●
●
●
Acceptance by silence
Is a type of implied acceptance
When an offer is presented, not expressly accepted, but parties act as if there is a
contract
Problem with accepting by conduct is ambiguity:
○ When one gives no clear assent n words or writing, there are rules about whether
or not there was a binding contract
●
McGurn v Bell Microproducts, Inc- silence in response to an offer can constitute an
acceptance if the offeree takes the benefit of the offered services, knew or had reason to
know of the existence of the offer, and had a reasonable opportunity to reject the offer
●
Rest 69: acceptance by silence
○ Where an offeree fails to reply to an offer, his silence and inaction are acceptance
only in cases where:
■ An offeree takes the benefit with reasonable opportunity to reject and
reason to know that they were offered with the expectation of
compensation
■ When the offeror has stated or given the offeree reason to understand that
assent may be manifested by silence of inaction, and the offeree in
remaining silent and inactive tends to accept the offer
■ Because of previous dealings or otherwise, it is reasonable that the
offeree should notify offeror if he does not intend to accept
●
Day v. Caton- a party impliedly accepts an offer by permitting the other party to perform
a valuable service without objection, knowing that the other party expects payment in
return
○ Quantum meruit- unspoken promise implied in fact
■ No articulate agreement, but there is a promise to pay for something
when you know the other party is expecting payment
○ Implied in law- quasi contract or unjust enrichment- even without an express or
implied promise, payment or performance is required by principles of equity
sometimes
■ ex) where there is no k, but would be unjust to keep a benefit received
without paying for it
■ You receive a benefit that you did not reques and did not have reason to
know payment was expected, then no acceptance by silence
○ Someone washes your dirty car without permission, once you are aware, they
have already cleaned the car and want paid:
■ Not obligated to pay; cannot foist a benefit
○ After a storm, you watch a tree service take trees that have fallen from your yard,
but you did not ask them to
■ Under unjust enrichment, you might have to pay; you were aware they
were doing this and did not stop them
●
Nursing care services in v Dobos- the law imposes liability on a party if the party would
be unjustly enriched at the expense of another if they were allowed to escape payment
for services rendered or work performed
○ If necessary to prevent bodily harm or serious injury and no reason to believe
person does not want this benefit, person conferred the benefit is under obligation
to pay
Form contracts
Counteroffers
● Last shot rule: at the common law
○ Offer is made - counter offer is made
○ Party has reason to know of the counteroffer
○ No express assent to the counteroffer, but parties perform the contract over time
○ Here, a contract is formed and the counteroffer was accepted by conduct;
terms are that of the counteroffer
■ If had reason to know of the counteroffer, and accepted by conduct - the
terms of the counteroffer will apply bc was the last offer
●
●
●
UCC 2-207 - additional terms in acceptance or confirmation
disagrees with the last shot rule when parties exchange their own forms:
1. A definite and seaonable expression of acceptance or a written confirmation
which is sent within a reasonable time operates as acceptance even though it
states terms additional or different from those offered or agreed upon, unless
acceptance is expressly made conditional on assent to the additional or different
terms
a. Does away with the mirror image rule
b. Can have acceptance even if terms disagree
2. If there is an acceptance under 1., then:
a. The additional terms are to be construed as proposals for addition to the
contract. Between merchants such terms become part of the contract
unless:
i.
The offer expressly limits acceptance to the terms of the offer;
ii.
They materially alter it; or
iii.
Notification of the objection to them has already been given or is
given with reasonable time after notice of them is received
3. Conduct by both parties which recognized the existence of a contract is sufficient
to establish a contract for sale although the writings of the parties do not
otherwise establish a contract. In such case, the terms of the particular contract
consist of those terms on which the writings of the parties agree, together with
any supplementary terms incorporated under any other provisions
Idea of UCC 2-207:
○
○
Since you have an ofer and got an acceptance from offeree, contract terms
are whatever terms are in the offer
Under some circumstances, some of the terms in the acceptance can get
into the deal
●
Gardner Zemke Co. v. Dunham Bush Inc- when a contract for the sale of goods is
formed under UCC 2-207, any conflicting terms in the offer and acceptance cancel each
other out and are replaced by existing applicable provisions of the UCC
●
How courts should deal with new terms:
○ Additional and different terms should be treated the same under UCC 2-207(2)
○ Assumer drafters of UCC said additional terms can get in sometimes, but said
nothing about different terms, thus different terms in acceptance never get in
○ Therefore, you have a contract based on an offer with a warranty provision in it
and additional terms are not allowed (first shot rule), thus Zemke’s contract
controls
○ Knock out differing terms and look to UCC, article 2, which has controlling
implied warranty provisions; these will become warranty terms under the
contract
●
UCC 2-207- additional terms in acceptance or confirmation
1. A definite and seasonable expression of acceptance or a written confirmation
which is sent within a reasonable time operates as an acceptance even though it
states terms additional to or different from those offered or agreed upon, unless
acceptance is expressly made conditional on assent to the additional or different
terms
2. If there is an acceptance under 1, then:
a. The additional terms are to be construed as proposals for addition to the
contract. Between merchants, such terms become part of the contract
unless
i.
The offer expressly limits accepted to the terms of the offer;
ii.
They materially alter it; or
iii.
Notification of objection to them has already been given or is given
within a reasonable time after notice of them is received
3. If there is no acceptance under 1, then:
a. Conduct by both parties which recognizes the existence of a contract is
sufficient to establish a contract for sale although the writings of the
parties do not otherwise establish a contract. In such case the terms of
the particular contract consist of those terms on which the writings of the
parties agree, together with any supplementary terms incorporated under
any other provisions of this act
●
Diamond Fruit Growers, Inc v. Krack Corp- in a commercial transaction in which the
parties exchange printed purchase order and acknowledgment forms, and acceptance is
expressly conditioned on the offeror’s assent to additional or different terms, the
additional or different terms will not become part of the contract unless the offeror
specifically and unequivocally expresses assent to those terms
○ UCC 2-207
Consumer form contracts
●
●
●
●
ProCD case - shrinkwrap
○ Where terms are available to you and you just do not read them, there is no
excuse
Hill v gateway - boxwrap
○ When you buy something like a computer, you are buying a bundle of
products; it is common knowledge that there will be additional terms and
conditions
○ If there are onerous terms and conditions, word will get out and people will use
other merchants
Specht v netscape - browsewrap
○ Terms at bottom of page, cannot be seen unless scroll down are
unenforceable unless there is reasonable notice of them because most
consumers would not scroll down the screen unless they were put on
notice
Link to agreement, but there is no requirement to click or read is not enforceable
because people don’t even have to read if they don’t want
●
DeFontes v Dell- under the UCC, additional terms in a shrinkwrap agreement will only
become part of the contract for the sale of goods if the agreement explicitly porivdes that
the consumer can reject the terms by returning the goods
●
Hancock v American Telephone and Telegraph, Inc- a clickwrap agreement is
enforceable if it gives consumers adequate notice of the terms and an adequate
opportunity to read and accept them
○ Failure to read an agreement is not an excuse
○ Clickwrap agreement standard:
■ Were the terms clearly provided?
■ Was there an opportunity for consumers to read?
■ Did consumer manifest unambiguous assent?
Register.com case
○ If get terms and conditions in additiona email, then bound thereafter
●
●
UCC rules protecting form takers
Warranties (guarantees in the sale of goods)
○ UCC article 2 covers sale of goods - main issues:
■ Are the goods covered by warranty?
●
●
●
●
●
● Warranty implied in law
● Warranty expressly offered by the seller
■ Can the seller disclaim (negate) warranties?
● Using certain language in the k
If warranties are breached, generally consumer remedies are limited by the terms in the
contract
Under UCC article 2, goods are tangible, movable things
○ Computer software - generally not a good
○ Money - depends
■ Currency - generally not a good
■ Collectable coins (like confederate currency) - generally a good
To determine whether something is a sale of goods or a service, use the
predominant feature test - which is more expensive
Warranties implied under UCC (state law)
○ Implied warranties: by law are given by sellers when they sells goods (retail
seller, manufacturer, distributor)
■ Given at a sale unless disclaimed
■ Generally do not work their way down to the end user (chain of sale)
■ Can be limited or disclaimed
○ Express warranties: can be made to the consumer by retail seller or by
manufacturer if they so choose
■ Generally can be made by anyone in the chain of consumer sales
■ Generally work their way down to end user
■ Once made, cannot limit or disclaim them
All warranties can be limited or disclaimed entirely
●
UCC 1-201(10): general provisions
○ Conspicuous: with reference to a term, means so written or displayed, or
presented that a reasonable person against which it is to operate ought to
have noticed it
○ Whether a term is conspicuous or not is a decision for the court
○ Conspicuous terms include the following:
■ A heading in capitals equal to greater in size than the surrounding text; or
in contrasting type, font, or color to the surrounding text of the same or
lesser size
■ Language in the body of a record or display in larger type than the
surrounding text of the same size, or set off from the surrounding text of
the same size by symbols or other marks that call attention to the
language
●
Implied warranties
○ UCC 2-312: warranty of good title
■
○
Subject to subsection 2,when there is a k for a sale, it is a warranty by
seller that:
● Title conveyed shall be good, and its transfer rightful;
● The goods shall be delivered free from any security or other lien or
encumbrance of which the buyer at the time of contracting has no
knowledge
UCC 2-314: implied warranty - merchantabiliity - trade usage
■ Unless excluded or modified (by 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
consumer either on the premises or elsewhere is a sale
■ Goods to be merchantible must be at least such as:
● Pass without objection in the trade under the contract
● In the case of fubgible goods, are of fair average quality within the
description; and
● Are for for the ordinary purposes for which such goods are used;
and run, within the variations permitted by the agreement, of even
kind, quality, and quantity within each unit and among all units
unsolved; and
● Are adequately contained, packaged, labeled, as the agreement
may require; and
● Conform to the promise or affirmations of fact made on the
container or label if any
■ Unless excluded or modified (by section 2-316) other implied warranties
may arise form course of feeling 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 buyer is relying on the seller’s
skill or judgement to select or furnish suitable goods, there is, unless excluded or
modified under the next section an implied warranty of the goods shall be fit for
such purpose
■ Applies when at the time of contracting, seller has reason to know of any
partcualar purpose for which the goods are required
■ And that the buyer is relying on the sellers skill or judgement to select or
furnish suitable goods
■ Then there is an implied warranty that the goods shall be for for that
purpose
●
Express warranties
○ UCC 2-313: express warranties by affirmation
■
■
■
Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods
Any description of the goods made by the seller
Any sample or model which is made part of the basis of the bargain
● Note: example - express warranties can be made by the retail
seller and by the manufacturer
●
UCC 2-316: exclusion of modification of warranties
○ Words or conduct relevant to the creation of an express warranty and words or
conduction tending to negate or limit the warranty shall be construed wherever
reasonable as consistent with each otherl but subject to the provisions of this
article on parol or extrinsic evidence (sec 2-202) negation or limitation is
inoperative to the extent that such construction is unreasonable
○ Subject to subsection 3, to exclude or modify the implied warranty of
merchantability or any part of its language must mention merchantabilty and in
the case of writing must be conspicuous and to exclude any implied warranty of
fitness the exclusion must be by a writing and conspicuous. Language is to
exclude all implied warranties of fitness is sufficient if it states that there are no
warranties which extend beyond the description on the face hereof
○ Notwithstanding subsection 2:
■ Unless the circumstances indicate otherwise, all implied warranties are
excluded by expressions like as is, with all faults, or other language which
in common understanding calls the buyers attention to the exclusion of
warranties and makes plain that there is no implied warranty; and
■ When the buyer before entering into a contract has examined the goods
or the sample or model as fully as desired or has refused to examine the
goods there is no implied warranty with regard to defects which an
examination ought in the circumstances to have revealed to hi,; and
■ An implied warranty can also be excluded or modified by the course of
dealing or course of performance or usage of trade
○ Remedies for breach of warranty can be limited in accordance with the provision
of the article on liquidation of damages and on contractual modification of remedy
(sec 2-718 and 2-719)
●
2-316 in a nutshell:
○ Seller can void implied warranty of merchantability if itL
■ Conspicuosly claims in writing, using the word merchantability; or
■ By indiciating that the sale is as is or with all faults or similar words; or
■ If a reasonable inspection of the goods by the buyer would have revealed
the defect
○ The implied warranty of fitness can be excluded by conspicuous writing
disclaiming the warranty - no particular words required
○
A warranty of good title can be excluded by language or circumstance which
gives the buyer reason to know that the seller does not claim title or that he is
purporting to sell only such right of title as he or a third person may have
●
UCC 2-719: contractual modification or limitation of remedy
○ Subject to the provision of subsections 2 and 3 of this section and of th
epreceding section on liquidation and limitation of damages:
■ The agreement may provide for rermeids 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 buyers remedies
to return of the goods and repayment of the price or to repair and
replacement of non-conforming goods or parts; and
■ Resort to a remedy as provided in optional unless the remedy is
expressly agreed to be exclusive, in which case it is the sole remedy
○ Where the circumstances cause an exclusive or limited remedy to fail of its
essential purpose, remedy may be had as provided in this act (buyer can resort
to any of the remedies provided in UCC)
○ Consequneital damages may be limited or excluded unless the limitation or
exlcusino 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
●
Remedies for breach of warranty (UCC)
○ If goods and not delivered as warranted, buyer can reject and return them
(refund)
○ Unless the warranty provides otherwise, (which it often does), the buyers remedy
for accepted goods is the difference in value between the goods as purchased
and the goods as warranted - UCC 2-714
○ No right to rapir or replacement for accepted goods, or a refund, but is a right to
return the goods (revoke acceptance) - UCC 2-608
●
Moscatiello v Pittsburgh Contractors Equipment Co- a provision that reallocates
material risk is an inconspicuous manner is unenforceable
●
●
The parol evidence rule
Mitchell v lath- under the parol evidence rule, written or oral evidence that contradicts a
final written agreement is not admissible in a court of law unless it constitutes a parol
collateral agreement that is completely distinct from and independent of the final written
agreement
○ Courts would ordinarily expect the removal of an icehouse to be in writing
For a parol oral agreement to have an effect on a k, 3 conditions must be met:
○ Agreement must be a collateral one (side agreement)
○
○
●
●
●
●
●
●
Agreement must not contradict express or implied provisions of the written
k; and
It must be an agreement that parties would not ordinarily expect to be in
writing
Rest 213- effect of integrated agreement on prior agreements (parol evidence)
○ A binding integrated agreement discharges prior agreements to the extent that it
is inconsistent with them
○ A binding completely integrated agreement dishcarges prior agreements to the
extent that they are within its scope
Rest 215- integrated agreement
○ When there is a binding agreement completely or partially integrated, evidence of
prior contemporaneous agreements or negotiations is not admissible in evidence
to contradict a term of the writing
Rest 216- consistent additional terms
○ Evidence of a consistent additional term is admissable to supplement an
integrated agreement unless court finds that the agreement was completely
integrated
○ An agreement is not completely integrated if the writing omits a consistent
additional agreed term which is:
■ Agreed to for separate consideration, or
■ Such a term as in the circumstances might naturally be omitted from the
writing
Integrated- as used here
○ Final embodiment of the agreement, in whole or in party
■ Is a question of fact, decided by judge
■ If the writing is a final integration, parol agreements cannot contradict it
Completely integrated
○ If completely integrated, it may not be contradicted or even supplemented by
additional terms
Some courts use four corners approach to determine final integration- look to writing,
does it look like it is written in such terms that it is the complete embodiment or not?
●
Masterson v Sine- even when it is unclear whether a written contract is intended by the
parties to be complete, evidence of a separate oral agreement may be admissable to
prove the terms of the contract if the oral agreement is something that would naturally be
made as a separate agreement by the parties given ther actual situation and
circumstances when drafting the written contract
○ Here, side agreement did not contradict anything in the writing, was
consistent with the writing, and therefore it should be allowed
●
How to know if there is a complete integration
○ 4 corners approach
○
○
Courts could look deeper and conclude that whether the agreement is one that
would be made by the parties situated where they are
Court can see why side agreement as to what they meant by grantors is not in
writing
●
Hunt Foods and industries Inc v Doliner- terms set forth in a writing intended by the
parties as a final expression of their agreement may not be contradicted by evidence of
any prior agreement or of a contemporaneous oral agreement, but may be explained or
supplemented by evidence of consistent additional terms, unless court finds the writing
to have been intended also as a complete statement
●
Alaska northern development v alyeska pipeline service co- some courts have found
that consistent terms are established by whether or not they are in reasonable harmony
with the purchase agreement
●
UCC 2-202: final written expression - parol evidence
○ If there is a written k intended to be the parties final expression of agreement with
respect to the terms included in the writing, then cannot contradict the k:
■ But you can explain or supplement it with other evidence:
● Evidence of course of performance, course of dealing, usage or
trade
● Evidence of consistent additional terms unless the court finds that
the writing is intended to be a complete and exclusive statement of
the terms of the agreement (similar to integration)
Merger clause- contract provision stating that no other agreements were binding on the
parties unless expressly stated therein
○ Merger clause- entire agreement binding on parties is merged into the written
document; nothing else is a part of the deal
○ Merger clause intended to show that writing is a complete and integrated
agreement
○ Put in a merger clause if you are worried about parol evidence sneaking in
Enforceability of merger clauses
○ Not always enforced
○ Courts will ignore sometimes
○ Cannot use merger clause to protect yourself from unconscionable disclaimer or
consequential damages
○ In a bargained for agreement, courts will be likely to enforce a merger clause
●
●
●
Uses of parol evidence not exlcuded by the rule
Exceptions to the parol evidence rule: even if parol evidence is otherwise barred
○ Separate consideration
■
■
■
■
■
If a parol agreement supported by separate consideration on both sides, it
is a free standing agreement in and of itself
Fraud (snyder v lovercheck)
Mistake
Pre-condition for effectiveness
Contract interpretation
● Stuart v mcchesney; pacific gas
●
Snyder v lovercheck- the parol evidence rule does not bar parol evidence that is used
to establish a separate distinct contract, a condition precedent, fraud, mistake, or
repudiation
○ The parol evidence rule allows extrinsic evidence when the meaning of a
contract term is ambiguous
○ An exception to this parol evidence rule is when parol evidence is used to
establish a separate and distinct contract, a condition precedent, fraud,
mistake or repudiation
○ Thus snyder canmake a claim for fraudulent misrepresentation by the
merger or disclaimer clause; this fraud must be proven by clear and
convincing evidence
○ Here, snyder presented no evidence consistent with fraud; the claims that
only part of the land were faulty were not meant to be intentionally
misleading or fraudulent and in fact, Snyder visited the farm at least 10
times prior to the purchases and therefore could have observed the land
○ Here, the statements about the amount of wheat that could be yielded
amounts to simple negligence and there is not fraud
●
Condition to effectiveness - exception to PER
○ Written k 2 companies merge
○ Alleged oral agreement that merger k will not be effective unless the parties raise
$500k additional capital
■ Condition to effectivenses of merger agreement is the raising of the 500k
○ Court would allow this even though nothing in the merger agreement says it
Textualim v contextualism
●
Contract interpretation
○ Plain meaning rule
■ If a court thinks a written agreement is clear and unambiguous on its face,
the court may use parol evidence rule to exclude evidence that is contrary
to the clear and unambiguous interpretation of the k
■ So how to determine whether there is a clear and unambiguous
meaning in the k?
■ Modern courts:
●
You can have a k where parties have agreed in advance that
buy means sell and vice versa; written k not applied
according to the plain meaning
●
Parol evidence rule - walk through
○ First, determine whether there is an integrated agreement
■ If not, all parol evidence is ok
○ If there was a final integrated agreement, next ask whether it was a complete
agreement
■ Look for a merger clause or a very detailed, bargained for agreement; ask
whether the alleged side agreement would ordinarily or naturally have
been included if it indeed was made
■ If its a complete integration, then evidence of even consistent
(non-contradicting) terms is not allowed
○ Additional questions
■ To determine whether the proffered evidence contradicts or adds to the
writing, or is consistent with the writing, we must consider the meaning of
written words
●
Stuart v McChesney- the intent of parties to a written contract is to be regarded as
being embodied in the writing itself, and when the words are clear and unambiguous the
intent is to be discovered only from the express language of the agreement
○ If there is clear language about something, will not allow evidence that the
parties had other intentions
●
Pacific Gas and Electric Co v. G.W Thomas Drayage and Rigging Co- if preliminary
consideration of all credible evidence offered to prove the intent of the parties still leaves
contractual terms fairly susceptible to at least two rational explanations, extrinsic
evidence relevant to prove either of these two meanings is admissible
○ Test of admissibility of extrinsic evidence is not whether the k was on its
face unambiguous, but whether the offered evidence is relevant to prove a
meaning to which the language of the instrument is reasonably susceptible
●
Interpretation walk through
○ Before can even talk about parol evidence and side agreements, have to
figure out what contract means
○ Court should decide whether the language is reasonably susceptible to
more than one meaning
○ If no susceptibility, ends inquiry
○ If is susceptibility, all credible and relevant evidence should be allowed
○ If there are not multiple plausible itnerpetations, apply the plain meaning of
the k
●
Role of usage of trade, course of dealing, and course of performance in
interpretation
○ Can help determine the terms of the agreement, even if the k is clear and
unambiguous and completely integrated; even if there is a detailed merger clause
●
Rests:
○ 202: course of performance
○ 223: course of dealing
○ 219-222: usage of trade
●
UCC 1-303: course of performance
○ A course of performance is a sequence of conduct between the parties to a
paricualr transaction that exists if:
■ The agreement of the parties with respect to the transaction involves
repeated occasions for performance by a party; and
■ The othe party, with knowledge of the nature of performance and
opportunity for objection to it, accepts the performance and acquieseces
to it without objection
● Parties actions with respect to this contract in the past
○ A course of dealing is a sequence of conduct concerning previous transactions
between the parties to a particular transaction that is fairly to be regarded as
establishing a common basis of understanding for interpreting their expressions
and other conduct
■ Parties had different contracts in the past, and performed them in a
certain way
○ A usage of trade is any practice or method of dealing having such regulatory and
observance in place, vocation, or trade as to justify expectation that it will be
observed with respect to the transaction in question
■ How other businesses in the same area of commerce have dealt with
these types of trades and matters that creates general expectation that
people involved in this type of trade will observe certain standards
○ These can all be considered when interpreting an agreement
●
UCC 2-202: parol evidence
○ Contracts can be supplemented by evidence of any prior agreement of a
contemporaneous oral agreement but may be explained or supplemented by
course of performance, usages of trade or course of dealing, even if there is a
complete integration
●
Foxco Industries Ltd v Fabric World Inc- the parties prior dealings and customary and
trade usages are admissible in the court to provide meaning to contractual terms
○
○
○
○
●
EX)
○
Idea behind trade usage: presumed that if you are working in the trade, you
are aware of the trade usage and if you aren’t, you are bound by it anyways
because you should have been aware
Trade usage can be overridden by specific contract language defining what
the terms mean
If you are going to be bound by trade usage, should be a large usage
followed by a large percentage of people in that trade
Sometimes, courts will not hold someone to a trade usage if they are new
to the business and the other more experienced party is aware that they are
new to the particular trade
If a trade usage says that 4000 shingles = 8 packs of shingles, will get 8 packs
even though is not exactly 4000 shingles - even if k explicitly calls for 4000
shingles
●
Nanakuli Paving and Rock Co v Shell Oil- courts can admit evidence of customary
trade usage and course of performance for parties to demonstrate implied contract
terms
○ If there is evidence of a company using course of performance in the past,
it cannot be taken back
○ 1-303 says that course of performance, course of daling, and usage of trade
should be construed as consistent with each other and if thye cannot be
consistent with the express terms of the k, the express terms of the k will
prevail
●
1.
2.
3.
4.
Power ranking of these types of evidence
Express terms
Course of performance
Course of dealing
Usage of trade
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●
●
mistake
Kinds of mistakes that will justify changing a contract:
○ Mistakes in writing down the contract terms
○ Mistake in assessing the value of exchange - sometimes yes and sometimes no
○ Other mistakes
Mistake cases
○ Unilateral mistake- only one of the parties made a mistake, other party made
none
○ Mutual mistake- both parties shared some mistake in assumption
Remedies for mistake scenario:
●
●
●
●
●
○ Rescission (no k); or
○ Reformation of k
Which of these remedies is appropriate depends on the facts and what s fair and
equitable
○ ex) travelers case - rescission would make no sense, reformation would
○ ex) deprince case - rescission would be most fair if doctrine of mistake is
satisfied
Rest 153 - unilateral mistake
○ Where a mistake of one party at the time of the k was made as to:
1. A basic assumption on which he made the k
2. Has a material effect on the exchange of performances that is adverse to
him, the contract is voidable by him
3. If he does not bear the risk of the mistake under the rules stated in 154;
and
4. The effect of the mistakeis such that enforcement of the k would be
unconscionable; or
5. The other party had reason to know of the mistake; or
6. The other party’s fault caused the mistake
Rest 154 - assumption of risk
○ A party bears risk of mistake when:
■ The risk is allocated to him by agreement of the parties; or
■ He is aware at the time the k is made that he only has limited knowledge
with respect to the facts to which the mistake relates but treats his limited
knowledge as sufficient; or
■ The risk is allocated to him by the court on the grounds that it is
reasonable in the circumstances to do so
DePrince v Starboard Cruise Services, Inc- a defense of unilateral mistake to a
breach of contract claim requires evidence that the breaching party did not act
negligently or with undue care
○ 4 pronged test for unilateral mistake:
■ Mistake induced by party seeking to benefit
■ Was there negligence involved in party who made the mistake?
■ Would enforcing the k be inequitable?
■ Did the benefitting party change their position in relying on it so that
voiding the k would be unjust?
Donovan v RRL Corp- a company can assume the risk for mistake if they show more
than an ordinary lack of due care, Have to show that they acted in a manner that is
tantamount to reckless conduct, not within the boundaries or normal standards of good
faith and fair dealing
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Travelers insurance company v Bailey- where there has been established beyond a
reasonable doubt a specific contractual agreement between parties, and a subsequent
erroneous rendition of the terms of the agreement, the party penalized by the error is
entitled to reformation, if there has been no prejudicial change in position by the other
party while ignorant of the mistake
○ Whether mistake is lateral or unilateral, generally the question comes down
to whether the writing actually reflected the true agreement of the parties; if
it didn’t it will be reformed - GENERALLY - if you can show that the other
party did not rely on the misake
○ Parol evidence rule is not talked about here bc mistake is an exception to
parol evidence rule - even though the evidence contradicts the writing
Mutual mistake
When both parties are mistaken about a basic assumption on which the contract was
made
Tacit- unexpressed assumption
○ Don’t confuse these with warranties, express or implied, which are only given by
merchants
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Sherwood v walker- when the contract is made based on the mutual mistake of the
parties that relates to a material fact such as the subject matter of the sale, the price, or
some other fact which materially affects the agreement, the parties may rescind the
contract once they learn of the mistake
○ There is a difference between a mutual mistake as to the value of something
and a mistake as to the very quality and nature of something
○ If the mistake is as to the very quality and nature of something, can sue for
replevin; if just the value, probably cannot
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Griffith v Brymer- if performance under an agreement is, unbenownced to both parties,
impossible at the time of contracting, the agreement is void
○ The mistake must go to the very essence of the deal, not just the value and
quality
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Wood v boynton note case: if know you are operating with limited info, yet you are willing
to go through with a deal, you are taking on risk allocation - this ultimately becomes the
2nd restatement approach
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Firestone and paron inc note case: parties sold painting thought to be a Bierstadt, turns
out a few years later it is revealed that another artist painted it, lowering the value
○ Basic assumption was made that it was a Bierstadt painting, but it was not this goes to the essence of the painting because it makes it a totally
different thing.
○ BUT, court says no rescission - this was no mistake; at the time the
contract was made, noth parties were under the assumption that the
painting was generally regarded in the art community as Bierstadt - AT THE
TIME - this was correct, it was thought to be a Bierstadt. SO NO MISTAKE
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Everett v estate of sumstad note case:
○ Operating with limited knowledge, estate sells safe that has large sum of money
in it for $50
○ They operated with limited knowledge of what was in the safe, but went
through with the deal anyway - a rolling of the dice - absorbed the risk, so
no rescission
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Beachcomber coin note case:
○ Both parties to coin sale thought coin was authentic, but it wasn’t
○ Since both parties thought it was authentic, no risk absorption
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Lenawee county board of health v messerly- rescission is appropriate when the
mistaken belief relates to a basic assumption of the parties upon which the contract is
made, and which materially affects the agreed performances of the parties, but
rescission is not available to relieve a party who has assumed the risk of loss in
connection with the mistake
○ Used rest 152:
■ When you have a mistake of both parties at the time of the k and the
basic assumption on which the k was made has a material effect on the
agreed exchanges of performances, contract is voidable by the adversely
affected party unless he bears the risk of mistake under the rule stated in
rest 154
○ Assumption of risk - rest 154
■ A party bears risk of mistake when:
● Risk is allocated to him by agreement of the parties; or
● He is aware at the time k is made that he only has limited
knowledge with respect to the facts which the mistake relates, but
treats his limited knowledge as sufficient; or
● Risk is allocated to him by the court on the grounds that it is
reasonable under the circumstances to do so
nondisclosure
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fraud/ deceit
○ False statement;
○ Made with knowledge of falsity;
○ Made with no intent to induce reliance;
○ Actual reliance;
○ Injury resulting
Is different than duty to disclose
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Hill v Jones- where a seller of real property knows of facts that materially affect the
value of the property and are not readily observable and known to the buyer, the seller
has a duty to disclose these facts to the buyer
○ Nondisclosure creates a misrepresentation
○ Not acting in good faith and fair dealing is you know facts materially
altering the value of the property and are not readily observable and buyer
does not know about and you do not disclose
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Rest 160: misrepresentation
○ Action intended or known to be likely to prevent another from learning a fact is
equivalent to asserting that the fact does not exist
Rest 161: duty to disclose
○ You have a duty to disclose information under these circumstances:
■ To correct the mistake of another party;
■ If you know a writing is inaccurate;
■ Relationship of trust and confidence with another party
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Other doctrines that discharge contractual duties and will allow rescission of a
contract:
○ Impossiblility (impracticability)
■ Some post contract event has happened to make contract impossible or
significantly more difficult or expensive to perform
○ Frustration of purpose
■ Some post contract even that still makes it possible to perform contract
but there is no longer a point in doing so
■ Purpose of k is frustrated, gone
○ Force majeure clause
■ Irresistible force
■ Act of god
■ Some contracts will have provision in them saying duties of parties are
voided or k is rescinded by a list of things; often this includes force
majeure
■ Will oten discharge the parties obligations
■ Matter of k interpretation
■ List a bunch of things that can get you out of the k
The effect of unexpected circumstances
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Taylor v Caldwell- in contract in which performance depends on the continued
existence of a given person or thing, a condition is implied that the impossibility of
performance arising from the perishing or destruction of the person shall excuse
performance
○ At the time the k was made, no mistake in existence - and mistake doctrine
applied at time k was made
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Music hall not burnt down until after k was made
The mistake was that the building would still be standing, which happened
post k
Mistake is about time of k
Impractiability is about post k, so this would be impractiability
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Mineral park notes case
○ If something happens post k to make action 10X more expensive, is impractiable
and thus can be discharged; does not necessarily have to be impossible
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UCC 2-613: goods destroyed before delivery to buyer
○ Where the k requires fors tis performance goods identifies when the k is made,
and the goods suffer casualty without fault of either aprty before the risk of loss
passes to the buyer, then:
■ If th loss is total the k is avoided; and
■ If the loss is partial, the buyer has the option to cancel or take goods with
money allowance
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US v Wegematic Corp- delay in delivery is not a breach if performance as agreed has
been made impractiable by the occurrence of a contingency the non-occurrence of
which was a basic assumption on which the k was made
○ UCC 2-615
○ Although here, where wegematic called their product a revolutionary
breakthrough, they absorbed risk and purchaser can reasonnbly assume
revolutionary breakthrough has occurred or will occur
○ This risk was absorbed even though performance was made impracticable
○ When seller promises to sell goods, risk to not be able to do what you
promise bc you don’t have the ability to is on you
■ Generally speaking, increased costs is not enough for
impracticability
● Exceptions: shortage of supplies available to perform (war,
embargo, etc)
● But cannot say just bc cost turned out to be more than you thought
is impossible
■ Even if did have to pay more to produce the computer, Wegematic could
have recouped losses by seller technological breakthrough to others
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UCC 2-615:
○ Except so far as seller may have assumed a greater obligation:
■ Delay in delivery or nondelivery in whole or in part by a seller is not a
breach of his duty under a k for sale if performance as agreed has been
made impractiable by the occurrence of a contingency the
non-occurrence of which was a basic assumption on which the k was
made; or
■
by compliance in good faith with any applicable foreign or domestic gov
regulation or order whether or not it later proves to be invalid
● Hypo: what if they were making machine and hurricane came through and
destroyed all their work?
○ Probably a good impracticability scenario- would not assign hurrican
risk to wegematic
● Labor strike at factory?
○ Sometimes force majeure includes labor strikes as discharging eventif k says nothing , might require a fact inquiry
○ If labor strike is due to unreasonable management, might be wegematic
fault
● Delivery truck crashes in route?
○ Depends on risk of loss
○ If computer is destroyed before risk of loss has went to fed, in 2-613 and
seller may get off the hook
● Pandemic occurs and engineers cannot come into work?
○ Court may say risk of pandemic should not be assigned to
wegematic- is beyond their control
● Transatlantic financing corp v US- an unexpected contingency that requires an
adjustment of method of route will not, by itself, render performance of a k legally
impossible
● Impracticability doctrine requires:
○ A contingency: something unexpected must have occurred
○ The risk of the unexpected occurrence must not have been allocated
to the injured party
○ Occurrence of the contingency must have rendere performance
commercially impracticable
● impracticability/ impossibility doctrine only to be used when there is a serious
disruption
● Rest 261: impracticability
○ Where after a k is made, a party’s performance is made impracticable
without his fault, by the concurrence of an event the non-occurrence of
which was a basic assumption on which the k was made, his duty to
render that performance is discharged, unless the language or
circumstances indicate to the contrary
● Albre marble and tile co v John Bowen co- a party may recover payments
made or obligations reasonably incurred in preparation for performance of a k
● Rest 272: restitution
○ A court may grant relief if justice requires including a party’s reliance
interest
○ This could include things not just in the k, but also losses incurred in
getting ready to perform
○ Fair amount of discretion in fashioning an equitable remedy after a k has
been declared unenfrorceable for impracticability
● Missouri Public Service Co. v Peabody Coal Co- delay in delivery or
non-delivery in whole or in part by a seller is not a breach of his duty under a k if
performance has been made impractiable by the occurrence of a contingency the
non-occurrence of which was a bsic assumption on which the k was made
○ UCC 2-615
○ Here peabody failed under 2-615 bc they were experienced in the
trade, knew how it works, and indeed anticipated inflation
○ Also had vast resources
○ If you sign a long term k and include a price escalation clause, you
take the risk that is does not work out for you
○ Do not use mistake doctrine when talking about future events
upsetting expectations
● Krell v Henry- when a condition that is not expressly mentioned in a contract can
nevertheless be implied from extrinsic evidence as being understood by both
parties to be the subject matter of the k, the non-occurrence of the condition may
excuse the performance of the k by both parties
○ Rest 265 frustration of purpose is applied here
■ Where after a k is made, a party’s principle purpose is substantially
frustrated without his fault by the occurrence of an event the
nono-occurrence of which was a basic assumption on which the k
was made, his remaining duties to render performance are
discharged, unless the language or the circumstances indicate the
to the contrary
■ Similar to impracticability - but focus is not on difficulty of
performance, but point of performance
● Brymer: mistake existing at time of k formation
● Herre: mistake after k formation
Third party beneficiaries
● How non-parties to a k can enforce it:
○ If the k is assigned to someone else
○ Third party beneficiary doctrine
● Lawrence v Fox- a promise to pay a debtor’s obligation to a creditor in
consdieration for a sum on money received from the debtor is valid
○ Person suing on k does not have to be the one providing
consideration - just has to be something bargained for under the
consideration doctrine
● Third party beneficiary doctrine: when a promise is made for the benefit of
another, he for who the benefit is made may bring an action for it’s breach
● Seaver v Ransom- in order for a third party to enforce a k made for his benefit,
there must be some liability to him on part of the promisee
○ 4 situations where the rights of a third party to enforce a contract may
be upheld:
■ Where there is a pecuniary obligation running from the
promisee to the beneficiary
■ Where the contract is made for the benefit of the wife,
affinanced wife, or child
■ In public k’s where the municipality seeks to protect its
inhabitants by covenants for their benefit
■ Where at the request of a party to the l, the promise runs
directly to the beneficiary although he does not furnish
consideration
● Rest 1-133: types of beneficiaries
○ Donee beneficiary: purpose was to make a gift to a beneficiary (seaver v
ransom)
○ Credtor beneficiary: purpose was to satisfy a duty of the promisee to the
beneficiary (lawrence v fox)
● Hale v Groce- a third party beneficiary of a k can enforce the k if the parties to the
k intended the third party to benefit
● Rest 2-302: intention of parties
○ Unless otherwise agreed between promisor and promisee, a beneficiary of
a promise is an intended beneficiary if recognition of a right to performance
in the beneficiary is approrpoate to effectuate the intention of the parties
and either:
■ The performance of the promise will satisfy an obligation of the
promise to pay money to the beneficiary; or
■ The circumstances indicate that the promisee intends to give the
beneficiary the benefit of the promised performance
○ An incidental beneficiary is a beneficiary who is not an intended
beneficiary
● Scarpetti v weborg- when a third party beneficiary’s right is essential to satisfy a
k, and the beneficiary stands to receive the value of the k performance, a third
party beneficiary relationship does not need to be specifically intended by the
parties to the k
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Acceptance by silence
Generally, acceptance requires a manifestation of assent to the offered terms made in
the manner invited or required by the offer
The offeror is the master of the offer
○ Can dictate time and manner of acceptance
What about acceptance by silence?
○ McGurn v Bell Microproducts
○ Rule: silence in response to an offer may constitute acceptance if an
offeree who takes the benefit of the offered services knew or had reason to
know of the existence of the offer, and had reasonable opportunity to reject
it
Consequences of breach
If a k is breached, the breacher can get damages or possibly specific performance
But, does the non-breacher still have to perform its side of the bargain or is it
discharged?
○ Doctrine of substantial performance
○ Breach of conditions v breach of promises
○ Material breach doctrine
And what if time for performance has not yet come, but it looks like the other party will
breach right now?
○ Anticipatory repudiation doctrine
Substantial performance
When a party tenders performance, but that performance is not perfect and there is a
substantial difference between what was promised and what is rendered
Jacob & youngs v kent
○ If a party substantially performed its obligations under a contract, that party will
not be forced to bear the replacement costs needed to fully comply with the
agreement but instead will owe the non-breaching party the difference in value
between full performance and the performance received (expectation damages
minus defects)
○ Pipes that are of similar quality but not the exact brand specified are insignficantly
defective when it comes to construction - therefore substantial performance is
justified
For the doctrine of substantial performance to apply, the builders default must not be
willful, nor the defects so serious as to deprive the property of its value for the
intended use, nor so pervade the whole work that a deduction in damages will not
be fair compensation
Substantial performance not to be determined on a percentage basis, so costs of
remedy defects may sometimes even outlay original construction
Inapplicable for willful, intentionally breaching plaintiffs
In some circumstances, breaching party can sue for remaining k price
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Can do this when there was a breach, but breach was a minor breach and
court concluds that k was substantially performed
■ Will still have to pay damages for the breach they committed, but can sue
to enforce their rights under the k
Damages are determined by diminished value, not cost of performed
What constitutes substantial performance
○ Look at purpose to be served by redding pipe specification
○ Desire that was to be served behind the pipe requirement
○ Excuse for not meeting the pipe specifications
○ Cruelty of enforcement
When you have relatively minor breaches, is too severe a penalty to say other
contracting party is discharged, contract is over and must sue under quantum
meruit
Kryer v discoll
○ To recover on an uncompleted construction k, a contractor must make a good
faith effort to perform and substantially perform his agreement
○ A constructor who has not completed the construction contract can recover the k
price if made a good faith effort to substantially perform
Substantial performance is an exception in building k’s of the general rule requiring
complete performance of the contract
Mere incompleteness or deviations which may be easily supplied or remedies after
the contractor has finished his work, and the cost of which to the owner is not
excessive and readily ascertainable, present less cause for hesitation in
concluding that the performance was tendered constitutes substantial
performance
○ In such cases, owner can obtain complete satisfaction by spending money and
deducting the amount from the k price
Substantial performance standard:
○ Good faith breach
○ Not breach that is your own fault
Substantial performance only applies for inconsiderable breaches
○ Breaches where there is not a considerable amount of work left to be done
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In cases involving homeowner tastes and aesthetics, cosmetic defects like yellow
streaks on the roof constitute substantial performance
○ OW grun roofing case
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On exam, say which standard you use and from which case
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UCC 2-601: buyers rights on improper delivery (perfect tender rule)- right to reject
for any non-conformity
○ Subject to the provisions of this article on breach in installment contracts (2-612)
and unless otherwise agreed under the sections on contractual limitations of
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remedy (2-718 and 2-719), if the goods or the tender of delivery fail in any respect
to conform to the contract, the buyer may:
■ Reject the whole; or
■ Accept the whole; or
■ Accept any commercial unit or units and reject the rest
○ UCC 2-602(1): buyer must reject and notify seller within reasonable time
■ Reasonable time after the opportunity to discover the defect or
non-conformity
■ If keep the goods too long, will have accepted them
○ So, buyer can reject for any non-conformity, BUT: exceptions to perfect
tender rule
○ 1-203: implied duty of good faith - honesty and observance of reasonable
commercial standards of fair dealing
○ 2-608: if no timely rejection, buyer can revoke acceptance only if defect
substantially impairs value (991-92)
○ 2-612: opportunity to cure in installment k’s
○ 2-508: limited opportunity to curer in all k’s for the sale of goods
More on UCC 2-612: breach of installment k
○ Installment k: requires or authorizes the delivery of goods in separate lots to be
separately accepted, even though k contains a clause “each delivery is
separate contract” its equivalent
○ Buyer may reject any installment which is non-conforming if the
non-conformity substantially impairs the value of that installment and cannot be
cured or if the non-conformity is a defect in the required documents; but if the
non-conformity does not fall within subsection 3 and seller gives adequate
assurance of its cure the buyer must accept that installment
○ Whenever non-conformity or default with respect to one or more installments
substantially impairs the value of the whole k there is a breach of the whole. But
the aggrieved party reinstates the k if he accepts a non-conforming installment
without seasonably notifying of cancellation or if he brings an action with respect
only to past installments or demands performance as to future installments
TW Oil v Con. Edison
○ Where the buyer rejects a non-conforming tender which the seller had reasonable
grounds to believe would be acceptable, the seller may if he reasonably notifies
the buyer, have a further reasonable time to substitute a conforming tender
○ A seller, acting in good faith and without knowledge of any defect who tenders
nonconforming goods to a buyer who properly rejects the goods can offer the
cure the defect - UCC 2-508 is exception to perfect tender rule that allows further
reasonable time to substitute a conforming tender in this scenario
UCC 2-601 gives buyer right to reject non-conforming goods
UCC 2-508 cure by seller of improper tender or delivery; replacement
○ Exception to perfect tender rule!
○ Where any tender or delivery by the seller is rejected because non-conforming
and the time for performance has not yet expired, seller may seasonably notify
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the buyer of his intention to cure and may within the contract time make a
conforming delivery
Where the buyer rejects a non-conforming tender which the seller had reasonable
grounds to believe would be acceptable with or without money allowance, the
seller may, if he seasonably notifies the buyer, have further reaonsble time to
substitute a conforming tender
■ Cannot force buyer to take non-conforming goods, but can get a
little more time to tender conforming goods
Zabriske chevrolet
● People drive new car off the lot - transmission already acting up
● Drive back and reject car in timely manner
● Dealership takes transmission out and substitutes with another and say they
cured nonconformity; court says not an effective cure - car with replaced
transmission not a conforming good to a brand new car with everything working
properly
● If you conform nonconforming goods but buyer accepted them:
○ Then and only then do you have right to a cure at a later date
○ Then and only then do you tender conforming goods
Express conditions
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Promise or condition?
○ What is at stake and what diff does it make?
■ Merrit hill
○ How can you distinguish a promise from a condition?
■ Howard v FCIP
○ Will conditions always be strictly enforced?
■ Oppenheimer
Merrit hill vineyards inc v windy heights vineyard inc
○ A condition is an event which must occur, unless it’s non-occurence is excused,
before performance under a contract becomes due
○ When a party to a purchase of real property fails to complete a condition
precedent to closing, the other party in entitled to a return of their deposit
○ A promise is a manifestation of intention to act or refrain from acting in a specified
way
○ A condition is an event, not certain to occur but which must occur, unless its
non-occurrence is excused, before performance under a contract comes due
○ Party due to deposit back (as if k nullified) but not consequential damages since
was a condition imposed on the k and not promise
■ Condition = if does not occur, the contract void
● Performances dependent on conditions that do not happen are
discharged
■ Promise = part of k, if does not occur = breach
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○ Often, language will indicate whether is condition or promise
Conditions
○ Conditions and promises can be either express or implied
○ Conditions are events that must occur before other contractual obligations
become binding
■ Conditions not fulfilled: if a performance is dependent on the condition, it is
discharge (excused)
○ Promises are commitments that a person agrees to perform - giving rise to
expectations that it will be done
■ Promises not fulfilled: damages can be recovered for breach
○ K provisions can be promise, condition, neither or both
Howard v federal crop insurance corp
○ A contract provision will not be construed as a condition precedent in the
absence of language plainly requiring this construction
○ A condition does not have to use the word condition to create a condition
precedent
○ If other provisions in same k contain language ID’ing them as conditions
precedent, the absence of this type of language in another provision of the same
k may indicate that the provision was not intended as a condition precedent
○ Any doubt about whether is a condition precedent or promise: construe the
k provision as a promise
○ Policy against forfeiture of contracts:
■ If something can be interpreted in one way that results in a loss of all
rights and another that does not and there is doubt as to whether is a
promise or condition, should interpret in a way that does not result in
forfeiture of rights
○ If any ambiguity, construe the provision against the entity that drafted it
○ What are parties intentions?
Oppenheimer & oppenheim, appel, dixon, & co
○ Absent some forfeiture or unjust enrichment, substantial performance is not
applicable to excuse to non-occurrence of an express condition precedent
○ A condition precedent is an act or event, other than a lapse of time, which must
occur before a duty to perform a promise in the agreement arises, unless the
condition is excused
○ Substantial performance can be used to satisfy implied conditions, not
express conditions
■ Bc:
● Not an express condition - implied conditions created by court, not
the parties
● If this is a duty or condition created by the court, then the court can
also choose to apply the substantial performance doctrine to it
Exceptions (excuses) to the enforcement of express conditions
○ Waiver
○ Estoppel
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○ Breach
○ Forfeiture
In sum:
○ If a condition is not satisfied, it will be excused when:
■ Implied conditionL substantial performance
■ Express condition: waiver, estoppel, disproportionate forfeiture
unless was a material part of the exchange
Aetna causalty and surety co v murphy
○ An insured person who delays reporting an insured incident in violation of
notice provisions in his insurance k does not automatically forfeit his right
to insurance coverage as long as he provides sufficient factual evidence to
rebut the presumption that his delay prejudiced the insurance carrier
○ Dentist terminated lease in building insured by Aetna, in process of moving out
damaged building
○ His k with insurer required notice of insured incidents as soon as practicable and
to immediately give notice of suits against him
○ Murphy did not immediately report
○ Murphy’s delay in reporting aetna’s claim against him to his insurance does
not automatically forfit his right to insurance coverage under the k
○ However, bc murphy did not provide any actual factual evidence to prove
delay did not prejudice insurer in conducting investigation, loses
When have an express condition, doctrine of substantial performance does not
apply and can be excused if would result in disproportionate forfeiture
A condition will be excused if it results in disproportionate forfeiture unless the
condition was some material part of the exchange
Promise or condition hypos:
○ “Insured may establish that its loss was caused by one of the covered insurable
events”
■ Sounds like promissory language
■ But is an implied condition that is discharged if you cannot even show a
covered event destroyed your crop
○ “in consideration for publishers agreement to pay a sum, author shall deliver 300
pages of updates and edits by July 1”
■ Promissory language but
■ Is implied condition: if no pages submitted, do not have to pay money
■ If pages submitted in full july 2 - can argue substantial performance
■ If 295 pages submitted july 2 - can argue substantial performance
○ “The purchase agreement is subject to buyer obtaining financing at an interest
rate of 6% or lower”
■ Express condition
■ Conditional language
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Might be argument that is implied promise that buyer will make
reasonable efforts to obtain a loan
Disproportionate forfeiture
○ If condition isn’t satisfied, will be big loss for other party
○ How much harm did failure to satisfy condition cause?
○ Even if is disproportionate forfeiture and condition was a big part of the
exchange - court may still enforce it
○ Substantial performance can only be used with implied conditions
Harmon cable comm v scope cable television
○ Sellers agreed to indemnify the purchase if there was not a minimum number of
subscribers to TV
○ Purchase shall assert any claim or claims by giving written notice of such claim
to the seller within 30 days of recovery, but not later than 18 months after the date
of closing”
○ Was a shortfall of subscribers but purchaser failed to comply with the notice
provision and sellers contended that prucahser could not recover
○ A condition must be exactly fulfilled before a liability can arise under a k
○ Where the intent of the parties is not clear, disputed language is generally
deemed to be a promise - not a condition
Terms that give evidence of a condition:
○ If
○ Provided that
○ When
○ After
○ As soon as
○ Subject to
Absence of language indicative of a condition precludes a conclusion that parties clearly
intended the notice requirement to constitute a condition to the creation of a k
○ Therefore they are promises and the breach gives rise to an action for
damages
Prevention; implication of a duty to fulfill a condition
Johnson v coss
○ A party who materially contributes to the non-occurrence of a condition precedent
is required to perform under the contract
○ Generally when a k contains a condition precedent, there is no obligation to
perform the k until the condition is fulfilled
○ One exception: prevention doctrine
○ Prevention doctrine: requires a party to perform where he or she prevents
condition from occurring
■ Excuses the performance of a condition where the party against
whom the condition operates contributes materially to the
non-occurrence of a condition
Prevention doctrine
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If you take measures to prevent a condition from being satisfied, you cannot take
the benefits of that condition not being satisfied
Standard used by court to determine whether a person is liable for the
non-occurrence of a condition: Winslow v Mell
○ If you cause the condition not to be satisfied and it is your fault, that is a breach of
express condition
○ There is an implied promise that you won’t do something to make the condition
not happen
○ In most cases is an implied promise that you will make reasonable efforts to see
that the condition happen
When there is an implied promise to do something or get approval for something:
○ The implied promise is to make a good faith effort to try and get ford’s approval
■ Johnson v. Coss
Winslow v mell
○ Implied promise that landowner would try to acquire adjoining land
○ But court says was actually no implied promise
○ Because court looked into the intention of the parties
○ Said that when a condition is an important part of the deal and one of the
parties can do a lot to satisfy the condition, a promise can be implied
Lack v kayhill
○ Someone buying house, condition on buyers getting a mortgage
○ Was implied promise they would try to get mortgage: promise to make
reasonable efforts
○ Court says that by applying to 6 mortgage companies, they made reasonable
efforts and therefore did not breach the promise
Implied conditions
Morin Building products co v baystone construction inc
○ In a k containing a standard owner’s satisfaction clause, satisfaction is
judged by a reasonable person standard when the k involves commercial
quality, operative fitness or mechanical utility which other knowledgable
persons can judge
○ When k involves person aesthetics or fancy, satisfaction depends on the
owner’s good faith judgement
○ Factories are generally evaluated by functionality, not beauty; thus in a k that
contains owners satisfaction clause, owner’s satisfaction should depend on a
reasonable person standard
○ But here did not contain a standard owner’s satisfaction clause, but instead
provided that siding would be evaluated for fuanctionality, quality, aesthetics
○ Regardless of the words used in k, the intent of parties is what controls
○ Here the court determined that the aesthetics clause was likely only
included bc was a form k
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Court decided that parties likely did not intend factory to be judged on
aesthetics and thus should have been judged on reasonable person
standard
Satisfaction clauses
○ When a promise is conditioned on an approval
○ How to interpret satisfaction clauses:
■ Did person refuse to give approval in good faith?
■ Was rejection commercially reasonable under the circumstances
according to the court?
○ Court ultimately concluded that if k was reserving the right to pay morin for
his work upon aesthetic whims of GM’s architect, morin probably would
not have signed the k or would have asked to draft the k differently to
mrigate his risk of not pleasing GM’s architect
Mattie v hopper
○ K to purchase land for a shopping center development
○ Subject to broker obtaining leases satisfactory to the buyer
○ Do you use good faith or reasonable person standard to assess
satisfactory to purcahser/developer?
■ Buyer had to at the very least exercise judgement in good faith
■ In this case would probably be commercially reasonable standard, but
court says does not matter even under weaker good faith standard
Forman case
○ Buyer makes offer to pay seler over 10 years for real estate
○ Seller financing was subject to credit check being approved by buyer
○ After getting credit report, seller tried to ne-negotiate deal to get better terms; but
this had nothing to do with credit report
○ This was not good faith
○ Cannot use a condition as a pretext to re-neogtiate terms - this is bad faith
Fursmidt v hotel abby case
○ Valet and laundry services shall meet with the approval of the hotel, who shall be
sole judge
○ Trying to satisfy guests, so entitled to own standards; good faith standard
applies
mcCartney v badovinac
○ Husband hires PI to investigate claims of theft against his wife
○ Agrees to pay $500 if satisfied
○ PI concludes his wife did steal it; he says not satisfied so not paying
○ Court says this was not the deal; cannot says not going to pay just bc do
not like the outcome of the investigation
○ Just bc don’t like the outcome, that is not good faith, is just using the
condition as a pretext to get out of investigation
Burne v franklin life insurance
○ Condition excused on the grounds of public policy
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Condition was double indemnity if die by some accident, but only if death occurs
within 90 days of accident
○ The hospital kept man alive on tube for months
○ Person clearly died as result of accident; should not penalize for trying to
keep him alive
When will a condition not be strictly implied? (important)
○ An implied condition that is substantially performed
○ Express condition would result in disproportionate forfeiture (unless it was
important part of the k)
○ One party prevents it from happening (doesn’t put in good faith effort or gets in
way of satisfaction of k)
○ Applying would be against public policy
○ Impracticability; but after a temporary impracticabilty is gone, have duty to
perform
○ waiver/ estoppel
Material breach of anticipatory repudiation
When are k performances due?
○ No breach unless time for performance has expired
Consequences of not performing when due?
○ Does the other party have to keep performing its part of the bargain if you breach
first? Material breach doctrine
If you think other party is going to breach, but the tme for performing has not yet
arrived?
○ Anticipatory repudiation doctrine
When are performances due?
○ Common law: work is performed before tender of payment is due
Rest 234:
○ Unless contract states otherwise, performances are due simultaneously
What is a tender?
○ Tender of delivery: hold goods at buyer’s disposition and give buyer reasonable
notification. UCC 2-503
○ Tender of payment: any means or manner current in the ordinary course of
business. UCC 2-511
Response to breach
○ When does a breach of k not discharge the other party from performing its part of
the bargain?
■ When the breach can be cured UCC 2-508 (TW Oil)
■ When the contract is divisible
● Contract to exacuate (1053)
■ When the breach is not material
Divisible k’s
○ Contract to excavate:
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Garage foundation $1k
Swimming pool: $2k
Contractor completes garage excavation, then commits major breach on
the pool part
■ Can contractor get $1k on the garage part of the k, or must she sue in
restitution?
■ Can sue to be paid for garage even though contract retracted after
the breach on pool
● How to tell a divisible contract from an indivisible contract
○ If divisible: contractor can claim $1k for the garage and not have to sue in
quantum meruit and claim the value - is part of divisible k
○ If indivisible: means is major and material breach, whole k cannot be
enforced
● Restatement says 2 part inquiry for whether a k is divisible:
1. Is it possible to apportion the parties obligations into separate parts?
2. If possible, is it appropriate under the circumstances to do so?
● In the above garage - pool contract: answer is yes to both
○ Separate prices for both work so possible to apportion
○ Garage foundation is not dependent on swimming pool obligation, so might be
appropriate
● Ex 2)
○ K to buy table with 6 chairs
○ But only brings 3 chairs
○ K says table $1k; each chair $200
○ Possible to apportion the performances, each item had a price
○ But not getting value expected (3 chairs instead of 6) - so some performances
are dependent on each other
● Walker and co v harrison
○ A minor failure of performance is not a serious enough breach to justify
repudiation of an entire k
○ When a party materially breaches, the non-breacher may repudiate
○ Whether a k breach is material is determined by considering:
■ Extent to which injured party will obtain the substantial beenfit
which he could have reasonably anticipated;
■ Extent to which the injured party may be adequately compensated in
damages for lack of complete performance
■ Greater of less hardship on the party failing to perform; and
■ Greater or less uncertainty that the party failing to perform will
perform the remainder of the k
○ Quitting performance bc you think other party materially breached is risk
■ If wrong, you are now the breaching party
● Material breach: rest. 241 (with step by step analysis - exam)
○ In determining whether a failure to render or to offer performance is material, the
following circumstances are significant:
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A. The extent to which the injured party will be deprived of the benefit which he
reasonably expected
- Means should be a big part of k; how much were expectations devalued
bc of breach
B. Extent to which the injured party can be adequately compensated for the part of
that benefit of which he will be deprived;
- If have to hire someone else to finish benefit contracted for, can do so and
sue for damages of what you had to pay them
- If breach made someone laughing stock of community, and person loses
a lot of business, might be able to get lost profits (hadley and baxendale)
but would have to prove lost profits
- If something is declared a material breach, it does violence to the k
in a way that other party would say is over and null and void
C. The extent to which the party failing to perform or to offer to perform will suffer
forfeiture
- How much harm will result to breaching party?
- If a lot, might hesitate before calling it material breach
D. The liklihood 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
- Chances breaching party will try and cure or mitigate his failure
E. 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
Difference between substantial performance and material breach doctrine
○ Substantial performance
■ purpose is to allow the breaching party to still enforce the k and not have
to sue in quantum meruit for the value it confers
○ Material breach doctrine
■ Aksa whether non-breaching party can suspend its performance because
the other party committed a breach first
To distinguish between substantial performance and material breach, ask:
○ Is this situation where breaching party is trying to enforce the k and get paid
under it?; or
○ Is situation where non-breaching party is claiming k is null and void bc of breach
and thus trying to discharge the k?
K&G construction v Harris
○ Unless the parties agree otherwise, a party’s promise to perform part of an
installment contract is dependent on the other party’s fulfillment of its
promise concerning that part of the k
○ Promises in an installment k may ither be independent or mutually dependent
○ Promises independent of each other if parties intend that performance by
each of them is no way condited upon performance by the other
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A failure to perform an independent promise does not excuse
non-performance on the part of the other party, but a party who does not
perform is liable to the other party for non-performance
Promises are mutually dependent if the parties intend performance by one
party to be conditioned upon performance by the other
■ Modern rule- presumption of mutual promies in a contract are dependent
Intention of parties is controlling factor in determining whether promises
are dependent of independent
Evidence of mutual dependence:
■ Wording - promise precedent to payment
Anticipatory repudiation and insecurity
Anticipatory repudiation
○ What are the legal effects of a party repudiating the k before the time
performance is due?
○ Can the other party declare a breach and sue right away?
■ Hochester
○ How do you determine whether a repudiation has occurred?
■ Wholesale sand and gravel
○ How (when) are damages determined - as of time when repudiation occurs, time
when performance was due, or some other time?
■ Oloffson v coomer
○ If you think a party might breach but they haven’t repudiated, what recourse do
you have? Doctrine of requesting assurances
■ PDM v Brookhaven ; Norcon
Hochester v De la Tour
○ When one party to an agreement is informed by another party to the
agreement that the second party intends to breach, the first party has the
option to file suit for damages immediately in anticipation of the breach, or
to wait until the act was supposed to be done
○ Entered into k to accompany man on trip to begin in june
○ In may man informed no longer needed him for trip
○ If not permitted to sue for damages until the day the agreement was supposed to
have been performed, he would miss an opportunity to mitigate damages by
seeking other employment
○ Would not be able to engage in mitigation without legal permission without risking
being accused of breach himself
Can bring suit for breach even when breach has not yet occurred
○ Implied promise theory:
■ Said this was an actual breach of implied promise
■ There was an express promise to pay hochester
■ Implied promise that neither party will frustrate this performance prior to
June 1
● When trip was cancelled, was breach of implied promise
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Policy of allowing early mitigation
■ If have to wait until June 1 to call it a breach, must sit idle and cannot start
mitigating
■ If can call it a breach early, can start mitigating right away; this allows
chance to mitigate damages and fulfills policy of industriousness
So someone can bring lawsuit for breach of k when k has been repudiated but the
time of performance has not yet come…
BUT: some exceptions?
○ Person contracting to travel with contractor dies before k started?
■ Would not have been able to perform - but estate can still get damages is
repudiation occurred before death
○ What if war erupts by June 1?
■ Impracticability doctrine would make k null and void
○ If file lawsuit for repudiation before war breaks out, could get a recovery
○ If file lawsuit after, no recovery
Anticipatory repudiation:
○ Must have evidence that utterly renounced k or done some act that makes it
impossible to perform
Installment payments
○ If one party performed (loan of money) and other party is obligated to perform in
installments, some courts do not apply the repudiation doctrine when payments
are not made
○ Lender can only sue for past payments - cannot claim anticipatory
repudiation and sue for future installments
Acceleration clause
○ If a k says payments are in installments, if default on any one installment, all
future installments are immediately due and payable
○ Allows lenders to sue for whole amount bc in breach
○ Without acceleration clause, lender may have to bring lawsuits for only the
money past due
Wholesale sand & gravel inc v decker
○ Anticipatory repudiation of a k is a definite and unequivocal manifestation
of intention on the part of the repudiator that he will not render the
promised performance when the time fixed for it in the contract arises
○ A party to a k can cancel said k if it has reason to believe the other party will not
perform
○ Saying going to do something and then not showing up (especially multiple
occasions -- majority says this is enough to be a definite and unequivocal
manifestation of intent not to perform)
○ Not showing up even when giving ultimatum is showing not going to perform a k
Anticipatory repudiation (exam)
○ Definite and unequivocal manifestation of an intention not to perform
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Generally speaking, the above AND making a demand you have no right to
make under the k and telling other party not willing to go forward unless
demand is met is a repudiation (exam)
■ ‘Job harder than i thought - not going to do unless you pay $100 more’
○ However, you can make a request for modification as long as does not look like a
demand sending a signal tht not going to perform unless request is accepted
UCC 2-611: retraction
1. Until the repudiating party’s next performance is due he can retract his
repudiation unless the aggrevied party has since repudiation cancelled or
materially changed his position or otherwise indicated that he considers
repudiation to be final
2. Retraction may be any method which clearly indicates to the aggrieved party that
the repudiating party intends to perform, but must include any assurance
justifiably demanded under the provisions of 2-609
3. Retraction reinstates the repudiating party’s rights under the k with due excuse
and allowance to the aggrieved party for any delay occasioned by the repudiation
Oloffson v Coomer
○ When are remedies fixed?
○ K to sell corn in the future; oct and dec
○ $1.12 per bushel price, but on june 3 seller repudiates as market price is
$1.16/bushel
○ Buyer does not cover on this date or in oct or dec
○ Covers at $1.35/ bushel and at $1.49/bushel
■ Not going to get these prices as damages bc did not cover in
reasonable time
UCC 2-610
○ When either party repudiates the k with respect to a performance not yet due
the loss of which will substantially impair the value of the k to the other, the
aggrieved party may:
A) For a commercially reasonable time await performance by the
repudiating party; or
B) Resort to any remedy for breach...even though he has notified the
repudiating party that he would await the latter’s performance and has
urged retraction; and
C) In ither case suspend his own performance or proceed in accordance
with the provisions of this article on the seller’s right to identify goods to
the k notwithstanding breach or to salvage unfinished goods
UCC damages review
○ For buyer: 2-712(1) - after the breach within the preceding section the buyer
may cover by making in good faith and without unreasonable delay any
reasonable purchase of or contract to purchase goods in substitution for those
due from the seller;
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For buyer: 2-713(1) - subject to the provisions of this article with respect to proof
of market price, the measure of damages for non-delvery or repudiation by the
seller is the difference between the market price at the time when the buyer
learned of the breach and the contract price together with any incidental and
consequential damages
Majority of courts say damages fixed at time of repudiation, not at time of breach
○ BUT
■ UCC 2-708: seller remedy is diff between market price at time and
place of tender of delivery and unpaid k price
■ UCC 2-706: seller remedy is diff between k price and resale price
For exam: use date of repudiation as date when need to start mitigating using
reasonable efforts; used fixed damages
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Ability to perform
○ What if non-breaching party would not have been able to perform when the
obligations were due but the other party repudiates before that time?
■ Then non-breaching party cannot get remedy unless it can show
was willing, ready, able to perform on performance date
○ Cannot get a remedy unless breach caused some real harm
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Pittsburgh des moines steel co v brookhaven manor water co
○ Under UCC 2-609, a party may demand written assurance of performance
and suspend its own performance until after receiving such assurance only
if reasonable grounds for insecurity exist as to other performance
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UCC 2-609 says:
○ Party may demand written assurance of performance only if reasonable
grounds for insecurity exist as to other partys performance
○ Does not permit a party to rewrite a k or imply obligations in the contract
for the other party when the evidence does not support the inference that
the other party’s performance may be in jeopardy
○ Requiring that a party do something that it is not obligated to do under k
does not impose reasonable grounds for insecurity
PDM case
○ Final k only required Brookhaven to tender full purchase price within 30 days of
completion of tank
○ By demanding brookhaven obtains the entire laon and holding funds in escrow
before the k required, PDM is imposing an obligation on brookhaven beyond it
contractual rights; cannot demand assurances
Request for assurance: UCC 2-609
1) A k for sale imposes an obligation on each party that the other’s expectation of
receiving due performance will not be impaired. When reasonable grounds for
insecurity arise with respect to the performance of either party the other may in
writing demand adequate assurance of due performance and until he receives
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such assurance may if commercially reasonable suspend any performance for
which he has not already received the agreed return
2) After receipt of a justified demand failure to provide within a reasonable time
not exceeding 30 days such assurance of due performance as is adequate
under the circumstances of the particular case is a repudiation of the contract
● UCC 2-611: retraction
1) Until the repudiating party’s next performance is due he can retract his repudiation
unless the aggreveied party has since the repudiation cancelled or materially changed
his position or otherwise indicated that he considers the repudiation final
2) Retraction may be by any method which clearly indicates to the aggrieved party that
the repudiation party intends to perform, but must include any assurance justifiably
demanded under 2-609
3) Retraction reinstates the repudiating party’s rights under the contract with due exercise
and allowance to the aggrieved party fot any delay occasioned by the repudiation