GOVERNING LAW
CL or UCC?
CL
For services or sale of land
UCC
Goods (movable at time of sale)
Predominant Purpose Test to enforce intent
FORMATION (does it exist?)
Who is the offeror?
Person who sets out the terms that become the basis of the bargain
What is the operative offer? To show intent to K must expressly
Intent to K presumed so hard to fail for
include:
indefiniteness §2-204
Is an ad an offer or invitation
• Who (parties)
to negotiate? RPP test…
• What (consideration)
• When (time of performance)
• Where (place of performance)
• How (mode of performance)
Who is the offeree?
Usually named in the offer
How long is the offer open to • Option §87
• Firm offer §2-205
revocation or modification?
o Binding w/ any consideration
o If written, binding even w/out
and writing
consideration for stated time or
Mailbox Rule = offers,
< 3 months
• Bilateral (2 promises)
counters and revocations
o Binding once return promise is
effective when received,
given
but acceptance when sent
o Presumption if ambiguous!
• Unilateral (promise for action)
o Binding after part performance
Was there a timely and
effective acceptance?
Was there mutual assent?
Was assent compromised?
Was K modified?
Ex. Accord & Sat. §279
Mirror image rule:
• Qualified acceptance ok
o But counters terminate
• Part performance usually ok
• Reasonable manner w/out offeror
objection ok
• Silence usually not ok
Must objectively show:
• Intent to K
o Not an agreement to agree
• Agreement to same material terms
o Unless unilateral
misunderstanding §20
• Duress
• Misrepresentation
• Unconscionability §2-302
No consideration needed if original is
mutually rescinded or good faith
under §89
§2-206 = any reasonable manner
unless unambiguously otherwise
• §2-207 for Battle of the Forms
o If K formed under (1), go to (2)
or use Knock Out Rule
o If no K formed but K-like
conduct, go to (3)
Intent to K presumed, and K won’t fail
without mutual assent if conduct
recognizes its existence
•
No consideration needed §2-209
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What terms does the K
include?
What do the K terms mean?
Use extrinsic evidence if
allowed by PER
Whose terms control?
SCOPE AND MEANING (can it be enforced?)
Parol Evidence Rule
§2-202: allow non-contradictory and
credible evidence of:
• Is it fully integrated?
o CA/Corbin (majority) = look
• Course of dealing
extrinsically
• Usage of trade
o NY/Williston =
• Course of performance
stay in the 4 corners
But if fully integrated then no evidence
• If only partially integrated allow
of consistent additional terms
terms in that are:
o Collateral
o Non-contradictory and
o Would not reasonably have
been included
• If ambiguity, then interpret
• If ambiguity, then best evidence of
against drafter and in favor of K
intent is actual performance and
by looking at:
industry standards
o Intent and
• If omission, then liberally allow
o Custom
UCC gap fillers b/c hard to fail for
• If nonmaterial omission, then
indefiniteness
allow gap fillers that reflect:
o Intent and
o Fairness
Offeror’s
Offeror’s unless §2-207
PERFORMANCE (must you perform?)
What was the order of
performance?
•
Absent language that one is
precedent, goal is to minimize
risk so:
o Simultaneous if same length
o Sequential with longer first if
not
$ upon delivery absent language to the
contrary §2-507, 5-11
Did the parties perform as
required?
•
Given words and intent, is it a
condition (full) or promise?
o If ambiguous, promise §261
Will there be a forfeiture such that
condition should be read as
promise §229?
Has there been a waiver?
Suspended for assurance §251
Mistake
Impossible/impracticable
Frustration of purpose
Right to rejection if not perfect tender
§2-601, 602
•
If not, is there an excuse for
nonperformance?
Depends: who bears risk?
Was it really unforeseeable?
If not, what are the
damages?
•
•
•
•
•
•
•
•
•
•
•
Suspended for assurance §2-609
Mistake or frustration?
Impossible §2-613/impracticable §2615
Is the term severable?
If substantial performance other party can still deduct damages caused by
lack of complete performance
Materially breaching party can still get QM to avoid UE
Page 2 of 32
INTRODUCTION
1. What is a contract?
a. = The written version of an agreement between parties to exchange something for something else
that is enforceable by law (OFFER + ACCEPTANCE iff MUTUAL ASSENT)
b. Compared to deals
c. How do we know if we have a contract?
i. All about objective manifestation of parties’ intent
2. Conceptual framework
UCC if for the sale of goods (services/land =
common law)
o Good = movable (UCC §2-105) when the
titled passes from seller to buyer for a
price (aka “sale” under UCC §2-106)
• Can be a mixed contract
o Then use the predominant purpose test
•
(Nim = finish on roll is a service)
§
Aka, is there
a contract?
1.
2.
3.
4.
5.
6.
7.
8.
9.
Was predominant purpose the sale of
goods w/ labor only incidentally
involved (UCC) or vice versa (CL)?
§ Goal is to enforce intent
Who is the offeror and offeree?
What is the operative offer?
Was there a timely and effective acceptance?
Was there mutual assent or was it compromised?
What terms does the contract include?
What do the contract terms mean?
Did the parties perform as required?
If not, is there an unmet condition or an excuse for non-performance?
If not, what are the damages in the event of a material breach?
3. Stages of a contract
a. Negotiation
b. Agreement = Contract
i. Formation
1. Offer
2. Acceptance
ii. = Mutual assent
1. Intent to contract
2. Assent to the same terms
c. Performance
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AGREEMENT
1. Mutual assent (i.e. “meeting of the minds” where parties understand the agreement in the same way)
a. Both parties must appear to:
i. Intend to contract (i.e. to offer and accept) and
ii. Agree to the same material terms (and their intended meaning) at the time
1. Terms in a contract that are considered essential; they describe the goods, fix the
price, fix the quantity, and set the delivery date.
b. How we determine parties’ intent? = Objective theory of contracts
i. Would a reasonable person understand there was mutual assent?
ii. Subjective intent doesn’t actually matter b/c not ascertainable (Embry = doesn’t matter if
parties intended to orally renew employment K, just matters if reasonable man would see
that from words)
1. Would be chaotic if you allowed people to go back on their actions because of their
secret intentions (Lucy = doesn’t matter if D’s acceptance of P’s offer to buy his farm
in a bar was serious or not because any jest was secret)
iii. Consider:
1. Words and actions of parties
a. Law imputes to a person intentions corresponding to the reasonable meaning
of his words and actions
2. The contract itself
3. Context
a. Presumption that familial relationships are intended to be gratuitous, not
contractual (Morrow = no evidence agreement to take care of mom was not
gratuitous)
i. Can rebut by subject matter and terms that are usually contractual
ii. Expressions of the parties to indicate intent to make it binding
b. Presumption that if subject matter is normally dealt with in enforceable
contracts and parties act as if it is enforceable, then nugatory inducements
(that exclude all sanctions and remedies) are void (Tilbert = certificate of
benefit for employees had to be honored despite no remedy clause)
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c. What about misunderstandings?
Misunderstanding
= no mutual assent (No K)
Wrong
Understanding of material terms
assumption and intent
about:
(Raffles = two “Peerless” ships
come different months, so no
mutual assent b/c reasonable
different understandings)
Elements
Mistake = mutual assent (agreed to same understanding),
but grounds for cessation
Mistaken about the same facts that form basis of K
(Sherwood = mistake that cow was barren, not that cow was
probably barren, is material and was mutual, so excused
from K)
1.
Mutual misunderstanding 1.
about
2.
2.
Ambiguous and
3.
Material terms (§20)
Mutual mistake about material facts (§152) or
Unilateral mistake about material facts iff (§153):
a.
Effect of enforcement is unconscionable or
b.
Other had reason to know of mistake/was his
fault
Unless adversely affected party bears the risk (§154)
Restatement Second § 20
Effect of Misunderstanding
(1) There is no manifestation of mutual assent to an
(2) The manifestation of the parties are operative in
exchange if
accordance with the meaning attached to them by one
of the parties if
Parties attach materially different meanings
(essential) to their manifestations and
(a) Neither party knows or has reason to know the
meaning attached by the other
OR
(b) Both party knows /reason to know meaning
attached by other
(a) Party that does not know of any different meaning
attached by the other and
Other knows meaning attached by first
OR
(b) That party has no reason to know of any different
meaning attached by the other and
Other: reason to know meaning attached by
the first
i. Unilateral misunderstandings
1. Normally enforced since your duty to inform other party (Cargill = D accidentally
wrote 35,000 instead of 3,500 and then refused to deliver 35,000 even though P had
already resold that many. D bears the risk of it since P was reasonable to assume
mutual assent)
2. About good faith – (Dickey – if you know and do not inform the other party of
mistake à other’s understanding enforced)
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2. Offers
a. = an expression by one party of his assent to certain definite terms, provided that the other party
involved in the transaction will likewise express his assent to the identically same terms
i. Create reasonable expectation parties willing to enter into K on basis of offered terms
ii. Ask:
1. Was there expression of promise, undertaking, or commitment to enter K?
a. Language
b. Surrounding circumstances
c. Prior practice and relationship of parties
d. Method of communication
2. Were there certainty and definiteness in essential terms?
3. Was there communication of the above to the offeree?
iii. Check for:
1. Objective test of intent to make an offer
2. Mode of communication
3. Evidence of intent
b. To be an operative offer it must:
i. Objectively (given the words, acts, context and contract itself),
ii. Include a clear, definite and explicit explanation of the following:
1. Who is contracting (the parties)
a. “Anybody” is not specific enough, so ads are not usually offers unless they
specify something like “first person to do x” (Lefkowitz = mink for $1 to first
customer)
i. Ads are usually seen as invitations to negotiate (so if you respond then
you’re the offeror)
ii. If an ad addressed to the general public shows that some performance
was promised in positive terms in return for something requested, then
binding
2. What is exchanged (consideration)
3. When (time of performance)
4. Where (place of performance)
The terms
5. How (mode of performance)
iii. With nothing left open for negotiation à objectively intended to make acceptable offer
iv. Such that a RP would believe you intended to be bound upon acceptance by offeree
(Southworth = D approached P alone (not a bunch of ppl in a letter which = invitation to bid)
w/ definite offer to sell land after they had talked about it, so reasonable to see this as offer
and not an invitation to bid)
1. If it’s outlandish in context, it’s not an offer (Pepsico = commercial showing fighter
jet for 7 million points is definite but not an offer because no RPP could conclude it
was)
2. Consider use of specific language in entire body of correspondence (Courteen = “I
am asking X for Y” is not an offer… need to say “I am offering”) (Fairmount =
“Immediate acceptance” makes this an offer despite the word “quote”)
Page 6 of 32
c. Types of offers
i. Option contract (§87) à vs. Firm Offer
1. Irrevocable (open for reasonable time) if:
a. Writing signed by offeror that
b. Acknowledges exchange of consideration for making the offer of the option
and proposing an exchange on fair terms
i. Consideration must be valuable, but need not be adequate (Marsh =
25¢ for option to buy real estate for $100k is ok)
2. “An option…is considered to have a dual nature; ...it is an irrevocable offer, which
upon acceptance ripens into a bilateral contract, and … it is a unilateral contract
which binds the optionor to perform an underlying agreement upon the optionee’s
performance of a condition precedent.”
3. Like a unilateral contract until exercised (i.e. accepted), then new bilateral
ii. UCC Firm offer from a merchant (UCC §2-205)
1. Irrevocable even with no consideration for stated time or < 3 months if:
a. Signed, written offer
b. That assures it will be held open
3. Bilateral
If ambiguous, then bilateral b/c binds both parties
earlier §32
= a promise for a promise (Davis = specifically
asking for immediate reply indicates nature of
acceptance is promise, not act of coming to care
for him)
4. Unilateral - (typically employer/employee, ex.
work for us for 10 yrs and you get a pension) (§45)
Binding once the promise is given (acts as
acceptance)
Binding once part performance, but offeror only has
to perform once offeree completes performance (aka
a condition precedent = operative fact that must
occur between acceptance & performance [ex. offer
to work with firm provided you pass the bar])
= a promise for an action (Brackenbury = offer to
give P land when D died if P took care of D is
unilateral, so can’t revoke after P starts taking care
of D)
Legal fiction that it’s like an option contract where
part performance is consideration that binds offeror
to keep the offer open to give you a chance to finish
Sufficient if that person has actual knowledge that
the person who made the offer has done some act
inconsistent with the continuance of the offer such as
selling the property to a third person
Note: credit cards form a new contract each time the card is used according to the terms at the time, so
subject to modification at will (Garber)
Page 7 of 32
d. Offeror’s power
i. Set terms
ii. Set manner of acceptance à UCC § 2-206(1)(a)
1. Mailbox Rule = offers, counters, and revocations aren’t effective until received (i.e.
in your mailbox, not when you see it), but acceptance is effective when sent.
a. Offeror can specifically state otherwise (Adams = by not stating otherwise,
offeror accepts risk of unreliable mail)
b. Definite rule facilitates commerce
iii. Modify before acceptance
e. Duration of offer (aka when offer is terminated and offeree can no longer accept §36)
i. From time offer is received (Mailbox Rule) until:
1. Lapse of time set by offeror,
2. If no time set by offeror, then after an objectively reasonable amount of time
a. All about what a reasonable offeree would assume the duration was given the
circumstances (Vaskie = SOL is merely relevant, doesn’t automatically
terminate)
i. Rebuttable presumption that offer ends with face-to-face conversation
(Akers = boss did not objectively demonstrate intent to take offer to
resign under consideration after face-to-face conversation)
3. Offeree fails to comply with any condition of acceptance
4. Offeree counteroffers without reserving acceptance (see below)
5. Offeree rejects
6. Offeror dies (or when offeree dies if offer was personal)
7. Offeree receives (Mailbox Rule) offeror’s effective revocation (§42) of an:
a. Bilateral contract before acceptance (aka when bound)
i. Indirect revocation ok if from a reliable source (Dickinson = offeror
revoked before time limit but didn’t tell offeree, but since offeree
knew it was still effective)
ii. Exception to Mailbox Rule if equal publication as offer (Shuey =
reward in newspapers whose revocation claimant didn’t see)
b. Unilateral contract before part performance that P has reason to know about
(Petterson = performance was paying so D can revoke as P walks up to pay
him)
Page 8 of 32
c. Option contract under CL with no consideration before acceptance
d. Construction contract before reasonable reliance (Drennan = custom that
reliance takes the place of consideration so promise of sub is binding option if
general uses it in his bid)
i. Prime/Sub – if you use subs’ bids you’re not accepting them, you’re
just incorporating estimate (Baird)
ii. Sub bound to honor bid to Prime (Drennan)
Page 9 of 32
3. Acceptance
Restatement 2nd §32
Invitation of Promise or Performance
In case of doubt (ambiguity) an offer is interpreted as inviting acceptance via promise or performance as
Offeree chooses…
What is accomplished by affording the Offeree this flexibility?
a. = voluntary manifestation of assent to the terms of an offer made by the offeree in a manner invited
or required by the offer , thereby creating a contract
b. Where offer is not face to face à manifestation = appropriate act in timely manner
c. Acceptance is effective (so there’s a contract) as soon as it is made (compare to Mailbox Rule)
i. About efficiency and reliance
d. Common law effective acceptance (last shot where offeree dictates the outcome)
2nd Restatement § 39(2)
Offeree’s power of acceptance terminated by counteroffer (unqualified)
Unless offeror manifested contrary intention (allows) or
Unless counter-offer manifests a contrary intention of offeree
(qualified)
i. Mirror image rule = offeree must communicate definite and unequivocal acceptance of the
offer as is
1. Equivocal, conditional or limited-acceptance is a counter offer (Ardente = saying
you will buy the house as long as it comes with furniture is a counter offer since it
does not state unequivocally they will accept even without the condition)
All about the
“magic moment”
a. Counter offers terminate the original offer
of formation
b. BUT ok to make qualified acceptance (counter offer in addition to an
acceptance) as long as you are clear you will accept even if counter is denied
(Collins = prison inmates’ counteroffer manifested intention to accept first)
2. Exception: part performance in accordance with terms is effective acceptance when
offeror is aware of it (§32 and §54) (Allied Steel = P suggested method of acceptance,
but when D started performing w/ P’s consent, that was effective acceptance) (White
= purchasing materials isn’t eligible part performance b/c doesn’t objectively show
intent to accept)
ii. Must be made in manner and in time consistent with offer (Eliason = sending acceptance
with return wagon was not arbitrary so acceptance via other wagon is not binding on offeror)
1. Suggestion of permitted manner of acceptance does not preclude another reasonable
form if the offeror does not object (Allied Steel = see above)
Page 10 of 32
iii. Silence ≠ acceptance (since a RPP would normally not think it does)
1. §69 exceptions:
a. Where offeree takes a benefit he could reject and knows offeror wants
compensation
i. But 39 USC § 3009 trumps where unordered merchandise that is not
free or from charity can be treated as a gift
b. Where offeror has given offeree reason to know silence = assent and offeree
intends silence to = assent
c. Where previous dealings make it reasonable
Page 11 of 32
e. UCC §2-207 acceptance (modified first shot rule where offeror usually dictates the outcome)
i. What do you do when merchants exchange conflicting forms without reading the forms,
perform as if there is a contract, and then have a dispute? What terms control?
1. There may never be a magic moment! But commerce doesn’t stop for ambiguity
ii. Presumption parties intended to contract since they’re acting like it
iii. Process
1. Who made the operative offer?
a. Could be the original offeree if his acceptance was explicitly conditional and
therefore a counteroffer
2. Who made the effective acceptance or written confirmation?
a. Must be definite, seasonable and sent w/in reasonable time 2-207(1) (Step
Saver = box top treated as written confirmation, but had additional terms that
materially altered the contract so not allowed…can’t alter the contract after it
is formed!)
b. Can be acceptance despite different or additional terms (Daitom = both forms
styled as offers but one incorporated the other so that is the acceptance)
c. If no effective acceptance but actions show intent to K, go to 2-207(3)
3. What are the terms if the agreement is ambiguous?
a. If acceptance has additional terms: 2-207(2)
b. If acceptance has different (conflicting) terms: 2-207(3) (Daitom = one form
saying “retains all remedies under law” and another saying 1 year SOL =
terms are cancelled and UCC 4 year SOL is in effect)
f. If UCC but no conflicting forms, then 2-204 and 2-206 (under agreements to agree and offer)
Page 12 of 32
g. Rolling Contracts
i. = consumers pay for goods before opportunity to read most of the terms (on the box)
ii. Offeror invites acceptance by conduct (Gateway = shipping the product with the terms
including 30-day return right was an offer, and keeping it for 30 days was an acceptance)
iii. Doesn’t matter if you actually read the terms or not
1. About fairness. Terms in the box are common and efficient and traditionally fair
4. Agreements to agree (preliminary agreements, memos of intent, etc.)
a. Relational contracts (ongoing relationship) vs. discrete contracts (little interaction other than
contract itself, ex. buying gas)
i. Often no clear offer and acceptance for relational contracts
b. When is it a continuation of negotiation and when is it an agreement that forms a contract?
i. Consider §27 to find a contract implied in fact from parties’ relationship:
1. Whether the contract is of the type to usually be in writing
Material Terms in a
2. Whether it has enough details (Schumacher = lease renewal clause “at annual rentals
contract that are
to be agreed upon” is not enforceable because a material term is left for future
considered essential;
negotiations…they could have had rent to be decided by an external mechanism like
they describe the
cost of living increase)
goods, fix the price, fix
3. Amount in controversy
the quantity, and set
4. Common or unusual contract
the delivery date
5. Standard from
6. Preparation for performance during negotiations
ii. All about objective manifestation of intent under RP test from full writing (intrinsic
evidence), words and actions. A lot of fact finding! (Palmer = reasonable person would find
they intended for the Memo of Intent to be binding because they publically said there was a
partnership)
1. Extrinsic evidence subject to parol evidence can be included
c. Ambiguous phrases
i. “Subject to,” “general terms and conditions,” “subject to approval of the board” = objectively
appears intent is not to be bound (Empro)
1. Always objective not subjective
ii. But note: not always controlling because it could be used carelessly. Look at everything in
context
d. Definiteness is required
i. Can be ascertained by:
1. Explicit expression
2. Agreed upon methodology
3. Reliance on objection extrinsic event, condition or standard
ii. **Court should imply definiteness despite a few terms being left open if it’s otherwise clear
the parties intended to contract UCC § 2-204(3)
Page 13 of 32
POLICING DOCTRINES
About existence and quality of assent at time of original contract or modifications
(Where freedom of contract is undermined b/c you couldn’t properly value consideration)
Address Existence and Quality of Assent OR Substantive Terms of Exchange
1. Duress (remedy = recission)
a. Elements:
i. Party is constrained to do what he otherwise would not have done (shouldn’t matter how
that party got in that position) and
1. By:
a. Improper threat with motive to take advantage of party (§ 176)
b. Undue influence where pressure is exerted by person enjoying special relation
with victim that makes him especially susceptive to pressure (ex. lawyer and
old client)
ii. Party did not have a complete and adequate timely legal remedy
1. Threat to withhold a legal right has an adequate remedy (Standard Box = threat to
refuse performance of a contract to sell boxes at a cheaper price after earthquake is
not duress)
b. Business duress if continuing contract between parties (Machinery Hauling = P transited D’s steel
to X who rejected it, so D told P to pay or would not work with him in the future, but this is not
business duress since no threat to terminate existing contract)
i. Don’t need to be a party to a contract (S.P. Dunham = D’s threat to publicize debt to P’s
agent’s clients if P doesn’t enter K as surety is business duress b/c public suit is not an
adequate remedy and only reason P paid was to avoid loss of good will)
2. Misrepresentation / Omission / Concealment
a. Misrepresentation (not easy to prove)
i. False representation
Remember: liable for
acts of your agent
ii. Intent to induce reliance (Holcomb = realtor told P land was X acres when it was really Y,
and buyers are not generally able to judge acreage by the eye and reasonable to rely on
realtor)
iii. Other party reasonably relied on it
1. Disclaimers are not controlling but are relevant in determining whether claimant
actually relied (Gibb = seller tried to hide termite infestation and sold house “as is” is
liable for fraudulent misrepresentation)
iv. And suffered damages as a result
Fraudulent
Made with purpose of deceiving
while knowing it to be false
- Bringing buyer who wants
quiet house on Sunday to
avoid construction
Negligent
Made without reasonable basis for
knowing it to be true
- Tell buyer house will be
quiet when broker doesn’t
know about construction
Innocent
Made with reasonable basis for
knowing it to be true
Bates = D bought stocks based on
‘s false/innocent representations
about value of real estate)
Page 14 of 32
b. Fraudulent Concealment
i. ∆ concealed or suppressed material fact
ii. ∆ had knowledge of material fact
iii. Material fact not within reasonably diligent attention/observation, judgment of π
iv. ∆ suppressed or concealed fact with intent π misled
v. π reasonably so misled
vi. π suffered damage
c. Omission: Required disclosures
i. Must disclose casually acquired info (costs incurred in acquiring it would have been incurred
in any case)
ii. Duty to disclose factual circumstances and information about legal effect of contract terms if:
1. Fine print/hidden terms or
2. One party enjoys superior knowledge so justice demands it, aka fiduciary duty from
position (Weintraub = seller’s silence about roaches at night was fraudulent
concealment)
d. Tort if there is a duty, then punitive damages (Restatement of Torts § 552C) (ex. doctor)
i. Also sometimes classified as warranties, then expectancy (see last semester)
e. Remedy = Rescission or benefit of the bargain (aka value promised – value received + CD)
(Porreco = no rescission where value of engagement ring was misrepresented b/c she could have
checked herself) (Holcomb = no rescission b/c didn’t want the land b/c it was X acres)
3. Unconscionability à matter of law
a. Elements
i. Absence of meaningful choice at the time of K for one party coupled with
ii. Contract terms unreasonably favorable to the other party (inadequacy of consideration)
(Inudstralease = forced into modification where warranty disclaimers are unconscionable
when equipment never operated so equipment is worthless) (Jones = can’t require full
payment of $1200 for $300 freezer when buyer is poor and already paid $600) and
iii. Characterized by gross inequality of bargaining power (In re Lisa Fay Allen = ok where P
contacted to D to lease a washer/dyer and then filed for bankruptcy since terms were
understandable and reasonable)
1. Consider:
a. Age
b. Status/intelligence / business sophistication / bargaining power
c. Explanation (or lack thereof) of terms
d. Firmness of seller’s position and speed of transaction (take it or leave it?)
e. Availability of alternative sources of supply
Page 15 of 32
b. UCC § 2-302 (court finds as a matter of law) AT TIME K MADE
i. (1) If the court finds the contract or any clause of the contract to have been unconscionable,
court may
1. Refuse to enforce the contract, or
2. Enforce the remainder of the contract without the unconscionable clause, or i
3. So limit the application of any unconscionable clause as to avoid any unconscionable
result.
ii. (2) When found parties shall be afforded a reasonable opportunity to present evidence as to
its commercial setting, purpose and effect to aid the court in making the determination.
c. CL types (if one is strong enough that could be sufficient) (basically the same test as UCC)
i. Procedural = bargaining unfairness (Weiner = speed/pressure of deal)
1. Lack of opportunity to understand the terms/business acumen or
2. Adhesive b/c boilerplate/difficult to understand and no meaningful choice
ii. Substantive = outrageous unfairness in consideration (Weiner = old, poor, uneducated man
fearful of losing his home sold it to D but thought he was only renting it) (Weaver = can’t get
out of all liability by passing it on to D through indemnity clause where D is not educated
and did not read the lease)
1. Courts are reluctant to determine adequacy of consideration, but they do it if does
overly harsh/one-sided term does not serve a reasonable purpose/against policy
d. Disclaimers
i. Valid under UCC § 2-316 (must be in writing, conspicuous and express àconstrued
wherever reasonable as consistent with each other)
ii. But can never disclaim (UCC §2-102):
1. Good faith
2. Diligence
3. Reasonableness
4. Care
iii. Express Warranty – presumed part of bargain
1. Seller refutes presumption:
a. Buyer had actual or independent knowledge or expertise
b. Waived right to inspect
i. Buyer wins if defect isn’t discoverable
Page 16 of 32
e. Standard Form and Adhesion Contracts
i. Useful in business setting but tend to indicate some inequality of bargaining power
ii. An offeree, regardless of apparent manifestation of assent is not bound by inconspicuous
contractual provisions of which he/she is unaware, contained in a document whose
contractual nature is not obvious
iii. Can’t unknowingly waive constitutional right that’s buried in a form-K
1. Proof of knowing, voluntary and intentional waiver
a. Parties represented by counsel, or
b. Evidence of negotiation without substantial inequality in bargaining position,
or
c. Waiver provision was conspicuous (written such that a reasonable person
against whom it is to operate ought to have noticed it.
iv. Reasonable Expectations Doctrine (§ 237)
1. A party who adheres to the other party’s standard terms does not assent to a term if
the other party has reason to believe that the adhering party would not have accepted
the agreement had he known that the agreement contained the particular term
a. Term is bizarre or oppressive
b. Eviscerates non-standard terms explicitly agreed to
c. Term eliminates the dominant purpose of the transaction.
d. Inference is re-enforced if adhering party had no opportunity to read term,
term is illegible or hidden
2. May be shown by prior negotiation
3. Inferred from circumstances or fact that term eliminates the dominant purpose of the
transaction
f. CL Remedy =
i. Rescission or
ii. Severance
1. May refuse to enforce the contract, or
2. May enforce the remainder of the contract without the unconscionable term, or
3. May so limit application limit the application of any unconscionable term as to avoid
any unconscionable result
Page 17 of 32
4. Policing Modifications (all of the above apply here, too)
a. Elements (§89(a) and 2-209(1)) (Angel = ok for trash collector to ask for more from the city b/c of
unexpected increase in number of dwelling units):
i. Before full performance
ii. Because of unanticipated circumstances
iii. Fair and equitable (good faith)
1. Ex: Bad faith – Alaska Packers – party cannot lay foundation of an estoppel on his
own wrong where promise is simply a repetition of a pre-existing duty (there was
business duress here)
b. Consideration (Minority to protect from duress. Majority just follows §89 unless proof of duress)
i. Preexisting duty rule: need new consideration to support any changes in existing K (Recker
= D said he would go to court unless P paid extra $, so P did, but there is no consideration on
P’s extra payment so void) (Foakes = If D would pay some upfront and the rest in
installments P would give up right to interest on debt, held for P b/c agreement lacked
consideration)
ii. But if the original contract mutually rescinded, then the new contract can be supported by
mutual promises (Schwartzreich = employment agreement, then P said he was leaving so D
offered him more and said for P to give him old contract since new one would take it’s place.
P cannot be discharged before contract is up b/c rescinded and then enforced by mutual
promises)
iii. Consideration is not adequate protection because it’s not representative
1. Parties can still agree to something that’s coined as consideration even though it
seems unreasonable (Stump Home Specialties)
2.
c. Accord and Satisfaction = affirmative defense to pay less than original contract (§279)
i. Minds must meet
ii. Unmistakable communication to creditor that tender of the lesser sum is upon the condition
that acceptance will constitute satisfaction of underlying obligation
iii. Conditions must be plain, definite and certain = no other interpretation
iv. Offer must be accompanied with acts which the creditor is bound to understand
v. Bonafide dispute, which presupposes both parties’ knowledge that there exists a particular
issue as to greater liability than is settled
1. Flowers = P did not know there was greater liability b/c of D’s bad faith, so endorsing
checks for lesser amount is not a defense for D to get out of oil K
2. Arroll = dispute needs not rest upon factors arising from sound reason, so when
consumer argued about bills and sent in check for less clearly expressing into for
A&S, utility is not let off just b/c they were right and didn’t notice the letter b/c of
volume of operations)
Page 18 of 32
INTERPRETATION
1. Parol Evidence (aka what prior/contemporaneous oral/written agreements can be used?)
a. = assumes duties not appearing in final written contract weren’t intended to survive
i. So a total cannot be contradicted or supplemented and a partial can only be supplemented
b. Policy = Promotes efficiency and certainty and serves against perjury/discourages fraud
c. Methodology à Determine what JX you’re in
i. Is the agreement integrated (i.e. intended to be final by both parties)?
ii. If so, is it fully integrated (i.e. intended to be final and complete by both parties)?
1. Note: If parties INTENDED the writing to be the complete with regard to some but
not its terms, the writing is PARTIALLY INTEGRATED.
Merger clause =
evidence of
intent to be fully
integrated (but
in 4 corners jx it
is proof)
2. Liberal/CA/Corbin (majority) rule:
a. JUDGE looks at extrinsic evidence to see if K is only partially integrated (aka
if PER evidence rule applies and extrinsic evidence should be let in for JURY)
(Pacific Gas = words are not absolute, so need at least a preliminary
consideration of all credible evidence to prove intent of parties)
3. Conservative/NY/Williston (minority) rule:
a. JUDGE looks at 4 corners of contract. If appears fully integrated on its face
(and not ambiguous), then don’t look at extrinsic evidence at all (Trident
Center = 9th Cir. bemoaning they have to apply Pacific Gas which chips
away at legal system since words have to be adequate!)
4. UCC § 2-202:
a. Only allow consistent additional terms if does not appear fully integrated
b. Even if fully integrated (and w/out finding ambiguity) can allow noncontradictory and credible extrinsic evidence of:
i. Course of performance = one contract with multiple segments
ii. Course of dealing = multiple contracts between parties over time
iii. Usage of trade = industry custom
Page 19 of 32
iii. If not, then it’s partially integrated, so FACTFINDER looks to extrinsic evidence to
interpret:
1. Ambiguities, then can look objectively at extrinsic evidence (QUESTION OF LAW)
a. Clear and convincing à Must be ambiguous on its face, aka:
i. Genuinely uncertain and doubtful or
See Interpretation
ii. Reasonably susceptible to 2 meanings (Eskimo Pie = “non-exclusive”
doesn’t look ambiguous, but court will allow in general usage, custom
and circumstances to show what RP would think, (it’s objectively
ambiguous) But subjective evidence of secret intent inconsistent with
general usage doesn’t matter!)
b. If the agreement on its face is reasonably susceptible to only one meaning, a
court is not free to alter the contract to reflect its personal notions of fairness
and equity.
See Gap Fillers
2. Omissions, then can bring in evidence that is:
a. Collateral
i. = separate, contemporaneous and often distinct agreement between the
parties (often separate consideration)
b. Non-contradictory (of express terms) and
i. = cannot express opposite of express or implied provisions of K
c. Was not likely to be reasonably included in writing
i. = should not be so closely related to the primary transaction that it
should naturally be included (Mitchell = removal of the icehouse is too
closely related to purchase of land not to be included in the written
contract)(Masterson = difficult to accommodate formalized structure
of deed, so likely terms about assignability were not included so can
look externally. Only exclude if misleading)
3. Can have a partially integrated K that is fully integrated on the term in question
iv. Exceptions – Parol Evidence always allowed to show:
1. Fraud / misunderstanding / duress (b/c then no K)
2. Condition precedent to formation of contract (b/c then no K yet)
3. Subsequent agreements
4. Promissory estoppel
5. Misleading or deceiving 3rd party
Page 20 of 32
2. Interpretation of Ambiguity à how do we use EE to ascertain terms’ meaning?
a. Goal: ascertain parties’ intent at K formation through objective manifestation
b. Look at contract as a whole (harmonize parts if possible) to see if it’s clear on its face when
interpreted consistent with ordinary meaning (Berke Moore = “concrete surface included in the
bridge deck” is not ambiguous as evidenced by mutual understanding through extrinsic evidence of
price estimate)
i. If not, then patent ambiguity (= ambiguous on its face due to inconsistency, obscurity, or
inherent uncertainty of language used)
1. Ex. “chicken” could mean broiler, fryer or roaster
c. Look at extrinsic evidence to determine if there is a latent ambiguity (= clear and intelligible
language suggests a single meaning, but extrinsic evidence suggests another)
i. If so, then look objectively at extrinsic evidence to interpret (Turner Holdings = “under
consideration” is not subject to hidden intent of one party, so go with its ordinary meaning)
1. 2 step process like parol evidence that requires peeking outside the K first
a. Look outside to see if there is a problem
b. If there is, look outside to fix the problem
2. Consider objective manifestations of intent and custom (see below)
3. Ex. “dozen” usually = 12, but a baker’s dozen = 13
ii. UCC (§ 1-203, 205, 2-208)
1. Best evidence of intent is actual performance
2. Usage of trade and course of dealing and performance can be used to contradict
written agreements and modify express terms, but not negate them entirely (Nanakuli
= parties are bound by usage of trade to which they are or should be aware,
universality is not required, so past performance of not objecting to express language
implied adoption of custom of price protecting)
a. Express terms prevail over course of performance, course of dealing, and
usage of trade;
b. Course of performance prevails over course of dealing and usage of trade; and
c. Course of dealing prevails over usage of trade
d. If 2 meanings, one fair (a RP would make it) and one not, then presumption that the just/rational
interpretation is correct (Sutter Insurance = commercial reasonableness is useful guide)
i. If clear both intended particular meaning, that trumps objective meaning (§201)
e. Use punctuation to find clarity (Lewis)
f. Construe ambiguous terms against the drafter
g. Courts always try to enforce the contract and not have to throw it out
Page 21 of 32
3. Gap Fillers for Omissions
a. Is the gap small enough to be filled?
i. If a crucial term (like duration or price) is omitted, then:
1. CL = the contract fails for indefiniteness (doesn’t cure as many problems as UCC)
2. UCC = may be able to use:
a. Industry standard or
b. UCC gap fillers (§2-204:
i. Doesn’t fail for indefiniteness if intent to K and
ii. Reasonably certain basis for giving remedy
1. Southwest = intended to K and didn’t think delivery term was
critical, so gap filler
b. If small enough to be filled, then:
i. Look to intent of parties through objective manifestations (Haines = no duration for sewage
contract with NY, so fairly implied by “reasonable time” since would have specified if intent
was to be perpetually bound or terminable at will) and/or
ii. Notions of fairness given the circumstances (good faith matters)
1. Consider usage of trade and course of dealing and performance
a. Keppy = K to revitalize pigs failed to specify duration but can be fairly
implied by nature, subject matter, and relationship of parties, so not
terminable at will
b. Haslund = omitted details about type of stock to be paid can be filled in w/out
undue burden by looking at industry custom, but value of company is a sham
so $0
Page 22 of 32
4. Good Faith (// Unconscionability)
a. Common Law (Restatement § 205)
i. If agreement gives one party substantial discretion in performance that deprives another of
the benefit of their bargain à good faith applies
1. Does agreement ostensibly allow to or confer upon defendant a degree of discretion
in performance tantamount to power to deprive plaintiff of substantial proportion of
agreement's value?
2. If so, did parties intend to make enforceable contract?
3. If so, did parties intend to make an enforceable contract?
4. Is cause of damage result of ∆’s abuse of discretion
a. Defense: or does it result form events beyond control of either party against
which ∆ has no obligation to protect π
b. UCC
i. 1-203 - Every K or duty within act imposes duty of good faith in performance or enforcement
ii. 2-306 - K for output is not too indefinite since it is held to mean actual good faith output
1.
Nor does K lack mutuality of obligation since party who will determine quantity
required to per ate plant or conduct business sin good faith and according to
commercial standards of fair dealing in trade so that his output will proximate a
reasonably foreseeable figure
a.
2.
Output K - agreements to sell all goods or services party may produce or
perform to another party
UCC - output K does NOT lack mutuality and is NOT unenforceable because of
indefiniteness in that quantity for term is not specified
a. Exclusive dealing imposes an obligation to use best efforts.
b. Parties are bound to reasonable diligence and good faith in their
performance.
iii. 2-306 Output Requirements and Exclusive Dealings
1.
(1) term which measures quantity by output of seller or requirements of buyer
means such actual output may occur i good faith except that no quantity unreasonably
disproportionate to any stated estimate or in absence of stated estimate to any normal
or otherwise comparable prior output or requirement may be tendered too demanded
a. (2) Lawful garment by either side for exclusive dealing in kind of goods
concerned imposes unless otherwise agreed, obligation by seller to use best
efforts to supply goods and buyer to use best efforts to promote their sale
2. Parties must act in good faith toward one another
3. Good faith cessation of production terminates obligations and excuses further
performance by party discontinuing production
Page 23 of 32
CONDITIONS
1. Conditions vs. Promises à contract construction is the most important: uniformity!
Condition (ex. satisfaction clause)
Promise
What
Operative fact occurring after acceptance but A declaration made as part of K formation
before discharge of obligations upon which the that one party will or will not do something,
rights/duties of parties depend (§ 224)
fulfillment of which occurs after acceptance
Made by
Agreement of both parties to qualify start of
contract obligations (must be enforced or
someone loses value of the deal)
One party to create an obligation or
detriment in the Promisor (part of exchange
of consideration)
What it does
Postpones a duty or other relationship
Discharges a duty when fulfilled
Consequences Non-occurrence prevents discharge of
Non-fulfillment constitutes breach w/ right
§ 225
obligations (K never comes to fruition, no CD) to CD (negligible if substantial perform.)
Luttinger
Performance
If ambiguous
Need complete
Substantial ok (ex. construction contracts)
Presumption it’s a promise to avoid forfeiture (§ 261) (but don’t manufacture ambiguity)
i. How to decide if it’s a condition or a promise
1. Words/phrases (Merritt Hill = undertaking to produce mortgage confirmation at
closing is a condition b/c words like “subject to”) (Howard = previous paragraph said
“condition precedent” and this is about something not to be done, rather than
something to be done, so it’s a promise that P cannot plow field over before D
inspects and K is not forfeited)
2. Intent (Glaholm = “vessel to sail on or before X” is a condition precedent b/c that best
effects the intent of the parties since entire success depended on date)
ii. Policy to avoid disproportionate forfeiture (= loss of property/right because of failure to
perform a duty)
1. Holiday Inn = failure to renew option properly should be afforded relief b/c P would
lose yearly payments on 5 year option and no harm to D
a. Can be invoked to avoid forfeiture of the right to exercise option where
Optionee:
i. Has paid for option,
ii. Remains ready to perform,
iii. Has acted in good faith, and
iv. Optionor
1. Hasn’t suffered injury justifying termination,
2. None of Optionor’s reasonable expectations have been
defeated.
3. Optionor receives benefit of bargain
Page 24 of 32
2. Brown-Marx = where loan if P meets conditions and alternative lower loan if he
doesn’t, complete performance of the conditions is required because no risk of
forfeiture
3. Can excuse violation of an express condition by interpreting it as a promise (§229) if:
a. It’s not material (aka each party essentially got what they bargained for)
(Jacob & Youngs = failure to install specific pipes is violation of a promise b/c
trivial and innocent departure from bargained performance)
i. Often the case in construction contracts
b. No detriment to other party
c. Good faith circumstances surrounding violation (JNA = T did not send in
option to renew on time b/c of negligence, but didn’t hurt LL and T would
have forfeiture by moving restaurant, so relief granted)
d. All about equity
4. Like UE
5. Restatement § 230
a. If under the terms of the contract the occurrence of an event is to terminate an
obligor's duty of immediate performance or one to pay damages for breach,
that duty is discharged if the event occurs.
b. The obligor's duty is not discharged if occurrence of the event
i. Is the result of a breach by the obligor of his duty of good faith and fair
dealing, or
ii. Could not have been prevented because of impracticability and
continuance of the duty does not subject the obligor to a materially
increased burden.
c. The obligor's duty is not discharged if, before the event occurs, the obligor
promises to perform the duty even if the event occurs and does not revoke his
promise before the obligee materially changes his position in reliance on it.
iii. Conditions of Satisfaction
1. Unless parties agree otherwise, decision as to whether party is satisfied must be
judged by an objective standards
a. Ex otherwise: parties agree to reserve to one party absolute and unqualified
freedom of choice in matter not involving fancy, taste or judgment
iv. Qualifications
1. Avoidance via active frustration of condition will not be allowed (Du Pont)
2. Failure to meet unqualified express condition will not be excused (Hanna)
3. Insurer’s express condition requiring proof of loss may be waived by subsequent
course of conduct (CT Fire)
Page 25 of 32
b. Order of performance (if gap, fill with implied condition fixing order)
i. Simultaneous (concurrent conditions that are mutually dependent)
1. Presumption in favor of simultaneous performance (when each performance takes
about same time) absent language showing intent was otherwise (§234) b/c minimizes
risk 1st performing party won’t receive return performance
a. If you agree to simultaneous performance, you can’t just wait and see à you
must begin in good faith
2. UCC = tender of payment when delivery is made absent language to contrary (UCC
§2-507, 2-511)
ii. Sequential, often to perform work (Stewart = construction contract w/ no payment
agreement implies sequential performance where duty to pay matures after substantial
performance b/c party whose performance takes longer must start first)
1. Policy = minimize credit risk (employers less risky than employees)
a. Ex. colleges and theatres require payment in advance
2. First = precedent/independent covenant (ex. A must build house before B’s duty to
pay matures)
a. Promissory condition = event that is both promised by a party and
designated as an express condition to the other party’s duty (ex. A’s promise
to mow the law before B pays him = express promissory condition precedent
aka independent)
b. Non-promissory condition = event that is an express condition to one party’s
duty (ex. the weather or stock market)
3. Second = dependent covenant (only matures when condition precedent is complete)
c. Good faith and condition precedents
i. Objective reasonableness standard is favored when possible unless clearly otherwise
1. Need to try to meet conditions in good faith (Luttinger = condition precedent of
finding X% loan was not met after going to only one bank, but ok b/c good faith that
that was the only bank that could have provided that loan)
2. And can’t prevent someone from meeting a condition precedent and then sue
a. So even subjective standard must be exercised in good faith (Forman =
contract to purchase property was subject to seller approving buyer’s credit
report, but buyer had great credit and seller tried to renegotiate instead of
approving so bad faith)
Page 26 of 32
Language
Performance
Order
Obligation
Express
Condition /
Promissory Condition
Precedent
Independent
Implied
Promise (presumption)
Subsequent?
Dependent
Concurrent conditions
with reciprocal duties
Simultaneous
(presumption)
Mutually Dependent (presumption)
2. Material Breach (with order and/or quality of performance)
a. = bargained for benefit is not being realized by one of the parties
i. § 275 – Material breach, consider:
1.
Extent to which injured party
a. will obtain substantial benefit which he could have reasonable anticipated
b. may adequately compensated in damages for lack of complete performance
c. party failing to perform has already partly performed or made preparations
for performance
2.
Greater or less hardship on party failing to perform in terminating K
3.
Willful, negligent or innocent behavior of party failing to perform
4.
The greater or less uncertainty that party failing to perform will perform the
remainder of K
ii. Consider: (§241) (Walker = failure to clean cobwebs off signs is not a material breach of
service K)
1. Deprivation of expected benefit
2. Availability of compensation
3. Extent breaching party will suffer forfeiture
4. Likelihood breaching party will cure his failure (if partial breach and time, can cure
and must be allowed the opportunity to do so unless also repudiates)
5. Extent breaching party acted in good faith
iii. If substantial or complete performance, then no material breach
1. Trouble with express conditions that are not filled to the letter
a. Plante = house builder misplaced a wall but owner didn’t complain until later,
didn’t diminish value, and did everything else, so substantial performance
since essential purpose of contract was met) BUT SEE
i. Grun = roof was not one color, owner complained early and often, and
could only be fixed by replacing the whole roof (cost of replacement is
factor to consider in magnitude of breach), so frustrated the purpose of
the contract)
iv. If waiver, then no material breach (MRI = D’s nonpayment was a material breach, but then
P’s suspension of the contract (instead of cancellation) implied readiness to continue the
contract and thus waived the materiality of the breach. Suspension was not a material breach,
either, because right to assurances (see below))
Page 27 of 32
b. If material breach, then other party’s duties are discharged if breach is not cured within time
in which performance was to occur (§237)
i. UCC right to rejection (2-601 = requires perfect tender unless contracted otherwise, 602)
ii. UCC right to revoke acceptance (2-608)
iii. UCC Installment Contracts
1.
2-612(1) - delivery of goods in separate lots to be separately accepted -->
installment K
2.
Installment K wrongful
a.
2-612(2) - buyer may reject any installment which is non-conforming if it
substantially impairs value of that installment and cannot be cured
b.
2-612(3) - whenever non-conformity or default with respect to one or more
installments substantially impairs value of whole K, breach of whole
c.
Substantial impairment purpose is to preclude party from canceling K for
trivial defects
3. Anticipatory Repudiation
a. Promisor suggests it does not intend to perform or it becomes apparent he cannot perform (§250)
b. Repudiation
i. Statement by the Obligor to the Obligee indicating that the Obligor will commit a breach that
would of itself give the Obligee a claim for damages for total breach under § 243, or
ii. Voluntary affirmative act which renders the Obligor unable or apparently unable to perform
without such a breach.
c. Requirements
i. Must be sufficiently positive and express (Hochester - European trip cancellation)
ii. Promisee can then:
1. Wait until performance is due (but must mitigate)
2. Cancel the contract
3. Act in reliance on the repudiation (Promisor can retract repudiation before this)
4. Immediately bring suit against the Promisor
5. Urge performance
d. Can also cease performance and cancel a contract when:
i. Other party fails to satisfy an express promissory condition or
ii. Other party commits an uncured material breach.
1. But must allow other side opportunity to perform! (Scampoli = buyer wanted new TV
while keeping old one but seller was willing to fix the old TV and has not breached
until given the opportunity to do so) (Hathaway = concert hall can’t fail to turn on
heat b/c they *wrongly* assume performers won’t show b/c of the snow)
Page 28 of 32
a. If other side can show ability to perform or actual performance, then can sue
you for breach for ceasing performance without cause (UCC §§2-610, 2-611)
b. So best to suspend (see below) and wait until performance is due to sue,
although mitigation issues might come up… (Kranz = buyer rejected title
before closing b/c bld. wasn’t legal, but seller could have fixed by closing so
buyer breached)
iii. BUT: default of one or more, no repudiation can amount to anticipatory breach of the rest of
the installments not yet due (Greguhn)
e. Can suspend performance under §251 and UCC §2-609 when:
i.
ii.
iii.
iv.
Not a party already in breach,
Have reasonable grounds for insecurity,
Demand adequate assurance (in writing if UCC) of party’s future performance and
Have not received it (b/c that = anticipatory repudiation)
f. But if you don’t demand assurance and instead demand a material change or won’t perform, then
you’re the one breaching
4. Damages
a. Severability matters
i. = Depends on intent. If parties assented to all promises as a single whole so there would have
been no bargain if any promise were struck out, then not severable (United Advertising =
apportioned payment per billboard with a termination and modification clause show intent to
be severable)
b. Elements
i. Several & distinct items; and
ii. Consideration is apportioned to each item based on its value as a separate unit rather than
part of whole...examine:
1. Parties’ intent disclosed by language of agreement,
2. Manner of performance,
3. Method of payment,
4. Circumstances surrounding contract execution & operation
c. Remember that if you substantially perform, other party can deduct damages sustained by lack of
complete performance
d. Where total price for the work is set out in the contract, the work isn’t divisible just because progress
payments are made (K&G Construction)
i. So in order to establish liability, the court interprets the parties’ contract to establish:
1. Relationship between promises (dependent or independent);
2. Quality of performance (material breach or substantial performance);
3. Severability of performances; and
4. Injured party’s options in the event of receipt of less than substantial performance
5. (non performance – bulldozer in home) – is treated as reason for with-holding
performance (payment).
e. And if you materially breach you can still get quantum meruit to avoid UE
Page 29 of 32
EXCUSING PERFORMANCE
1. Mistake – was there mistake? By one or both? Material? Who bears the risk?
a. No doubt parties intended to contract but both are mistaken about a key fact at time of formation
(although there’s mutual assent b/c they have and agreed to same understanding) so excused!
(Sherwood = mistake that cow was barren, not that cow was probably barren, is material and was
mutual, so excused from K)
i.
Compare to misunderstandings above in Mutual Assent
b. Contractual Mistake - belief that is not in accord with the facts
i. erroneous belief of one or both parties must relate to fact in existence at time K executed
ii. Belief which is found to be ixn effort may not be in substance a prediction as to future
occurrence or nonoccurrence
c. Results
i.
If mutual and material, then rescission (§152)
ii.
If unilateral and material, then rescission iff: (§153) (usually computation errors)
1. Effect of enforcement is unconscionable (ex. clerical error: Donovan) or
2. Other had reason to know of mistake or it was his fault or
3. Notice before reliance (Triple A = bidder for construction contract who contacted
city before bid was accepted and told about unilateral mistake in calculations =
rescinded b/c notice before reliance (here dissent, but majority view)) – bidder acted
in good faith without negligence, reasonably propmpt in notifying of error, mistake
re: material part of K, mistake magnitude = unconscionable, relief returns parties to
status quo with
iii.
Unless adversely affected party bears the risk (§154) (so don’t sue…) OR
iv.
Reliance
d. Who bears the risk? §154
i.
Express in K (allocated in a clause or via condition precedent – as-is clause, Lenawee
ii.
Implied by intent, fairness or custom on superior risk bearer
1. = one with the better ability to plan for the problem (ex. more knowledge or ability to
get insurance) (ex. steel provider says he’ll provide to Ford, but then a supervening
event occurs. The steel provider bears the risk because should have known and
prepared)
Page 30 of 32
2. Impossibility and Impracticability
a. Compared to mistake
i.
Mistake occurs at formation of contract
ii.
Impossibility and impracticability result from unforeseeable intervening events that were
not contemplated at the time they entered into the contract (no allocation of risk!)
b. Impossible = intervening event that makes performance objectively impossible (§§262-263, UCC
§2-613)(Taylor = hall destroyed by fire before concert through neither party’s fault and risk not
allocated in agreement = both parties excused b/c having a hall is the foundation of the contract, i.e.
necessary for performance of duty)
i. Where positive K to do something: contractor must perform or pay damages although in
consequence of unforeseen accidence, performance of K has become unexpectedly
burdensome or impossible
1. In K where performance depends on continued existence of given person or thing,
condition is implied that impossibility of performance arising from perishing of
person or thing shall excuse performance
ii. Where risk was foreseeable and under control of one party, court will not relieve performance
without notice re: impossibility (Canadian Industrial)
iii.
Can still recover quantum meruit for work done before impossible to avoid UE (Bell =
building A/C installer was working on burns down before he was done, so can sue for QM
but not loss profit…just a way to enforce equity by reading substantial performance by P as
condition for full performance by D?)
c. Impractical = intervening event that changes the calculus so much that it ceases to accomplish the
economics bargained for (excessive and unreasonable cost) (UCC §2-615)
i.
Rare!
ii.
Must be so extreme that it goes against logic of the contract (depends on facts, not $)
1. So basic assumption must be that it will not occur (Mineral Park)
iii. Where party has agreed without qualification, to perform an act which is not in its nature
impossible of performance, he is not excused by difficulty of performance, or by the fact
that he becomes unable to perform.
1.
HOWEVER When performance depends upon existence of given thing and such
existence is assumed as basis of agreement, performance excused to extent that thing
ceases to exist
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iv. Something is impossible when it is not practical
1.
Impracticable - only done with excessive and unreasonable costs -- our question
is when
a. Where difference in cost is so grate and has the effect of making
performance impracticable
i. Contingency/something unexpected must occur
ii. Risk of unexpected must not have been allocated either by agreement
or by custom
1.
Express or implied from agreement or
2.
From surrounding circumstances - custom and usages of
trade
a.
Occurrence of contingency must have rendered
performance commercially impracticable
v.
But if risk is expressly allocated, then you’re screwed!
3. Frustration of Purpose
a.
= cost of performance does not change (as above), but value of what a party is going to receive
drastically decreases because of an unforeseen intervening event (so no mistake) (Krell = LL
advertised to rent apt. with view of coronation and T bought, but then King became sick so no
coronation and T didn’t want it. No express purpose in K, but court admitted parol evidence showing
purpose and found that viewing the procession was the foundation of the contract so T is excused
from paying b/c a state of things essential to K performance failed to exist and no risk allocation)
b. Elements
i. What was foundation of k?
ii. Was performance prevented?
iii. Was event which prevented performance of K of such a character that it cannot reasonably be
said to have been in contemplation of parties at date of K
iv. the change in circumstances has made performance different from what was reasonably
expected;
v. the risk was unforeseeable; and
vi. the underlying value of the bargained for exchange was destroyed by a supervening event.
c. Compared to impracticability/impossibility
i.
There parties assumed cost of performance as bargained, here they assume basis for
bargain will continue to exist, but supervening event destroys both so excused!
d. Challenge is drawing line between events sufficiently unforeseeable and serious to justify relief
through cessation
i.
Ex. renting lot for 5 years to sell new cars then severe restrictions by government on selling
new cars, but this was foreseeable during WWII and can still sell some, so ok
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