephew’s forbearance of legal rights to smoke, drink etc. was
good consideration in exchange for uncle’s promise to pay
o Springstead v. Nees: (sibling property case) forbearance of bringing legal action is
not good consideration because there was no colorable claim
o Neuhoff: forbearance to sue without an expression or fair implication is not
consideration; homeowners never communicated with Widow Company about
forbearance
•
Mutuality?
o Courts do NOT require mutuality; they DO require consideration
o Illusory Promises: one party holds all the cards, no mutuality, K is not enforceable
▪ De Los Santos: Promise to allow Beet Hauler to transport nothing is an
illusory promise. An agreement that states that performance of the K
depends upon the wishes of only one party is unenforceable for lack of
mutuality.
▪ Mattei v. Hopper: A satisfaction clause in a real-estate contract that bases
one party’s promise to perform on the satisfaction of a condition does
NOT render the promise illusory or lacking consideration because the
satisfaction clause imposed on the Buyer was not a condition for forming
the K between the parties. It was a condition preceding Mattei’s obligation
to perform a portion of the agreement.
o Implied Promises: reasonably obvious there was a binding promise; K is
enforceable
▪ Lucy, Lady Duff-Gordon: Promoter made an implied promise to make best
effort. (1) A contract may be enforced when there is NO evidence of a
promise, exchanged as consideration, in the EXPLICIT terms of the
contract. (2) A promise to use reasonable efforts may be implied from the
entire circumstances of a contract.
o Employment and Mutuality
▪ Weiner v. McGraw Hill: No mutuality but Employee giving up other job,
not taking other employment opportunities, and working are good
consideration for promise to not fire Employee without just cause
▪ Kamboj: Giving up old job is not consideration absent special
circumstances
•
Is the consideration adequate?
o Courts will usually not assess the adequacy of consideration
o Note the court may assess the adequacy of consideration regarding specific
performance and option contracts OR unfair bargaining and unconscionability…
•
Satisfaction clauses? Then either apply…
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Contracts Outline
o
o
•
Good faith subjective standard: fancy, personal taste or judgment
Reasonable person objective standard: commercial value, quality, utility
Reliance not bargained for?
o Ricketts v. Scotthorn: granddaughter quit her job b/c grandfather promised her
$2000 (court uses legal fiction of equitable estoppel)
o Seavy v. Drake: father promise son the land; son began improving land (part
performance in equity)
Form and Consideration (Fuller)
• Functions of Form
o Evidentiary Function: providing evidence
o Cautionary Function: deters inconsiderate action
o Channeling Function: forces reflection and communication of ideas
• Substantive Elements
o Private autonomy, reliance, unjust enrichment
Llewellyn: The rule follows where the reason leads; where the reason stops, there stops the rule
BREACH OF CONTRACT
A breach occurs when a party
• Does not perform
• Performs inadequately
o Fails to deliver goods
o Delivers the wrong goods
o Fails to perform for the duration of time stated in the agreement
o Performs the wrong work
o Does not complete the work agreed as stated in the agreement
Case Examples
• Sullivan v. O’Connor: Doctor breached contract because he promised to enhance beauty
by performing nose job and entertainer ended up looking worse than before
• Embry v. Hargadine, McKittrick Dry Goods Co.: Employer breached agreement to allow
employee to continue working
• White v. Benkowski: Neighbors breached agreement by turning off water supply to
plaintiffs periodically when neighbors had promised to supply water
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Contracts Outline
Remedies
• The default remedy is expectancy damages
• If expectancy damages are difficult to determine, a party may attempt to get restitution
damages
IMPLIED IN FACT CONTRACT
Party seeking payment must show
1. Services were carried out under circumstances as to give the recipient reason to
understand that
a. They were performed for him and no someone else
b. That they were NOT rendered gratuitously but with the expectation of payment
from the recipient
2. Services were beneficial to the recipient
Remedy: Reasonable value of services (often measured by what it would cost someone other
than the party seeking payment to have rendered the same services)
If MATERIAL breach, party seeking payment can elect to recover restitution damages. Proper
measure of restitution damages for a non-breaching party is the larger measure, unless it is
disproportionately in excess of expectancy damages.
FORM
• In most jurisdictions, enforcement of a promise based a formality (like a seal) does not
function as consideration
• Some jurisdictions do allow a seal and a recitation of consideration to function as
consideration
PROMISSORY ESTOPPEL
Restatement (Second) of Contracts §90
• A promise
• Which the promisor should reasonably expect to induce action or forbearance by the
promisee or a third person
• Action or forbearance does occur
• Injustice can only be avoided by enforcement of the promise
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Contracts Outline
Checklist
• Is there contract?
o If no, move on. If yes, look at K-related causes of action
o Is there almost a contract? Statute of frauds problem, consideration problem,
etc.
• Was there a promise?
o Conditional promises are NOT usually okay (Local 1330 case)
• Should the promisor have expected the promise to induce action or forbearance?
• Did the action or forbearance actually occur?
o Was there unbargained-for reliance by the promisee?
o Did the promisee perform a substantial portion of the requirements of the K?
o Was the reliance of the promisee justifiable?
• Did the promisor NOT keep the promise?
• Is there NO OTHER WAY to avoid injustice except by enforcing the promise?
Case Examples
 Wheeler v. White (the Loan Arranger case): YES PE – Loan Arranger promised to
provide funding for development. Loan Arranger expected Loan Receiver to act based on
promise. Loan Receiver did destroy buildings. Loan Receiver gets reliance damages.
o K wasn’t definite enough to be specifically enforced, but it was definite enough to
support an action for damages.
• Elvin Associates v. Franklin (Aretha Franklin case): YES PE – Musical producer can
recover dmgs because he relied on Aretha’s commitment to appear in production
o No K; but part of negotiation was to go along with deal
• Seavey v. Drake: YES – father promised land to son, son begins working on it. There’s
equitable estoppel here (part performance in equity)
• Ricketts v. Scotthorn: YES - equitable estoppel b/c granddaughter relied on grandfather’s
promise of money by quitting her job
• Local 1330, United Steel Workers v. United States Steel Corp.: NO PE - Steelworkers do
NOT have cause of action based on promissory estoppel because promise was conditional
and condition was not met
• Alden v. Presley (Elvis case): NO PE - no justifiable reliance because reliance was gone
Remedies
• RELIANCE DAMAGES are the default for promissory estoppel e
• Specific performance may be an option (Seavey v. Drake and LAND)
UNJUST ENRICHMENT
• Also known as contract implied in law, quasi contract, quantum meruit
• No actual contract or promise; or expectancy cannot be proven or are $0
• Default damages are RESTITUTION DAMAGES
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Contracts Outline
Party has cause of action of Unjust Enrichment when
• Party (giver) confers
o Not gratuitously
o Not imposing benefit on receiver
• A benefit
o Money, land, possessions, services, satisfies debt, adds to other’s advantage
• Onto another party (receiver)
• It would be unfair/inequitable for the receiver to keep the benefit without compensating
the giver for the value of the benefit
• EXCEPT
o When benefit was conferred gratuitously or officiously
o When benefit was conferred without opportunity to reject such benefit (some
exceptions to this…doctors)
o When question of payment was left up to discretion of receiver
o When giver was doing so to get a business advantage
o When giver did not contemplate a fee
o When receiver could not have contemplated that giver wanted a fee
Did the Recipient KNOW the Giver expected payment?
• Bloomgarden v. Coyer: NO UE – Fee finder does not get fee because he never indicated
he wanted a fee and the developers had no reason to believe he wanted a fee
o HYPO: if fee finder had said he wanted a fee after introducing the parties, still no
fee
o In Bloomgarden, receiver MUST understand a payment is expected
• Sparks v. Gustafson: YES UE – Property manager did confer a benefit upon estate, this
benefit was not ordinarily one given in the context of friendship, and court allows
property manager to recover based on unjust enrichment
o Receiver does NOT have to understand payment was expected
o Note: Bloomgarden court would probably NOT have allowed manager to recover
• Gay v. Mooney: YES UE – Nephew allowed Uncle to live with Nephew’s family in
exchange for land for Nephew’s children; court allows Nephew to recover value of
benefit (room and board) conferred on Uncle
o No breach of K b/c Statute of Frauds forbids sale of land w/out writing
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Contracts Outline
Can the Recipient RETURN the benefit?
• Kelly v. Hance (sidewalk building case): NO UE – Contractor does not recover based on
unjust enrichment because the homeowner could not return the benefit received (the
partially completed sidewalk) and contractor abandoned work (contractor was the
breacher)
o Theory of substantial performance (what is substantial? Look at your jurisdiction)
o Theory of divisible performance (12 statues HYPO; one can return statues)
o Voluntary acceptance? Then breacher may be able to recover
o Was there an implied promise?
• Britton v. Turner: YES UE – Employee recovers for partial performance of K that said
employer would pay after a year of employment b/c of UE
o Court provides reasons why employee should recover
▪ Policy: employers won’t drive off employees
▪ Justice: employer should not benefit from labor and damages against
breacher
▪ Equality: employer benefits more from employee who breaches after 9
months v. employee who breaches on day 1
▪ Community understanding: community understands employee will be paid
for work
▪ Interpretation is against the drafter; employee could have drafted to avoid
this problem
• De Leon v. Aldrete: land seller cannot keep all the money paid by defaulting buyer
because seller was able to sell land to someone else; land seller keep difference between
second sale price and initial price
o Keeping the money would be equivalent to punitive damages (forbidden)
Authorities
Dobbs
• When a volunteer or officious intermeddler confers benefit, there is no unjust enrichment
claim; There are special situations when this policy does not apply
Perillo
• Even when the contract in a case is unenforceable, the unenforceable contract may still
influence proceedings
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Contracts Outline
PAST BENEFIT RECEIVED PROMISE
The default remedy is EXPECTANCY DAMAGES
Restatement (Second) of Contracts §86
(1) When a promisor makes a promise in recognition of a benefit received from the promisee in
the past, the promise is binding to the extent necessary to prevent injustice
(2) UNLESS
• (a) The promisee conferred the benefit as a gift
• (a) The promisor has not been unjustly enriched
• (b) The value of the promise is disproportionate to the benefit
• Comment (e): The promisee was an officious intermeddler or volunteer and thrust the
benefit onto the promisor
Comment (b): Enforcement of promise may occur in light of
• Definite and substantial character of the benefit received
• Formality in the making of the promise
o Was it written down?
• Part performance of the promise
• Reliance on the promise or probability of reliance
• Even if there is no consideration
Case examples
• Mills v. Wyman: Father made promise to caretaker that Father would pay for caretaker’s
labor in caring for son; Father did not pay
o Court says there is no consideration for promise to pay; caretaker cannot recover
o A promise based on a moral obligation but made without legal consideration does
not constitute an enforceable contract unless it is tied to a preexisting legal
obligation.
• Boothe v. Fitzpatrick (Bull Case): promise to pay Good Samaritan for past benefit of
caring for bull equated to a previous request; Good Samaritan wins
o There was consideration in this case
o Bull owner received benefit to property (bull) as opposed to third party benefit
received by father in Mills
o A promise made upon a past consideration is enforceable if the defendant receives
a valuable pecuniary benefit at the expense of the plaintiff.
• Webb v. McGowin (Block Navigator Case): saving someone’s life has material value;
promisor’s promise created a request for service; Block Navigator wins
o There was consideration in this case
o Court uses Bull case to make a fortiori argument
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Contracts Outline
PROMISE RELATED TORTS
Plaintiff may have cause of action based on a tort in the context of a breach of contract if
• Defendant breached a duty imposed by law, not just a breach of a duty imposed by
contract
Tort: promissory fraud
• Tort claim based on promise
• Promise made with intention not to keep promise at the time promise is made (state of
mind is a fact)
Case examples
• Mauldin v. Sheffer: defendant engineer can be held liable for tort for breach of legal duty
(based on misfeasance, not nonfeasance)
o Nonfeasance will not lead to tort claim
o Misfeasance could bring in tort claim
• Hargrave: Nursery can be liable for tort of fraud in context of contract
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Contracts Outline
BREACH OF WARRANTY
UCC 2-313: Express Warranties by Affirmation, Promise, Description, Sample
• (1) Seller can create an express warranty by…
o Affirmation of fact or promise made by Seller to Buyer OR description of goods
OR sample/model
o Which forms part of the basis of the bargain
• (2): seller does not have to use words “warrant” or “guarantee”
o Seller does not have to have an intention to make a warranty
o Affirmation of value of goods OR opinion or commendation of goods is not a
warranty
Facts v. Opinions/Puffing Sales Talk? Use opinion test
• It is an opinion if…
o Lack of specificity in statement
o Statement made in equivocal/vague manner
o Statement reveals good are experimental
Case example: Keith v. Buchanan: Yacht buyer does have action for breach of express warranty
(2-313) because buyer relied on facts stated by seller
• Inspection by buyer only waives warranty if defect is discovered and waived
Seaworthiness could not be tested in this case
Industralease: Focuses on unconscionability of warranty disclaimer - A court may refuse to
enforce a contract where there is evidence of a gross inequality of bargaining power between the
parties. An unconscionable contract is one that includes an absence of meaningful choice for one
of the parties, and contract terms that are unreasonably favorable to the other.
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Contracts Outline
UCC 2-314: Implied Warranty: Merchantability; Usage of Trade
• (1): there is an implied warranty that goods will be merchantable in a contract for sale of
goods if the seller is a merchant w/ respect to that kind of goods
o Food or drink to be consumed either on the premises or elsewhere is a sale
• (2) Goods to be merchantable must be at least such as
a. pass without objection in the trade under the contract description; and
b. in the case of fungible goods, are of fair average quality within the description;
and
c. are fit for the ordinary purposes for which such goods are used; and
d. run, within the variations permitted by the agreement, of even kind, quality and
quantity within each unit and among all units involved; and
e. are adequately contained, packaged, and labeled as the agreement may require;
and
f. conform to the promise or affirmations of fact made on the container or label if
any.
• (3) Unless excluded or modified (Section 2-316) other implied warranties may arise from
course of dealing or usage of trade.
2-104: Merchant = person who deals in goods of the kind OR holds himself out as having
special knowledge
Case example: Webster v. Blue Ship Tea Room: court found that plaintiff did not have cause of
action for breach of implied warranty (merchantability; usage of trade, 3-314) for policy reasons
that it would ruin the cultural icon that is chowder; plus reasonable person would notice bone in
the chowder
UCC 2-315: Implied Warranty: Fitness for a Particular Purpose
• There is an implied warranty that goods shall be fit for the buyer’s particular purpose if
o At the time of contracting, Seller has reason to know of any particular purpose
for which the goods are required AND
o Buyer is relying on Seller’s skill or judgment to select or furnish suitable goods
o Unless excluded or modified under 2-316
Elements (at time of contracting…)
1. Buyer intends to use goods for particular purpose
2. Seller has reason to know of particular purpose
3. Buyer relies on seller’s skill or judgement to select goods for particular purpose
4. Seller has reason to know that the buyer is relying on seller’s skill/judgment
Case example: Keith v. Buchanan: buyer does not have cause of action for implied warranty (2315) because he did not rely on seller’s skill
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Contracts Outline
UCC §2-316: Exclusion or Modification of Warranties
• (1) Words or conduct relevant to creation of express warranty and words/conduct tending
to negate or limit warranty will be construed wherever reasonable as consistent w/ each
other, but negation or limitation is inoperative to the extent such construction is
unreasonable
• (2) To exclude/modify implied warranty of merchantability or fitness, language MUST
mention merchantability by writing and be conspicuous; language can exclude all
warranties
• (3) Notwithstanding (2)
o (a): all implied warranties are excluded by expressions like “as is” “with all
faults” etc. that calls buyer’s attention to the exclusion of warranties and makes
plain that there is no implied warranty
o (b): when the buyer has examined the goods/sample/model before entering the
contract as fully as he desires or has refused to examine them, there is no implied
warranty with regard to defects which an examination should have revealed in the
circumstances
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Contracts Outline
ACTUAL UCC TEXT
UCC 2-313: Express Warranties by Affirmation, Promise, Description, Sample
(1) Express warranties by the seller are created as follows:
• (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and
becomes part of the basis of the bargain creates an express warranty that the goods shall conform to
the affirmation or promise.
• (b) Any description of the goods which is made part of the basis of the bargain creates an express
warranty that the goods shall conform to the description.
• (c) Any sample or model which is made part of the basis of the bargain creates an express warranty
that the whole of the goods shall conform to the sample or model.
(2) It is not necessary to the creation of an express warranty that the seller use formal words such as
"warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of
the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the
goods does not create a warranty.
UCC 2-314: Implied Warranty: Merchantability; Usage of Trade
(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied
in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the
serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
• (a) pass without objection in the trade under the contract description; and
• (b) in the case of fungible goods, are of fair average quality within the description; and
• (c) are fit for the ordinary purposes for which such goods are used; and
• (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within
each unit and among all units involved; and
• (e) are adequately contained, packaged, and labeled as the agreement may require; and
• (f) conform to the promise or affirmations of fact made on the container or label if any.
(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing
or usage of trade.
UCC 2-315: Implied Warranty: Fitness for a Particular Purpose
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are
required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods,
there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for
such purpose.
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Contracts Outline
STATUTE OF FRAUDS
Checklist
1. Does the statue apply? Is the case within the statute?
o Buying a gallon of milk for less than $500 would not be w/in the statute
General Statute of Frauds Categories
o Charging a representative for a promise to pay for damages out of rep’s estate
o To charge a person on special promise to answer for another’s debt, default
▪ Schoor: lawyer’s promise to pay for company’s debts
o To charge a person upon an agreement made in consideration of marriage
o Contract for sale of land, tenements, hereditaments etc.
▪ Gay v. Mooney, Seavy v. Drake, Sterling v. Taylor
o Upon any agreement that is NOT to be performed w/in one year from the
making of such agreement
▪ Webb v. McGowin: block navigator could have died before one year
passed and performance could have occurred w/in one year
▪ McIntosh v. Murphy: court found the case fell w/in the Statute of Frauds
b/c it involved a promise for performance not be performed w/in a year
o To charge a person upon an agreement authorizing/employing an agent to
purchase/sell real estate for compensation or commission
o To charge the estate of a deceased person upon any agreement which is not to be
performed during the lifetime of the promisor (Gay v. Mooney)
2. Does a memo, note, or other writing satisfy the statute?
o Sterling v. Taylor: writing must have terms-buyer, seller, price, property; this
case’s writing did not have reasonable certainty regarding price term
▪ Corbin: parol evidence is acceptable
o R2K §131: writing must identify the subject of the parties’ agreement, show that
they made a K, and state the essential terms w/ reasonable certainty
3. If the case is within the statute but there is no writing, does the statute recognize an
exception?
o Seavy v. Drake: there is an exception to the statute of frauds because the son
relied on the father
o Main Purpose Rule: case will not fall into the Statute of Frauds if the main
purpose of the promise is a personal interest
▪ Schoor: in which lawyer made promise to pay company’s debt b/c he had
a large interest in the company and the company owed him money
▪ Corbin would endorse Main Purpose Rule b/c it is evidentiary
4. If the case is within the statute, there is no writing, there is no exception, does any other
doctrine mitigate what would otherwise be the effect of non-compliance?
o UE, PE, etc. could mitigate the effect of non-compliance
o Sterling HYPO: if Buyer had not given the money back, there might be UE
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Contracts Outline
o
o
McIntosh v. Murphy: majority applies R2K §139: employee relied on promise
made by employer in moving to Hawaii; PE applies b/c there is much reliance
McIntosh Dissent: there was no reliance b/c P was moving to HI anyways AND
the statute was enacted to combat this case b/c it involves potential fraud
R2K 139:
• (1)
•
o Promise which promisor should reasonably expect to induce action/forbearance
o Does induce action/forbearance
(2): Consider these circumstances to determine whether injustice can be avoided
o Availability/adequacy of other remedies (cancellation, restitution)
o Definite and substantial character of action/forbearance
o Extent to which action/forbearance corroborates evidence of making/terms of
promise
o Reasonableness of action/forbearance
o Extent to which action or forbearance was foreseeable by promisor
UCC § 2-201. Formal Requirements; Statute of Frauds.
• (1): Sale of goods for more than $500 requires writing signed by party against whom
enforcement is sought
o Writing is not insufficient if it omits or incorrectly states a term BUT contract is
not enforceable beyond the quantity of goods shown in the writing
• (3) a contract that does not satisfy (1) but is valid in other respects is enforceable if
o (a): the goods are specially manufactured for Buyer AND the goods are not
suitable for sale in Seller’s ordinary course of business AND Seller has begun
manufacturing or procuring goods
o (b): Party charged admits a K was made
o (c): Goods have been accepted and payments have been made
HYPO example: Buyer moves to Hawaii to buy Blumbo the elephant for $501. Seller promises
to sell elephant but then does not.
• NO writing so UCC 2-201 may not apply.
• BUT UCC 1-103(b): THE MOST IMPORTANT PROVISION IN THE UCC sucks in
promissory estoppel. Buyer could assert this cause of action.
See p. 215 for sample Statute of Frauds from HI
EXPECTANCY DAMAGES
• Put the injured party in the position it would have been in had the K been performed
• Default damages for breach of contract
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Contracts Outline
Expectancy in the Context of Construction/Building
• Two possible measures for Homeowner as the Injured Party
o The value of work remaining to be done
o The value the land would have been had the breacher completed the work
• Groves: Contractor did not restore land to grade level
o Majority
▪ Expectancy damages = cost of performance and NOT value of land
▪ Majority thinks value of land is not relevant in building contract
▪ Owner bargained for construction work; Contractor willfully breached
▪ Majority is concerned about justice
o Dissent
▪ Expectancy damages = value of land and NOT cost of performance
▪ The loss that P actually suffered was a decrease in the value of the land
▪ Dissent is worried about unjust enrichment of P
• Peevyhouse: Contractor did not restore land after strip mining
o Majority
▪ Court holds that cost of performance damages are unconscionable b/c they
are so much higher than the value of the land
▪ When the economic benefit of full performance is grossly disproportionate
to cost of performance, injured party is limited to value of land damages
o Dissent: owners bargained for performance; should get cost of performance
• Rock Island
o New statute dictates that cost of performance is proper; environmentalist concerns
• What is the purpose of the K in these cases?
o HYPO: Homeowner contracts for builder to build DTC-Cheesehead statue
o Statue will decrease value of land; owner may be entitled to cost of performance
b/c it is her land
o Groves owner lost use of commercial land; Peevyhouse owners lost home-farm
• Morello: Court does not allow subcontractor to recover when there would be UE
• Eisenberg: P will settle if he does not actually want performance; watch out for windfall
Values
• Efficiency Minded Economist: not worth spending $60k (COP) on property worth $12k
o Wants to encourage transactions; $60k will discourage transactions
o OR wants provide secure transactions and will favor $60k
• Person of the Cloth
o A person’s word is their bond; would prefer the $60k COP; it is an incentive
• Aristotle: UE-does COP or value of land cause more UE?
• Environmentalist: would favor damages that resulted in least harm to environment
• NOTE: $60k is fair but $12k is efficient
Expectancy in Other Contexts
• When the Builder breaches and Owner has cause of action for breach of K
o Cost of completion is standard in most construction cases
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o
•
•
•
•
•
Thorne: Owner gets cost of completion but Court will NOT put Owner in a better
position by awarding damages based on superior roofer/roof costs of second K
When the Owner breaches and the Builder is entitled to recover
o Damages = Actual Expenditures + Net Profit – Scrap Value – Payments Made
▪ Net Profit = Total K Price – What Total Expenditures would have been
o Warner v. McLay: Builder was run off project before completion
When the Employee breaches and Employer must cover
o Employer must mitigate damages by hiring new Employee
o Lukaszewski: Employer had to find replacement employee when Employee
breached; Employer only had one option and was entitled to damages of
difference between new, higher salary and breaching Employee’s old salary
When Buyer breaches in a sale of land K
o Seller’s Damages = K Price – Fair Market Value
o If K price < Fair Market Value, Seller will not recover
When Seller breaches in the sale of land K
o Buyer’s Damages = Fair Market Value – K Price
o If K Price > FMV, then Buyer will not recover
When the Employer breaches and mitigates damages by offering Employee new offer
o Different/Inferior Test: New offer must NOT be different and inferior
o Parker:
▪ Majority held that Musical movie is different and inferior to Drama movie,
therefore, Employer did not properly mitigate
▪ Dissent argues that mitigation is only improper when it asks someone to
perform a job that is too severe and for which they have no training
• Difference of roles is a question of fact, not law
▪ Dissent also notes work should not be more menial
o Hillman: one should never have to take a job w/ a breaching employer or deal w/
breacher again
LIMITS ON EXPECTANCY DAMAGES
Lost Profits must be… CERTAIN and FORESEEABLE BY BOTH PARTIES
• New Business Rule
o If a party is new a business, no recover for lost profits b/c usually too speculative
• Evergreen: does not allow new Movie Theater to recover for lost profits b/c of breach
• Lakota Girl Scout: Court allows Girl Scouts to recover lost profits that resulted from
breach; Girl Scouts are not a new business
o Also note Girl Scouts had better evidence than Movie Theater
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•
Freund: Court does not allow author to recover for speculative profits on book, only
nominal damages, b/c author failed to prove w/ certainty there would have been profits
• Foreseeability Rule: party must be able to foresee damages in order to be liable for them
o Hadley: Court does not allow Miller to recover for lost profits that resulted from
not having crankshaft b/c Deliverer did not contemplate those potential damages
o Armstrong: Court DOES allow Miller to recover for lost profits b/c D failed to
repair a crankshaft; Repairer should have known broken crankshaft would cause
loss of profits
Consequential Damages
UCC: 2-715(2)(a): Consequential Damages
Restatement (Second) of Contracts §351(3):
when Seller Breaches
Court can avoid disproportionate compensation
Any loss resulting from requirements needs of
by limiting damages for foreseeable loss by
which the Seller at the time of K had reason to
o Excluding recovery for loss of
know AND which could not have reasonably be
profits
prevented by cover or otherwise
o Allowing recovery only for loss
Rejects the Tacit Agreement Test
incurred in reliance
Particular needs must be made known to Seller;
o Otherwise if it concludes that
General needs do not need to be made known
justice so requires
•
•
•
•
•
Tacit Agreement Test
o Party can only recover consequential damages when the party has tacitly agreed
to assume the risk (most courts reject this test)
o Sunnyland: court abandons the TAT and allows farm to recover for losses caused
by fire and not prevented b/c Electric Company shut down electricity
Countermand Rule
o When a Party requests that the other stop performing, that party should stop
performing b/c it can recover expectancy damages
o Clark v. Marsiglia: Painting Repairer should have stopped working; cannot
recover for lost profits after countermand was communicated
o Damages = Expenses Incurred + Net Profit – Scrap Value – Payments Made
Inferior/Different Test: Employer’s mitigating offer cannot be different/inferior
(Parker)
Mental Distress Damages?
o Chrum: mental distress damages are not recoverable in contract claim b/c this is a
commercial context (as opposed to personal like in Sullivan v. O’Connor)
Other limits: breach by doctor=reliance only; no recovery for loss of goodwill; no lost
expectancy to attorneys; no pre-judgment interest
Expectancy in the Context of Sale of GOODS
UCC 1-305: Remedies to be Liberally Administered
• Expectancy damages are the default; no consequential, special or punitive damages
unless otherwise mentioned
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Contracts Outline
UCC 2-713: Buyer’s Damages for Seller’s Non-delivery or Repudiation
• Damages = Contract Price – Fair Market Price + Incidental/Consequential Damages
• Only applies when cover has not happened
• Tongish: Court determines that UCC 2-313 applies (damages are higher) instead of
UCC 1-305 because the more specific statute is controlling
o Policy: 1-305 damages (lower damages) will encourage breach and inefficiency
UCC 2-712: Cover: Buyer’s Procurement of Substitute Goods
• Damages = (cost of cover) – (contract price) + (incidental/consequential damages) –
(expenses saved)
• HYPO: K price = $13; Seller refuses to deliver and Buyer covers at $14
o Damages = $14 – $13 = $1
UCC 2-708: Seller’s Damages for Buyer’ Non-Acceptance or Repudiation
• Damages = (Contract Price) – (Market Price) + (Incidental/consequential damages) –
(expenses saved)
• OR if those damages are inadequate: damages = (profit seller would have made if buyer
had performed) + (Incidental Damages)
• HYPO: K price = $10; Market Price = $9; Seller tenders goods; Buyer refuses them
o Damages = $10 – $9 = $1
• (2): Two situations:
o Lost volume Seller: proceeds of resale are irrelevant
o Injured Manufacturer will acquire some scrap value (resale)
• Neri: Court allows Seller to recover for lost profits b/c he was a volume seller of boats
and resale would not make up for seller’s loss
UCC 2-706: Seller’s Resale Including Contract for Resale Price
• Damages = (Contract Price) – (resale price) + (Incidental/consequential damages) –
(expenses saved)
• HYPO: K price = $10, Market Price = $9, Seller Resells @ $8
o Damages = $10 – $8 = $2
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Contracts Outline
UCC 2-714: Buyer’s Damages for Sellers’ Breach in Regard to Accepted Goods
• Buyer accepts goods and notifies Seller
• Damages = (Value goods would have been) – (value of goods accepted)
• HYPO: Buyer accepts goods; K price was $15 but actual good are worth $5
• Fair Market Value of Goods = $17
o Damages = $17 – $5 = $12
RELIANCE DAMAGES
• Put the injured party in the position it would have been had the K never been made
• Usually if P has changed position in reliance of promise of D (promissory estoppel)
• If expectancy damages are too uncertain, court may allow reliance damages
Case Examples
• Dempsey: court finds expectancy damages that result from Dempsey’s breach by not
fighting to be too speculative; allows reliance damages that occurred between making
of agreement and breach
• Anglia Television: (English case): allows P to recover expenditures before K b/c both
parties should have contemplated such expenditures
• Coppola: $500 spent on wedding that was allegedly called off because D did not deliver
($10) is too remote (not foreseeable per Hadley) and P can only recover $10
• Merry Gentlemen: Court will not allow P to be put in a better position than it would
have been had K been performed; reliance are capped to what expectancy would be
Promissory Estoppel
• Goodman v. Dicker: Court allows P to recover $1150 but not $350 b/c $350 was for
lost profits and P can only recover for expenditures made in reliance
• Walters v. Marathon Oil Co.: Court awards expectancy damages as a surrogate for
reliance damages b/c Ps lost an opportunity for business and damages are calculable
RESTITUTION DAMAGES
• Give back any value conferred from the injured party to the breaching party
• Usually to prevent unjust enrichment; in reliance of promise of D, P has conferred value
on the D and D fails to perform
• Can be an alternative to expectancy damages if there is a material breach; if no material
breach, expectancy are the damages
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Contracts Outline
•
Note that in a losing contract, a party will seek restitution instead of expectancy
Restatement §371: Measure of Restitution Interest
• Measured by either
o (a): reasonable value what other party received in terms of what it would have
cost him to obtain it from a person in the claimant’s position; how much would it
cost other party to get what he got based on fair market price?
o (b): extent to which the other party’s property has been increased in value or
his other interests advanced
• Comments
o (a): fair market value is preferred and court considers purpose of the recipient
of the benefit
o (b): non-breacher seeking restitution for part performance is commonly allowed
the more generous measure of reasonable value unless it is hard to apply (See
Realmark in which court holds that UE requires greater amount of damages)
Measures
• Net out amount of benefit that P has received, scrap value, and payments made
• Restatement §471: reasonable cost of work
o (Expenses + Profits)
o Profit = what substitute employee would require
• Increase in D’s Wealth (Realmark): reliance damages
Types of Cases (P will get treated differently depending on the type of case)
• Plaintiff is non-breacher
o General Rule: if there is a material breach, so falls the K and P can seek
restitution
o Zara: Contractor materially breached, the K fell, but K was evidence of damages;
subcontractor gets damages
o Osteen: P singer wins amount paid to D minus the value of work done by D
• K is unenforceable
o Neither party is breacher and K is not enforceable
o Gay v. Mooney: Nephew allowed Uncle to live with Nephew’s family in
exchange for land for Nephew’s children; court allows Nephew to recover value
of benefit (room and board)
• Plaintiff is breacher
o Restatement §371, comment b: breaching party cannot recover more than ratable
portion of the total K price where a portion can be determined
o Recovery will not exceed less generous of the two measures
o Non-breaching party should not be put in a worse position than if K had been
executed
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Contracts Outline
Caps on Restitution (in some jurisdictions)
• Total K Price can set a limit on what is recoverable
o Oliver:
▪ P fully performed and was discharged before full payment by D
▪ Court did not allow P to recover for value of work done, P could only
recover K price damages b/c of liquidated debt (amount was clear)
▪ Full Performance Liquidated Amount Principle
• Prorated K Price: If K is half done, damages are capped at half the K price
• Amount that Protects the D’s Expectancy (when P is breacher)
o Non-breaching party is not put in worse position than if K had been performed
• NO CAP when P is non-breacher
o Zara
o Restatement §371
o General rule: no cap of any kind EXCEPT under full performance liquidated
amount principle
o
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Contracts Outline
LIQUIDATED DAMAGES
• Also known as “Agreed Upon Damages”
• Parties will often include clause/provision in contract about liquidated damages
• Liquidated damages are recoverable when the amount is reasonable AND the amount of
expectancy is difficult to calculate
• Clause will either be a liquidated damages clause OR a penalty and not enforceable
R2K §339
• Agreement made in advance of breach that fixes the damages is NOT enforceable and
does NOT affect damages recoverable for breach UNLESS
o (a): amount so fixed is a reasonable forecast or just compensation AND
o (b): harm that is caused by breach is one that is incapable or very difficult to
accurately estimate
UCC §2-718(1): Liquidated Damages
• Damages for breach by either party can be liquidated in the K but only at an amount
which is reasonable in light of
o the anticipated or actual harm caused by the breach,
o the difficulties of proof of loss, AND
o the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy
• Term fixing unreasonably large liquidated damage is void as penalty
• Breaching buyer is entitled to restitution of any deposit
o That exceeds buyer’s liquidated damages OR
o Absent terms, 20% of value of total performance or $500 (which is smaller?)
Case examples
• McGrath: Court holds that damages regarding tomatoes was NOT difficult to determine
and invalidates liquidated damages clause; court also notes that the clause is not
realistic to actual damages and the clause is void as a penalty
REMEDY LIMITATION CLAUSES: Parties may include limitation of remedy clauses
• UCC 2-719(2): consequential damages may be limited or excluded unless the limitation
or exclusion is unconscionable
SPECIFIC PERFORMANCE
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Contracts Outline
Land
• General rule is that buyer is entitled to specific performance in sale of land Ks b/c remedy
at law is not available; thus specific performance is available b/c it is an equitable remedy
• Kitchen v. Herring: illustrates land principle; P can get specific performance b/c land is
special and there is no remedy at law
o Note the court may have gotten this wrong b/c the K may have been about timber
• Curran: court allows specific performance for property and goods b/c P contracted for
land and goods
Goods
• UCC 2-716
o (1): specific performance is allowed when goods are unique or in other proper
circumstances (the Mona Lisa is unique)
o (2): specific performance may include terms and conditions as to payment,
damages, etc.
• Curtice Brother v. Catts: court allows P to get specific performance despite the fact that
tomatoes are not unique; P was trying to protect himself against market fluctuations and
there is a need for certainty regarding the tight, six-week pack
Limitations on Specific Performance
• When a party is taking advantage of another party
• Inadequacy of consideration; court WILL assess adequacy of consideration in specific
performance cases
• Lack of mutuality of performance
o Court will NOT order specific performance when performer will not get return
performance
• Indefiniteness
• Difficulty of enforcement or supervision
• Employee Exception (involuntary servitude): court will not allow employer to get
specific performance of employing someone
• No Involuntary Employing: cannot force someone to hire someone but this has eroded…
POLICING DOCTRINES
Once a K has been made, a party may try to cancel. The other party will bring breach of contract.
Defenses to Breach of Contract
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Contracts Outline
•
Duress
o Was there a threat? Was the threat improper?
o Party may elect to cancel the contract
•
Modification
o Did one party try to modify?
o Consideration is not always necessary
▪ Parties agree, neither party has fully performed, and unanticipated
circumstances
o Pre-existing duty rule
•
Fraud
o Did a party lie to induce the making of the contract?
o Did a party conceal a defect?
o Did a party not disclose a defect?
▪ Casual or deliberate acquiring of info?
o Was the party negligent?
o Was the party innocent?
•
Public Policy
o Was the contract illegal?
o Was the contract contrary to public policy?
▪ Exculpatory clauses and professionals
▪ Non-compete Covenants
•
Was one party a minor?
o Did the minor buy a necessity?
•
Does one party have a mental illness?
o Did the other party not know about mental illness and rely?
•
Was there procedural or substantive unconscionability?
o Bargaining naughtiness?
o Grossly unfair terms?
•
Have all conditions been met by the party claiming breach?
•
Was there a mutual mistake or unilateral mistake?
•
Is performance impossible or impracticable?
• Is the purpose of the K destroyed or nearly destroyed?
DURESS
Duress is a defense
Restatement 175
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Contracts Outline
•
•
(1) if party’s assent is induced by improper threat of the other party that leaves victim
no reasonable alternative, the contract is voidable by victim
(2) If non-party makes threat, contract is voidable unless other party gives value or relies
on transaction w/out knowing about duress
Elements
• Was there a threat?
• Was the threat improper? (See R2K §176)
o (1) A threat is improper if…
▪ (a) Crime or Tort
▪ (b) Criminal prosecution
▪ (c) Use of civil process and bad faith
▪ (d) Breach of duty of good faith and fair dealing under K with recipient
o (2): a threat is improper if the resulting exchange is not on fair terms AND
▪ (a) Blackmail; threat would harm recipient and not benefit party making
threat
▪ (b) Threat is effective because of past unfair dealings
▪ (c) Use of power for illegitimate ends
o Economic harm could also be improper
• Did the party have an adequate and reasonable legal remedy?
• The result is a contract
Exceptions
o Threat not to make a contract is part of bargaining process
o Threat not to perform is NOT, of itself, improper
Case examples
• Standard Box: Seller has right to charge more because legal relation between seller and
buyer had ended; no duress because no legal relation and nothing unlawful
o Court suggests price discrimination may be duress b/c threat may be wrongful
• Machine Hauling: threat of no future business dealings was not duress because future
business dealings are NOT a legal right
• Kudra Case: department store successfully uses defense of duress to get damages from
fur cleaner because it had no adequate legal remedy and fur cleaner threatened
department store (this case could involve a tort of conversion of chattels)
o Cleaner also tried to get customer list: trade secret
• Alaska Packers: Company could have asserted duress b/c there was a threat to not
perform (good faith), the agent acted as a result, and there was no adequate legal remedy
or remedy in general
REMEDIES FOR DURESS (if party successfully asserts defense of duress)
• Cancellation of K
• Restitution damages
• Duress is a shield
MODIFICATION
• Courts will generally deny the enforcement of modifications when one party takes
advantage of the other
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Contracts Outline
•
•
Traditional Rule: There must be consideration in order for a modification to be
enforceable
o See Alaska Packers
Modern Rule: There does not have to be consideration for modification
o See Angel v. Murray
Pre-existing Duty Rule:
• If a party is already obligated, by contract or legal duty, to do something then there
cannot be consideration for an agreement involving this party doing that something
• Alaska Packers: court did not enforce modification because of preexisting duty rule:
workers already had an obligation to complete work and there was no consideration for
new agreement to pay workers more to do the same work
Restatement (Second) of Contracts §89
• Enforces modification if…
o Parties voluntarily agree
o Neither side has fully performed
o Underlying circumstances were unanticipated
o Modification is fair and equitable
• Angel v. Murray: trash collector for city case; court allows enforcement of modification
to pay trash collector more money because the case falls under Restatement §89 and
passes all the requirements; notably that the circumstances of increased population were
unanticipated by both parties
UCC 2-209(1):
• An agreement modifying a contract within the UCC needs no consideration to be binding
• GOOD FAITH test is required; use of bad faith to escape K’s original terms OR
extortion of modification without legitimate commercial reason is ineffective
• Good faith = honesty in fact and observance of reasonable commercial standards of fair
dealing
Two Step Dance Method
• Schwartzreich: formal interpretation of modification; rescinding first contract was
consideration for second contract involving payment of more money
REMEDIES FOR MODIFICATION
• No enforcement of modification
MISREPRESENTATION and FRAUD
Always ask: what is the relevant statement made?
Three levels: fraud, negligent misrepresentation, innocent misrepresentation
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Contracts Outline
Fraud
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Contracts Outline
Elements of Fraudulent Misrepresentation
• A representation was made
• Representation was false
• Knowledge that the representation was false
• Made with intention that plaintiff should rely on it
• Plaintiff reasonably did rely on it
• Plaintiff suffered damage as a result
Elements of Fraudulent Concealment
• Defendant concealed or suppressed a material fact
• D had knowledge of material fact
• Material fact was not within reasonably diligent attention, observation, and judgment of
the P
• Intention that P be misled as to true condition
• P was reasonably misled
• P suffered damage as a result
Case example:
• Gibb: seller did not disclose and hid termite damage
• Weintraub: keeping lights on concealed cockroach problem
Nondisclosure
• Silence can constitute unfair conduct; duty to speak exists in some cases
• Person cannot fail to disclose if it would be unfair or in bad faith
• Kronman: deliberately acquired information (not required to be disclosed) vs. casually
acquired information (is required to be disclosed)
Case example:
• Weintraub: Seller knew about cockroach infestation and had a duty to speak
Remedies
• Cancellation and reliance OR
• Cancellation and restitution OR
• Benefit of the bargain damages (expectancy-like damages)
Negligent Misrepresentation
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Elements of Negligent Misrepresentation (RST §552)
• D has pecuniary interest
• Supplies false information for guidance of others in business transaction
• Fails to exercise reasonable care in obtaining or communicating information
• D is liable for pecuniary loss caused by their reliance
Remedies
• Cancellation
• Reliance damages
Non-Negligent (Innocent) Misrepresentation
Remedies
• Cancellation
• Restitution damage
Case example
• Bates v. Cashman: Buyer did not perform but has defense against breach:
misrepresentation; court allows rescission even though misrepresentation was innocent
PUBLIC POLICY
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•
•
•
•
Defense that contract includes a provision contrary to public policy
Provides a basis for undoing or rendering a K unenforceable
Examples
o Illegal contracts (to kill someone for example)
o Unduly restrain trade (antitrust laws)
o Unduly attempt to interfere with law (a K changing the laws of evidence)
o Licensing cases
Courts will distinguish between excusable and inexcusable mistakes
Exculpatory Clauses:
• Courts do not like broadly expansive exculpatory clauses
• Split of authority on whether exculpatory clauses need to have the word “negligence” in
them
The Tunkl Factors
To determine whether an exculpatory clause should be held invalid as contrary to public policy
• It concerns a business of a type generally thought suitable for public regulation
• Party seeking exculpation is engaged in performing a service of great importance to the
public, which is often a matter of practical necessity for some members of public
• Party holds himself out as willing to perform this service for any member of the public
who seeks it, or at least for any member coming within certain established standards
• As a result of the essential nature of the service, in the economic setting of the
transaction, the party invoking exculpation possesses a decisive advantage of bargaining
strength against any member of the public who seeks his services
• In exercising a superior bargaining power the party confronts the public with
standardized adhesion contracts of exculpation and makes no provision whereby a
purchaser may pay additional reasonable fees and obtain protection against negligence
• As a result of transaction, the person or property of the purchaser is placed under the
control of the seller, subject to the risk of the carelessness by the seller or his agents
Case example
• Henderson: in which court did not hold exculpatory clause as contrary to public policy
because white water rafting does not involve professional or public necessity
Non-Competitive Clauses
• To determine whether non-compete clauses are competitive to public policy, courts will
consider reasonableness test;
• The clause must be reasonable regarding:
o Time
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Contracts Outline
•
o Territory
o Scope of employment
o Is there a threat to confidential information like trade secrets or customer lists?
Non-compete clauses for lawyers are always unenforceable due to contrariness to public
policy
Case Examples
• Karpinski: covenant not to compete was held as contrary to public policy because
although it was reasonable with regards to territory (5 counties) and time (forever), it was
unreasonable in its scope of employment (practicing dentistry instead of oral surgery)
• Quandts: includes disclosure of trade secrets like customer lists in test as to whether
covenants not to compete are contrary to public policy; in this case there was no threat to
divulging public list of customers
Mental Illness or Defect
Restatement (Second) of Contracts §15
• (1) Person incurs only voidable contract duties by entering into a transaction if by reason
of mental illness or defect
o (a) He is unable to understand in a reasonable manner the nature and
consequences of the transaction OR
o (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
• (2) Where the contract is made on fair terms and the other party is w/out knowledge of
the mental illness/defect, the power of avoidance under Subsection (1) terminates to the
extent that the contract has been so performed (lived in) in whole or in part or the
circumstances have so changed that avoidance would be unjust
Minority
• Public policy is that minors are too young to enter into Ks in most situations
• When party performs, minor gets benefit, then minor does not pay
o Most courts are hostile to parties that contract w/ minors; no restitution
o Exception: when minor has contracted for necessity, party may get restitution
• What if minor lies? Three approaches
o Does not matter
o Court treats K as enforceable and apply “estoppel-like” theory
o K remains unenforceable but defrauded non-minor can get restitution; get back
benefit conferred onto minor even if this is not otherwise permissible
UNCONSCIONABILITY
The Scream Test
• Consideration is grossly inadequate when inequality is so strong, gross, and manifest that
it must be impossible to state it to a reasonable person w/out producing scream (ahhhhh)
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•
•
•
Failure of consideration is ground for rescission of K b/c gross inadequacy is evidence of
fraud
Constructed Fraud: courts consider adequacy of consideration, scream test, and whether
the case involves a confidential relationship
Undue influence: close relationship, duty of victim’s best interest, abuse of position
Courts will look for Procedural Unconscionability and Substantive Unconscionability
• Procedural Unconscionability: Bargaining Naughtiness
o Deals w/ the contract formation process
o High pressure exerted on the parties
o Fine print in the K
o Misrepresentation
o Unequal bargaining power
• Substantive Unconscionability: Grossly unfair terms
o Content of the terms of the K per se; harsh, unfair, or unduly unfavorable
o Examples: inflated prices, unfair disclaimers, termination clauses
UCC §2-302: Unconscionable Contract or Clause
• (1): If the court finds the K or clause of the K to be unconscionable at the time it was
made, the court may refuse to enforce the K OR may enforce the remainder of the K
w/out the unconscionable clause OR may limit application of any unconscionable clause
• (2): Parties can present evidence about commercial setting, purpose and effect to aid
court when it appears or is claimed a K or clause is unconscionable
UCC §2-316: Exclusion or Modification of Warranties
• (1) Words or conduct relevant to creation of express warranty and words/conduct tending
to negate or limit warranty will be construed wherever reasonable as consistent w/ each
other, but negation or limitation is inoperative to the extent such construction is
unreasonable
• (2) To exclude/modify implied warranty of merchantability, language MUST mention
merchantability by writing and be conspicuous; language can exclude all warranties
Case examples
• Friendly Ice Cream: no undue influence and no inadequate consideration
• Industralease: b/c of exerting pressure on P and timing issue of the impending picnic
season, there was procedural unconscionability in this case; b/c of unfair disclaimer, there
was substantive unconscionability
• Dillman: no PU or SU in this case b/c disclaimer was stated three times, parties were
experienced businesspeople
• Jones v. Star Credit Corp.: court holds that welfare recipient have to pay $1200 for a
freezer when the retail value was $300 is unconscionable
Magnusson-Moss Warranty Act
• Allows consumers to bring federal action for warranties
• §103: seller must state whether the warranty is full warranty or not
• §108 is most important: involves disclaimers of implied warranties
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o
Seller cannot disclaim implied warranty if it makes a written warranty;
merchantability warranty will last as long as the written warranty
UCC 2-719: Contractual Modification or Limitation on Remedy
(1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding
section on liquidation and limitation of damages,
(a) the agreement may provide for remedies in addition to or in substitution for those
provided in this Article and may limit or alter the measure of damages recoverable under
this Article, as by limiting the buyer's remedies to return of the goods and repayment
of the price or to repair and replacement of non-conforming goods or parts; and
(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be
exclusive, in which case it is the sole remedy.
(2) Where circumstances cause an exclusive or limited remedy to fail of its essential
purpose, remedy may be had as provided in this Act.
(3) Consequential damages may be limited or excluded unless the limitation or exclusion is
unconscionable. Limitation of consequential damages for injury to the person in the case
of consumer goods is prima facie unconscionable but limitation of damages where the
loss is commercial is not.
Reasonable Expectations
• When a clause seems to nullify the dominant purpose of the contract, the doctrine of
reasonable expectations kicks in
• Markline case: reasonable expectations is not part of MA law; physical marks were
required for store to be able to collect insurance b/c of burglary
• Rule: would the party have entered the contract if he had known the term was there?
Restatement (Second) of Contracts §211: Standardized Agreements
(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise
manifests assent to a writing and has reason to believe that like writings are regularly used to
embody terms of agreements of the same type, he adopts the writing as an integrated agreement
with respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated,
without regard to their knowledge or understanding of the standard terms of the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would not
do so if he knew that the writing contained a particular term, the term is not part of the
agreement.
PAROL EVIDENCE RULE
Parties will attempt to introduce evidence of a collateral agreement or define a term in a written
K; the other party will attempt to prevent this introduction w/ the PER
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Checklist
• Is the written contract a complete or partial integration?
o Parties usually include clause that says “this is a complete integration”
o But ask: an integration as to what?
• Does the parol evidence contradict the express terms?
o Anti-contradiction rule: if the language of the integration is clear, a court will
not allow PE regarding separate agreements or anything that contradicts
unambiguous terms of a written K
• Does the parol evidence vary the express terms?
o Anti-variation rule (anti-supplementation rule): parties cannot introduce
evidence that adds something new to the written K w/out consideration
• Does the integration contain ambiguity?
o Resolving the ambiguous terms of a K that does not contradict or supplement
o Honors the writing but defines a terms that is not self-defined
Tests
• Masterson Court
o Agreement must be collateral
o Limitation on contradictory oral agreements
o Side agreements must be one the parties would not ordinarily embody in the
writing
• Corbin: PE of collateral oral agreement should be allowed even if it does not seem
natural that parties to make alleged collateral agreement (most liberal test)
• R2K §240(1)(b): allows proof of collateral agreement if such an agreement might
naturally be made as a separate agreement
• UCC 2-202 Comment 3: If additional terms would certainly have been included in
document, then evidence must be kept from trier of fact (liberal test)
Case Examples
• Mitchill v. Lath: Court held that agreement to remove icehouse from adjacent party is
closely related to contract for sale of land and did not allow PE
o Smokehouse HYPO: smokehouse is more closely related to property b/c smoke
could get on the property; court would not allow PE
o Glee Club HYPO: joining the glee club is NOT related to sale of property and
court would likely allow PE on this agreement
• Dissent in Mitchill: ice house promise is NOT closely related to subject matter of K
• Masterson v. Sine: court allows PE regarding assignability of option b/c the PE is serving
the purpose of explaining, not contradicting
• Dissent in Masterson: believes allowing this PE will result in fraud to creditors; anyone
can claim the option was only assignable to family/friends and creditor cannot get option
• PGE: Court allows extrinsic evidence to show meaning of indemnity clause
• Riverisland: Overrules Pendergrass by holding that PE is allowed to show fraud
• Hield v. Thyberg: court allows PE based on secret code; $15k meant $50k
INTERPRETATION (is a burrito a sandwich?) and PAST PRACTICE
Contracts will be interpreted against the drafter (and against the insurer)
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Rules of Interpretation
• Interpret terms of contract and CP, CD, TU as consistent w/ each other as reasonable
• Interpretation can be based on “ordinary meaning” of terms
• K should be interpreted in light of its purpose
• If the party could have expressed the alternative, less obvious meaning of a term, it
should have done so
• Use the reasonable person test to interpret; not the inequitable way (Sutter)
• Expressio Unius: expression of some things denotes the exclusion of others
Restatement (Second) of Contracts §201
(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.
UCC 2-208: Course of Performance (how parties actually performed)
• Repeated occasions for performance w/ knowledge of performance and opportunity to
object to it, course of performance can be relevant to determine meaning of K
o Express terms and CP, CD, and TU will be constructed as consistent w/ e.o.
whenever reasonable
o CP can be relevant to show a waiver or modification of any term inconsistent w/
CP
UCC 1-303(b)-(e)
• Course of dealing: how parties interacted prior to contract
• Usage of trade: practice or method of dealing having such regularity of observance in a
place, vocation, or trade to justify an expectation that it will be observed w/ respect to the
transaction in question
• CP, CD, TU can be relevant to ascertain meaning of specific terms, supplement/qualify
terms
• If it is unreasonable to construe all as consistent w/ e.o.,
then express terms > CP > CD >TU
Case examples
• Berke Moore: Court does not allow one party to impose meaning (top, bottom, sides)
regarding ambiguous term in K onto the other party
• Nanakuli Paving: Court allows TU evidence b/c of complete negation test
GAP FILLERS
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General rule: if the parties do not include a certain term, this generally does NOT indicate there
is no K; the UCC provides gap fillers for a variety of terms
UCC 2-204: Formation in General
(1) A contract for sale of goods may be made in any manner sufficient to show agreement,
including conduct by both parties which recognizes the existence of such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found even though the
moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a reasonably
certain basis for giving an appropriate remedy.
If the parties intend to enter into a binding agreement, this subsection recognizes that agreement
as valid in law, despite missing terms, if there is any reasonably certain basis for granting a
remedy. The test is not certainty as to what the parties were to do nor as to the exact amount of
damages due the plaintiff. Nor is the fact that one or more terms are left to be agreed upon
enough of itself to defeat an otherwise adequate agreement.
Rather, commercial standards on the point of "indefiniteness" are intended to be applied, this Act
making provision elsewhere for missing terms needed for performance, open price, remedies
and the like.
The more terms the parties leave open, the less likely it is that they have intended to conclude a
binding agreement, but their actions may be frequently conclusive on the matter despite the
omissions.
See UCC 2-305 through 3-11 for GAP FILLERS
Case examples
• Yonkers: Elevator wins summary judgment b/c there was no language about the duration
of elevator’s commitment
• Keppy: while some courts say that Ks that do not specify duration are terminable at will,
this court used evidence regarding circumstances and nature of K to determine the K was
not terminable at will
• Southwest Engineering: Interpreting the evidence that one party did not remember the
terms of payment well and the communication between the parties, the court determined
that the lack of Terms of Payment were not crucial and therefore there was a K
o HYPO: If one party had said “Those TOP are critically important and we need to
give more attention to them,” a reasonable person would not think there was a K
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GOOD FAITH
Restatement (Second) of Contracts §205: Duty of Good Faith and Fair Dealing
Every contract imposes upon each party a duty of good faith and fair dealing in its performance
and its enforcement.
(a): The phrase "good faith" is used in a variety of contexts, and its meaning varies somewhat
with the context. Good faith performance or enforcement of a contract emphasizes faithfulness to
an agreed common purpose and consistency with the justified expectations of the other party; it
excludes a variety of types of conduct characterized as involving "bad faith" because they violate
community standards of decency, fairness or reasonableness. The appropriate remedy for a
breach of the duty of good faith also varies with the circumstances.
(d): Good faith performance. Subterfuges and evasions violate the obligation of good faith in
performance even though the actor believes his conduct to be justified. But the obligation goes
further: bad faith may be overt or may consist of inaction, and fair dealing may require more than
honesty. A complete catalogue of types of bad faith is impossible, but the following types are
among those which have been recognized in judicial decisions:
• Evasion of the spirit of the bargain
• Lack of diligence and slacking off
• Willful rendering of imperfect performance
• Abuse of a power to specify terms
• Interference with or failure to cooperate in the other party's performance
UCC 1-304: Obligation of Good Faith
Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith
in its performance and enforcement.
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Case examples
• Tymshare: Provision in employment K allows employer to increase quotas which can
impact employee’s commission; court remands case b/c there could have been bad faith
• Feld: supplier had a good faith duty to supply bread crumbs in the context of an output
contract (UCC 2-306)
o Supplier could have stopped production if it did so in good faith; court remands
case to determine whether supplier would suffer economic losses by continuing
CONDITIONS
• Conditions require perfect performance
o Perfect compliance rule
o One party’s duty to perform will mature only if other party perfectly performs
condition
o Parties make express conditions intentionally; law respects this intentionality
• Promises require ONLY substantial performance
o Substantial performance rule
Jacobs & Young Test for Substantial Performance
• Purpose to be served/desire to be gratified
• Excuse for deviation from the letter
• Cruelty of enforced adherence
• Note: willful transgressor must accept penalty of transgressions
Restatement of Contracts §261: Interpretation of Doubtful Words as Promise or Condition
• Where it is doubtful whether words create a promise or an express condition, they are
interpreted as creating a promise (also Howard)
Case examples
• Jacobs & Young: court held that using Reading pipe was a promise and not a condition;
therefore, the builder only had to substantially perform in order for the owner’s duty to
pay to mature
• Brown-Marx: borrower failed to meet condition to get required amount of leases ($),
lender’s duty to perform never matured; court allows borrower’s forfeiture in this case
• Howard: paragraph about plowing under the stalks was a promise, not an express
condition, therefore court remands case to determine whether plowing under stalks was a
material breach
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EXCUSE AND AVOIDANCE OF EXPRESS CONDITIONS
IMPOSSIBILITY
• Dupont: Buyer of business’s duty to pay Seller more was to mature upon satisfaction of
conditions; Buyer sold business and made the conditions IMPOSSIBLE to satisfy; court
holds that Buyer owes Seller for Unjust Enrichment
• Hanna: Insurance company’s K had express conditions (notice provisions) that were not
satisfied; IC did not waive these conditions and wife of decedent failed to satisfy
conditions
WAIVER
• A party can waive a non-material express condition for no consideration
• Party can retract waiver (see UCC 2-209)
UCC § 2-209. Modification, Rescission and Waiver
(1) An agreement modifying a contract within this Article needs no consideration to be binding.
(2) A signed agreement which excludes modification or rescission except by a signed writing
cannot be otherwise modified or rescinded, but except as between merchants such a requirement
on a form supplied by the merchant must be separately signed by the other party.
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be
satisfied if the contract as modified is within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the requirements of
subsection (2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may retract
the waiver by reasonable notification received by the other party that strict performance
will be required of any term waived, unless the retraction would be unjust in view of a
material change of position in reliance on the waiver.
AVOIDING FORFEITURE
• Courts will excuse failure to satisfy conditions if forfeiture would be the result
• JNA Realty: court excuses tenant’s failure to exercise renewal option b/c otherwise there
would be forfeiture
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o
•
Court notes that it will not excuse condition if there is prejudice to landlord or if
tenant is gambling w/ market
To deal with problems of forfeiture that result from non-occurrence of condition, courts
allow person who did a bunch of work or otherwise enriched the promisor who does not
have to perform (or fulfill condition) to sue the person for unjust enrichment
Restatement (Second) of Contracts § 229. Excuse of a Condition To Avoid Forfeiture
To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a
court may excuse the non-occurrence of that condition unless its occurrence was a material
part of the agreed exchange.
CONSTRUCTIVE CONDITIONS
• If there are no conditions, the law calls for simultaneous exchange to indicate when
parties must perform in order for other party’s duty to perform matures
• Party A tenders offer of goods; this is occurrence of constructive condition of
exchange; the duty of Party B to exchange has matured
• UCC 2-507(1): Tender of delivery is a condition to the buyer’s duty to accept the goods
and unless otherwise agreed, the buyer’s duty to pay
• UCC 2-511(1): unless otherwise agreed, tender of payment is a condition to the seller’s
duty to tender and complete any delivery
• Stewart: in housebuilding context, there is no simultaneous exchange; builder must
perform first
o NOTE: parties can contract around default rules like housebuilding rule or
simultaneous exchange rule
MATERIAL BREACH
• Party may cancel K if the other party has materially breached
• Breach gives rise to cause of action (breach of contract) but does not allow repudiation;
breach must be material in order to permit repudiation
• Walker: Court held that Dry Cleaner materially breached and that Advertiser did not
materially breach by not cleaning sign
• Hathaway v. Sabin: court holds that theater operator did not anticipatorily repudiate b/c
he thought Entertainer could not perform b/c of snowstorm
Restatement (Second) of Contracts
• 237: Effect on Other Party’s Duty of a Failure to Render Performance
o It is a condition of each party’s remaining duties to render performances to be
exchanged under an exchange of promise that there be no uncured material
failure by the other party to render any such performance at an earlier time
• 241: Circumstances Significant in Determining Whether a Failure is Material
o the extent to which the injured party will be deprived of the benefit which he
reasonably expected;
o the extent to which the injured party can be adequately compensated for the part
of that benefit of which he will be deprived;
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o
•
the extent to which the party failing to perform or to offer to perform will suffer
forfeiture;
o the likelihood that the party failing to perform or to offer to perform will cure his
failure, taking account of all the circumstances including any reasonable
assurances;
o the extent to which the behavior of the party failing to perform or to offer to
perform comports with standards of good faith and fair dealing
242: When does a material breach discharge the other party’s remaining duties?
o See §241
o The extent to which it reasonably appears to injured party that delay may
prevent/hinder him in making reasonable sub. arrangements
o Language indicates that performance/offer to perform by that day
DEMAND FOR ADEQUATE ASSURANCE
• 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.
PERFECT TENDER RULE AND EXCEPTIONS
The UCC requires that a tender be perfect w/ a few exceptions
UCC 2-601: Buyer’s Rights on Improper Delivery
• If goods or tender of delivery fail in any respect to conform to contract, buyer may
o Reject the whole OR accept the whole OR accept some and reject the rest
UCC 2-602: rejection must w/in a reasonable time; it is ineffective unless seasonable
Exceptions #1 and #2: UCC 2-508: Cure by Seller of Improper Tender or Delivery Replacement
• 2-508(1): Where tender is rejected b/c of non-conformity and time for performance has
not yet expired, the seller may seasonably notify buyer of his intention to cure and may
then w/in contract time make a conforming delivery
o HYPO: Seller delivers gold football helmets instead of green helmets two weeks
before date of contract; Seller may contact Buyer and provide replacement
helmets
• 2-508(2): Where buyer rejects a non-conforming tender which seller had reasonable
grounds to believe would be acceptable w/ or w/out money allowance, the seller may, if
he seasonably notifies buyer, have a further reasonable time to substitute a conforming
tender
o HYPO: Seller thought he was delivering box of green helmets but delivers box of
gold helmets on the day of K; Seller can notify buyer and substitute new tender
• Wilson v. Scampoli: court does not allow Buyer to recover price of TV b/c Buyer
prevented Seller from providing substitute TV or repairing TV
• Seller may not be able to offer conforming tender if it would greatly inconvenience Buyer
Exception #3: UCC 2-608: Revocation of Acceptance in Whole or in Part
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•
•
•
When non-conformity substantially impairs the value of the good, then Buyer can
revoke his acceptance
o If he accepted on the reasonable assumption that its non-conformity would be
cured and it has not been seasonably cured
o w/out discovery of such non-conformity if his acceptance was induced either by
the difficulty of discovery before acceptance or by the seller’s assurances
Revocation must occur w/in a reasonable time; not effective until buyer notifies the seller
Buyer who revokes has the same rights as if he had rejected
Exception #4: UCC 2-612: Installment Contracts
• Allows the deal to continue even if there is a bad tender
• Buyer can reject any installment that substantially impairs value/cannot be cured
• When non-conformity substantially impairs value of the whole K, there is breach of K
• UTZ: Seller’s failure to meet color standard substantially impaired value of whole K
MISTAKE
Mutual Mistakes
Restatement (Second) of Contracts §152: When Mistake of BOTH Parties makes a K Voidable
• When a mistake of both parties
• at the time a K was made
• as to a basic assumption on which the K was made has a
• material effect on the agreed exchange, the K is voidable by the adversely affected party
UNLESS that party bears the risk (see §154)
• How to determine whether the effect is material? Look at relief by way of reformation,
restitution, or otherwise
Case examples
• Sherwood v. Walker
o The Majority allows the Seller to rescind the K b/c the parties made a mutual
mistake regarding the substance of the cow (parties thought it could not breed)
o The Dissent argues that Buyer should be able to keep the cow because there was
not a mutual mistake, the Buyer knew he was potentially getting a cow that could
breed b/c he was a Breeder
• Wood v. Boynton: Court does not allow Seller to rescind the K when the stone is actually
a diamond b/c of §152(b) (conscience ignorance); Seller had an opportunity to acquire
more info about the stone but both parties though the stone was only worth $1
• HYPO: If Boynton had known that the stone was a diamond, ask whether the knowledge
was deliberately or casually acquired (Kronman)
Unilateral Mistake
Restatement (Second) of Contracts §153: When Mistake of ONE Party makes a K Voidable
• When one party’s mistake at the time the K was made as to a basic assumption on
which he made the K has a material effect on the agreed exchange of performances that
is adverse to that party the K is voidable if he does not bear the risk (see §154) AND
o Effect of mistake is such that enforcement of K would be unconscionable OR
o Other party has reason to know of the mistake or his fault caused the mistake
Case examples
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•
Triple A Contractors: Court holds there is no unilateral mistake rule in KS; unilateral
mistake will not excuse non-performance; Contractor is only forfeiting the bond, not the
actual difference that resulted from the mistake
Who bears the risk?
Restatement (Second) of Contracts §154: When a Party bears the Risk of Mistake
• (a) When the risk is allocated to him in the K
• (b) He is aware that he only has limited knowledge but he treats that limited knowledge
as sufficient (conscience ignorance)
• (c) Risk is allocated to him by court on the ground that it is reasonable in the
circumstances to do so
Note: the more a K has been lived into, the more reluctant a court is to unscramble the K
IMPOSSIBILITY AND IMPRACTICABILITY
Look at the context of the case
• Is performance contingent on the existence of a thing?
o See Taylor v. Caldwell in which the court excused performance to provide a
concert hall b/c it burned down (impossibility) and it was neither party’s fault
▪ The Taylor Court implied a condition (the existence of a thing)
o Did the performer do a bunch of work and then the building was destroyed?
▪ Bell v. Carver: performer is excused from liability for his failure to
perform b/c destruction of building was not his fault AND performer may
recover for Unjust Enrichment
o Did the builder build ¾ of a building and then it burnt down?
▪ Risk will go to builder b/c he had control over the worksite
▪ Builder has the opportunity to build building again
▪ Court will cut builder a break and give more time
• Sale of land not yet closed?
o Common law rule: loss falls to purchaser b/c purchaser had equitable title
o Uniform Vendor and Purchaser Act: loss falls to buyer if buyer took possession
• UCC 2-509: Risk of Loss in the Absence of Breach
o Does the case involve a carrier or a bailee? If no then…
o Is the seller a merchant or not?
▪ UCC 2-104(1): a merchant holds himself out as having knowledge or
skills peculiar to the practices or goods involved in the transaction
▪ Example: a law school may have knowledge/skills related to the practice
of sales
o Not a merchant? Then the risk of loss passes to the buyer on tender of delivery
o Is a merchant? Then the risk of loss passes to the buyer on receipt of goods
• UCC 2-613: Casualty to Identified Goods
o If the goods suffer casualty w/out fault of either party before the risk passes to the
buyer then…
▪ (a): if loss is total then K is avoided
▪ (b): if loss is partial or good have deteriorated, buyer can
• Demand inspection
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Contracts Outline
•
•
•
•
Treat the K as avoided OR
Accept goods w/ due allowance from K price w/ no further rights
against Seller
The court will not allow a party to assert defense of impossibility/impracticability if it did
not contract to avoid risk of loss and it could have
o Canadian Industrial Alcohol: court did not allow middleman to use excuse of
impracticability b/c middleman should have set up a K w/ supplier
UCC 2-615: Excuse by Failure of a Presupposed Condition
o (a): Delay or non-delivery is not a breach if performance has been made
impracticable by the occurrence of a contingency that the non-occurrence of
which was a basic assumption on which K was made
o Mishara: court noted that there is no brightline rule about labor disruptions/picket
lines regarding impracticability
FRUSTRATION OF PURPOSE
• If the principal purpose of the contract is destroyed or nearly destroyed, then the parties
may be excused from performing and court will allow cessation
Test
•
•
•
•
What is the principal purpose of the K?
o Look at circumstances of K, parol evidence, etc.
Was that purpose destroyed or nearly destroyed?
o If not, then doctrine does not apply
Was it one of the party’s fault?
o If so, then doctrine does not apply
If so, was the risk foreseeable or contemplated by the parties?
o If so, the doctrine may not apply b/c parties could have contracted about it
Case examples
• Krell v. Taylor: court injected an implied condition that the coronation parade must
happen in order for the flat user’s duty to pay matured
o That the coronation did not occur destroyed or nearly destroyed the principle
purpose of the contract: to view the parade
o Foreseeability of risk is key in this case
• HYPO: Derby case hypo in Krell: the cab is not holding itself out as having specific
qualifications, unlike the advertisement in Krell that said the apartment had a view for the
parade
o Therefore, if a user did not take cab after all, there may be no frustration of
purpose
• Downing v. Stiles: the restaurant failed to contract with bar; bar went out of business
o The court holds that the principle purpose of the K was to run a restaurant and this
purpose was not frustrated by the bar going out of business
• Smith v. Roberts: when the store owner’s principle store burnt down, the court held there
was frustration of purpose b/c the Gas Light Room was not supposed to be an
independent store, it was to be connected to and related to the principle store
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Contracts Outline
Remedies for Frustration of Purpose
• HYPO: Alvin the Dancer who gets hurt after paying $24k for dance lessons in advance
o Alvin can get his money back because the no-refunds clause was not meant to
deal with Alvin’s particular situation
• HYPO: Buyco v. Selco
o Buyco’s premises burn down; what can Selco recover?
• Siegel Approach: neither party’s fault, the thing contracted for is destroyed, both parties
are excused and neither can recover anything
• Facto Approach: neither party’s fault, the thing contracted for is destroyed, Seller may be
able to recover value of any benefit conferred onto Buyer
• Restatement (Second) of Contracts §272
o Party may have claim for restitution
o If restitution does not avoid injustice, party may get reliance interests
BATTLE OF THE FORMS: § 2-207. Additional Terms in Acceptance or Confirmation.
UCC 2-207
• Meddles with the common law mirror image rule that acceptance must mirror offer
• (1)
o Writing confirmation?
▪ This usually applies when there has been an oral agreement
o Definite and seasonable expression of acceptance?
▪ If the return document includes very different terms like price or amounts,
then it might not be acceptance
o UNLESS acceptance is expressly made conditional on assent to the additional
or different terms
• (2) does not apply to different terms, only additional terms
o Terms will become a part of the K UNLESS
▪ (a): offer expressly limits acceptance to terms of offer
▪ materially alter it
• Comment 4 and Material Alterations
o Clause negating standard warranties as that of
merchantability or fitness for a particular purpose
o Clause reserving to the seller the power to cancel upon
buyer’s failure to meet any invoice when due
• Comment 5 and Non-Material Alterations
▪ Notification of objection has already been given or is given w/in
reasonable time
• (3) Conduct recognizes existence of contract for sale
o Use the terms that agree AND any provisions of the UCC
Case examples
• Stemcor: