CONTRACTS II OUTLINE
I. Defective Formation And Expression Of Agreement
A. MISUNDERSTANDING
1. Generally  when parties attach materially different meanings to the same word, but both meanings
are in accordance with the facts
2. R2 § 20: Effect of Misunderstanding (“Clueless” Rule)
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially
different meanings to their manifestations and
(a) neither party knows or has reason to know the meaning attached by the other; or
(b) each party knows or each party has reason to know the meaning attached by the other.
Equal knowledge then no K
(2) The manifestations of the parties are operative in accordance with the meaning attached to
them by one of the parties if
(a) that party does not know of any different meaning attached by the other, and the other knows
the meaning attached by the first party; or
(b) that party has no reason to know of any different meaning attached by the other, and the other
has reason to know the meaning attached by the first party
If have less knowledge than the other party, then your meaning is operative
3. Application
a. § 20(1)
(a) First, need to know whether the term being misunderstood is material
(b) Next, need to know what each party knows about the other’s attached meaning (must have
equal knowledge)
b. § 20(2)
(a) Addresses who gets their way if we got through § 20(1) and there is a K
4. Analysis – Dupre’s trick to understanding R2 § 20: Clueless Rule – the more clueless you are, the
more likely you are to have your view prevail (show they had more knowledge)
a. Both parties mean the same thing = K
b. Both parties mean different things with no reason to know the other’s meaning = no K
c. Both know the other party means something different = no K
d. If A means something diff. than B and B knows/has reason to know it = K uses A’s meaning
5. Reasons for R2 §20
a. To get parties to verify the meaning of their manifestations
b. Provides incentive for parties who know the other has attached a different meaning to say
something to them about it
6. Ambiguity
a. R2 § 206: Interpretation Against the Draftsman
In choosing among the reasonable meanings of a promise or agreement or a term thereof, that
meaning is generally preferred which operates against the party who supplies the words or from
whom a writing otherwise proceeds
(a) If there is too much ambiguity, courts may prefer the understanding “which operated against
the party who supplies the words or from whom a writing otherwise proceeds”
b. Courts try to avoid the result of no K
(a) Thus, some courts will construe the language against the party that supplied it
7. Raffles v. Wichelhaus (Peerless): K to buy and sell cotton to be shipped on “Peerless” leaving from
Bombay; there were two “Peerless” ships leaving from Bombay and the Δ was thinking of one while
the Π was thinking of the other; Ct ruled that there was no meeting of the minds so no K was formed
a. Court focused on subjective manifestations (instead of objective) and since the parties thought
two different things which were both possible, there was no K
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8. Konic Internat’l v. Spokane Computer: Δ was looking to buy a surge protector and was quoted fiftysix twenty by Π thinking it meant $56.20 where the Π meant $5,620; Ct. said this was a failure to
communicate; issue of whether Δ was reasonable in thinking $56.20 and if Π was reasonable in
thinking Δ understood it to be $5,620 – since both had reason to know, they are equally clueless so
go back to R2 §20(1); material term b/c 100 fold difference in price
B. MISTAKE OF EXPRESSION
1. Mistake of expression = slip of the tongue
2. Rule: if the other knows it was a slip, he cannot take advantage of it
3. HYPO: A says to B, “I will sell you cotton from the ship Peerless.” B is reading the Shipping News
and knows that A meant the ship “Fearless.” B says, “I accept.”
a. Outcome: K will be for Fearless b/c that is what A meant to say and B knew it
II. Avoidance of K
A. CAPACITY TO K
1. R2 § 12:
2. Infancy
a. R2 §14: Infants
Unless a statute provides otherwise, a natural person has the capacity to incur only voidable
contractual duties until the beginning of the day before the person’s 18th birthday
b. Infant: a person who has not reached the age of legal maturity
(a) Majority holds person is infant till age of 18 (note what RST says)
(b) Traditional common-law age of maturity was 21
c. General Rule  An infant’s Ks are voidable
(a) Obligation may be avoided by timely and appropriate disaffirmance (power of avoidance)
(b) Once the minor reaches the age of maturity, he can ratify or affirm the K
d. Policy: Protect minors from their own bad judgment and from adults taking advantage of them
e. An infant cannot surrender the power of avoidance
(a) Apparent age or maturity is irrelevant
(b) Generally emancipation, marriage, or participation in business does not alleviate incapacity
due to infancy (split of authority on marriage) – the general rule doesn’t change
(c) If an infant is silent as to his age, the risk of his incapacity strictly falls on the other side
f. Bowling v. Sperry: Π was 16 yr old who purchased car from Δ; Π wants to void the K and get
his money back; Δ doesn’t want the car back in its damaged condition and claims Π damaged the
car; Ct. says he doesn’t have to return the car in the same condition so Π gets his money back
and Δ gets the damaged car
g. Exceptions to the General Rule
(a) Necessaries Exception
(a) General Rule of Necessaries  if an infant makes a K for a necessary they cannot
disaffirm the K and must pay a reasonable price
(b) Policy: want merchants to K with minors regarding necessities so that infants can
survive; give merchants incentive to sell such items to minors
(c) Necessaries: things for survival (food, shelter, clothing, medical attention) as well as
things reasonably necessary for the proper and suitable maintenance of the infant in view
of his social position and situation in life
a) Look at the customs of the social circle in which he moves or is likely to move, and
the fortune possessed by him and by his parents
(d) Minor is liable only for a reasonable price
(b) Other exceptions: insurance, banking, education loans, armed services enlistment
(a) Minor does not have the power of avoidance in these cases
(c) CA and NY
(a) Allow parties to submit a proposed K to a court and the minor can waive disaffirmance
a) Policy: child entertainers
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h. Misrepresentation of Age
(a) 3 diff. rules
(a) Mass Rule: minor can still disaffirm but will have to return the other party to the status
quo
(b) Tort Rule: minor can disaffirm but is liable for tort of misrepresentation
(c) Estoppel: minor will be estopped from representing his age
i. Often times whether minor has to restore the item depends on whether or not he is the Π or Δ b/c
want to protect minor when being sued by big bad adult more than when he is suing
(a) If Δ:
(a) Some courts will say the infant has to return the item to the Π, returning the Π to the
status quo if the minor still has it (unfair to keep something didn’t pay for) (doesn’t have
to account for the item if is was damaged, destroyed, lost and doesn’t return anything if
he received a service on credit)
a) Give back what he still has
(b) If Π:
(a) Traditional rule  give back what you got and get the money back; don’t worry about
the rest
(b) Minority (new) rule  offset the Π’s amount of recovery by depreciation
(c) Even more Minority  some Ct.s will make the minor pay for the benefit he received
j. Possible Pulse points
(a) Day before 18th birthday v. just 17
(b) Misrepresentation of Age
(c) Necessary items
3. Mental Capacity
a. R2 § 15: Mental Illness or Defect
(1) A person incurs only voidable contractual duties by entering into a transaction if by reason of
mental illness or defect
(a) he is unable to understand in a reasonable manner the nature and consequences of the
transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction and the other party
has reason to know of his condition
(2) Where the K is made on fair terms and the other party is without knowledge of the mental
illness or defect, the power of avoidance under Subsection (1) terminates to the extent that
the K has been so performed in whole or in part or the circumstances have so changed that
avoidance would be unjust. In such a case a court may grant relief on such equitable terms as
justice requires
Why impose that the other party has constructive knowledge of the condition?
- May be unfair to place burden on the seller if the person seems to know what they are
doing and understand, but the person cannot control themselves
b. Dupre’s way of understanding § 15
(a) Part 1: shows another way of getting out of K by reason of incompetency, but this time have
to have reason to know there is a problem
(b) Part 2: says that the power of avoidance terminates if the K has been performed and it would
be unjust or someone relies on it
(a) Court can come in and decide what is best and fair
(b) Court can tell them to restore, say the K is voidable, etc.
c. Test for Mental Incompetency:
(a) Presumption is that everyone is competent
(a) Person asserting lack of competence has burden of proof by clear and convincing
evidence (somewhere in between preponderance of the evidence and beyond a reasonable
doubt)
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(b) Factors that may be considered
a) Physical condition
b) Adequacy of consideration
c) Whether or not the transaction was improvident
d) The relation of trust and confidence between the parties to the transaction
e) The weakness of the mind of the alleged incompetent person as judged by all other
acts within a reasonable time prior and subsequent to the act in question
(c) Heights Realty v. Phillips: Ct. said that there was enough evidence to meet the burden of
proof and establish that 84 yr old woman was not competent enough o enter into
exclusive listing K with realtor to sell her property (evidence was testimony of son-in-law
and granddaughter)
(b) Cognitive Test: traditional standard of measurement in which the focus is on whether an
individual can comprehend and understand the nature of the transaction (majority rule)
(c) Volitional test: permits a K to be voided where a person, “by reason of mental illness or
defect” is “unable to act in a reasonable manner in relation to the K”
d. Old Rule  K of the incompetent are void
(a) Citifinancial v. Brown: John is mentally ill with capacity of a 3 yr old and has the appearance
of being mentally ill; John is trying to get out of loan they entered into with Citicfinancial;
Ct. says contracts of the incompetent are void and thus there was never a K
(b) Now Ks with incompetent are voidable, not void
e. Restitution: restitution in full, return the seller to the status quo
f. Still a rule for necessaries for the mentally ill
g. Guardianship
(a) R2 § 13: “A person has no capacity to incur contractual duties if his property is under
guardianship.”
(a) The K is void in this case b/c competence has been totally taken away and the person has
no capacity to K
4. Intoxication
a. R2 § 16: Intoxicated Persons
A person incurs only voidable contractual duties by entering into a transaction if the other party
has reason to know that by reason of intoxication
(a) he is unable to understand in a reasonable manner the nature and consequences of the
transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction
b. K is voidable if drunkenness is so extreme to prevent any manifestation of assent or other party
has reason to know
c. Ervin v. Hosanna Ministry: E has drug and alcohol addiction and claims she cannot remember
signing a general release for the treatment facility
(a) Social policy to protect people who are intoxicated less than minors and the mentally ill; hard
to be sympathetic to the intoxicated b/c they are the ones who put themselves in the
intoxicated position
(b) More recently we are seeing that alcoholism and drug addiction are being treated more as a
mental health issue than those who are merely intoxicated
d. Restitution is similar to that of the mentally ill – return to status quo
5. The test of mental capacity is whether the maker possessed the understanding sufficient to
comprehend the nature, extent, and consequences of the agreement at the time of execution.
Evidence of the person’s capacity before, at, and after execution can be used to determine their
understanding at the time of execution.
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III. Defects in the Bargaining Process
A. MISTAKE:
1. R2 § 151: Mistake defined - A mistake is a belief that is not in accord with the facts
a. Happened before the formation of the K that causes one party to be adversely affected
b. Can be made by one or both parties
(a) Easier to rescind if both parties make a mistake
(b) Harder to rescind if only one party made a mistake
(a) Policy: when both parties are mistaken, then it seems more likely that the issue was
confusing and the mistake was genuine
c. NOT a mistake in a prediction as to a future ocurrence
2. Unilateral Mistakes
a. R2 § 153: When Mistake of One Party Makes a K Voidable
Where a mistake of one party at the time a K was made as to a basic assumption on which he
made the K has a material effect on the agreed exchange of performances that is adverse to him,
the K is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154,
and
(a) the effect of the mistake is such that enforcement of the K would be unconscionable, or
(b) the other party had reason to know of the mistake or his fault caused the mistake
b. Breakdown/Analysis under § 153
(a) Define mistake
(b) Did the mistake go to a basic assumption on which the K was made?
(c) And did it have a material effect on the agreed exchange
(d) Define voidable
(e) Did the party asking for rescission bear the risk?
(f) Also have to see if enforcement would be unconscionable
(g) Or would the other party have reason to know of the mistake
(h) Or other party was at fault in causing the mistake
c. R2 § 154: When a Party Bears the Risk of a Mistake
A party bears the risk of a mistake when
(a) The risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the K is made, that he has only limited knowledge with respect to
the facts to which the mistake relates but treats his limited knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the
circumstances to do so
d. Bidding
(a) Boise Jr. College v. Mattefs Construction: Construction co. made a bid but left out a part of
the construction so the bid was lower than it should have been and that low bid was
accepted; court said the mistake was sufficient to allow for rescission
(a) Rule from this case – bidder is allowed equitable relief of rescission if
a) The mistake is material to the K
b) Enforcement of the K pursuant to the terms of the erroneous bid would be
unconscionable
c) The mistake did not result from violation of a positive legal duty or from culpable
negligence
i) Bidder cannot carelessly calculate or do so in bad faith
ii) A clerical or inadvertent error is not a violation or negligence
d) The party to whom the bid is submitted will not be prejudiced except by the loss of
his bargain, and
e) Prompt notice of the error is given
(b) Special rules for bidding with the Fed Gov’t – FAR
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3. Mutual Mistake
a. R2 § 152: When Mistake of Both Parties Makes a Contract Voidable
(1) Where a mistake of both parties at the time a K was made as to a basic assumption on which
the K was made has a material effect on the agreed exchange of performances, the K is
voidable by the adversely affected party unless he bears the risk of the mistake under the rule
stated in § 154.
(2) In determining whether the mistake was a material effect on the agreed exchange of
performances, account is taken of any relief by way of reformation, restitution, or otherwise
b. Breakdown/Analysis under § 152
(a) Define mistake
(b) Did the mistake go to a basic assumption on which the K was made?
(c) And did it have a material effect on the agreed exchange
(d) Define voidable
(e) Did the party asking for rescission bear the risk?
c. Under common law, allow rescission when mistake went to the consideration
d. K voidable if the mistake is by both parties, mistake to a basic assumption, material effect on the
exchange and adversely affected parties do not bear the risk
e. Beachcomber v. Boskett: both parties believed the dime was minted in Denver in 1916, but the D
was forged so the coin was not worth anything; neither party knew it was a counterfeit; Ct.
rescinded the purchase
(a) Rule: both parties have to be unaware and there has to be no doubt as to what is being
contracted for
f. Sherwood v. Walker: Π bought a cow that the seller thought was barren and is alleged the Π also
thought it was barren; the cow was not barren and so Π wanted to rescind; Ct. said the mistake
when to the very nature of the cow and allowed for rescission
(a) Essence Theory: when the mistake goes to the substance of the thing bargained for, the
rescission is allowed
(b) Quality Theory: when the mistake only relates to the quality of the value of the property, then
rescission is not allowed
g. Lenawee County Board of Health v. Messerly: Π bought rental property with an “as is” provision
from Δ and later discovered sewer leakage; Π argued there was a mutual mistake about the
nature of the consideration and Δ argued it was only about the value; Ct. did not allow for
rescission b/c Π had agreed to bear the risk under the “as is” clause
(a) Court said the differentiation between nature/essence and value/quality is arbitrary so
determine mistake on a case by case basis and see if the mistaken belief related to a basic
presumption of the parties upon which the K was made and which materially affects the
agreed performance of the parties
h. Ayer v. Western Union: Π brought WU a telegram to be sent agreeing to sell for 2.10 but WU
sent the telegram saying 2; Π ended up selling for 2 b/c of the mistake and is suing WU; Π had to
sell at 2 b/c bore the risk between buyer and seller in choosing the telegraph company; Ct. ruled
that the telegraph company is liable for the difference between what the seller asked for and what
the buyer agreed to
(a) Rule: as between sender and receiver, the party who selects a particular mode of transmission
shall bear the loss caused by errors in the transmission
(a) Exception: the receiver has any reason (through prior dealings, circumstances, etc.) to
suspect an error, then good faith requires him to investigate before acting on the message
(b) Policy: the sender can select any method he chooses, but the receiver has no choice. If the
receiver cant rely on the message, then business would be hampered
4. Remedies for Mistake
a. Rescission: bring back to the status quo
(a) Equitable Relief of Rescission: asking to go back in time and pretend the K wasn’t entered
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into at all; put ourselves in the position we would be in had the K not been made; restore to
the status quo
(b) Restitutionary solution that requires Π to restore any benefit and Δ to restore any payment
(c) Cancellation of K – returns the parties to the positions they would have occupied if K had not
been made
(a) Ct. may not grant rescission if the non-mistaken party cannot be put back to status quo
(d) Most common remedy for mistake of formulation
(e) Not every K is rescindable – must find something so important to K that enforcement would
be unconscionable
b. Reformation: re-writing of the agreement
(a) If the parties reach an agreement orally and then when writing it down they write it down
wrong
(b) Way-station, an interim remedy and once the agreement is fixed, the person can enforce it
(c) Most common remedy for mistake of expression or transposing
(d) Π must show by clear and convincing evidence that:
(a) Parties had reached an agreement over a term at issue
(b) Both intended the term to be included in the subsequent writing, and
(c) B/c of mutual mistake in expression, the term was not included
c. Traditional v. Modern approach:
(a) Traditionally, rescission was the only remedy used for mistake of formulation
(b) The modern approach is that reformation may be used for both mistake of expression and
mistake of formulation
(a) Especially when Π is mistaken and Δ is fraudulent
(b) Or where the K is unconscionable or illegal
B. FRAUD AND DUTY TO DISCLOSE
1. Overview
a. Fraud: intentional misrepresentation of the facts
b. Failure to disclose: failing to make a representation
2. Misrepresentation
a. R2 § 159: Misrepresentation Defined - A misrepresentation is an assertion that is not in accord
with the facts
b. What can amount to an assertion?
(a) Words
(b) Actions – silence can equal an assertion
(a) Concealment
a) R2 § 160: When Action is Equivalent to an Assertion (Concealment)
Action intended or known to be likely to prevent another from learning a fact is
equivalent to an assertion that the fact does not exist
(c) Non-Disclosure
(a) General Rule  non-disclosure is not an assertion
(b) R2 § 161: When Non-Disclosure is Equivalent to an Assertion
A person’s non-disclosure of a fact known to him is equivalent to an assertion tha the fact
does not exist in the following cases only:
(a) where he knows that disclosure of the fact is necessary to prevent some previous
assertion from being a misrepresentation or from being fraudulent or material
(b) where he knows that disclosure fo the fact would correct a mistake of the other
party as to a basic assumption on which that party is making the K and if nondisclosure of the fact amounts to a failure to act in good faith and in accordance with
reasonable standards of fair dealing
(c) where he knows that disclosure of the fact would correct a mistake of the other
party as to the contents or effect of a writing, evidencing or embodying an agreement
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in whole or in part
(d) where the other person is entitled to know the fact b/c of a relation or trust and
confidence between them
c. Duty to Disclose
(a) Laidlaw v. Organ: Π and Δ were bargaining for sale of tobacco and Π had knowledge that
price would increase but remained silent when Δ asked about it; Ct. ruled that the K could
not be enforced; Ct held that you cannot do anything to impose on the other party...so it looks
like, b/c Laidlaw remained silent when asked a Q, that was wrong. The ct said he had a duty
to disclose....Dupre said Laidlaw was being a "sneak pot" and shouldn’t have done that.
(a) General Rule  parties have no obligation to disclose facts concerning the subject matter
of K
(b) Exceptions:
a) When parties are in a fiduciary relationship or a relationship of trust and confidence
b) When a material fact is known to one party and could not be readily determined by
the other party through the exercise of reasonable diligence
(b) Look for when there is NON-disclosure which can be subtle (when someone answers a
different question than asked, do a misrepresentation analysis)
(a) Non-disclosure is an assertion, but counter that they could have found it out
(c) Hill v. Jones: Δ failed to disclose past history of termite infestation in the house before
closing; Πs asked for a termite inspection before closing and during the inspection there were
boxes and a plant covering the evidence of past infestation; termite report came out with no
evidence of past infestation; Ct. held sellers may have had a duty to disclose, the information
must be material
(d) Sub-issues:
(a) Materiality of non-disclosure
(b) Whether the other party used proper diligence
d. 2 types of Misrepresentation
(a) R2 § 162: When a Misrepresentation is Fraudulent of Material
(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to
manifest his assent and the maker
(a) knows or believes that the assertion is not in accord with the facts, or
(b) does not have the confidence tha the states or implies in the truth of the assertion, or
(c) knows that he does not have the basis that he states or implies for the assertion
(2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest
his assent, or if the maker knows that it would be likely to induce the recipient
(b) Fraudulent Misrepresentation
(a) Intended to induce the other party to act and you know or believe you are saying
something is not true or do not have basis to say anything
(b) Intentional/material misrepresentation
(c) Material Misrepresentation
(a) If it is the kind of thing that would make the person assent to the agreement
(b) Likely to induce a reasonable person’s assent
e. Effect of Misrepresentation
(a) Generally  misrepresentation prevents formation of a K
(b) R2 § 163: When a Misrepresentation Prevents Formation of a K
If a misrepresentation as to the character or essential terms of a proposed K induces conduct
that appears to be a manifestation of assent by one who neither knows nor has reasonable
opportunity to know of the character or essential terms of the proposed K, his conduct is not
effective as a manifestation of assent
(a) When misrepresentation induces a person to assent when they don’t know what they are
doing
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(b) Misrepresentation of essential terms
a) If person does not know or doesn’t have reasonable opportunity to know what the
material terms are then there was no K
(c) R2 § 164: When a Misrepresentation Makes a K Voidable
(1) If a party’s manifestation of assent is induced by either a fraudulent or a material
misrepresentation by the other party upon which the recipient is justified in relying, the K is
voidable by the recipient
(2) If a party’s manifestation of assent is induced by either a fraudulent or a material
misrepresentation by one who is not a party to the transaction upon which the recipient is
justified in relying, the K is voidable by the recipient, unless the other party to the transaction
in good faith without reason to know of the misrepresentation either gives value or relies
materially on the transaction
(b) Misrepresentation and the other party is justified in relying on it
f. Opinion
(a) Opinion: expresses only a belief as to existence of fact or an expression of a judgment
(a) Judgment as to quality, value, or authenticity
(b) General Rule  reliance on an opinion is not justifiable reliance; Misrepresentation of
opinion is generally not actionable
(a) Exceptions
a) Fiduciary relationship
b) Trick employed by one party
c) Where parties do not in general deal at arms length
d) Superior Knowledge
(c) R2 § 168: Reliance on Assertions of Opinion
(1) An assertion is one of opinion if it expresses only a belief, without certainty, as to the
existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar
matters
(2) If it is reasonable to do so, the recipient of an assertion of a person’s opinion as to facts not
disclosed and not otherwise known to the recipient may properly interpret it as an assertion
(a) that the facts known to that person are not incompatible with his opinion, or
(b) that he knows facts sufficient to justify him in forming it
(d) R2 § 169: When Reliance on an Assertion of Opinion is Not Justified
To the extent that an assertion is one of opinion only, the recipient is not justified in relying
on it unless the recipient
(a) stands in such a relation of trust and confidence to the person whose opinion is
asserted that the recipient is reasonable in relying on it, or
(b) reasonably believed that, as compared with himself, the person whose opinion is
asserted has special skill, judgment or objectivity with respect to the subject matter,
or
(c) is for some other special reason particularly susceptible to a misrepresentation of the
type involved
(e) Vokes v. Arthur Murray: Π bought dancing lessons from Δ who told her she had potential in
order to induce her buying more lessons; Ct. said he made statements that were not in accord
with the facts and it was material b/c it induced her to continue, and she was justified in
relying b/c there was a fiduciary relationship between the two and he had superior knowledge
of the subject ad thus she was justified in relying on him, even if statements were opinion
(a) Dupre is skeptical and thinks court was trying to protect this lonely old woman
g. Misrepresentation Analysis
(a) See if there is an assertion
(a) Words
(b) Nondisclosure (only certain circumstances b/c general rule is that this is not an assertion)
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(c) Actions – Concealment
(b) Fraudulent or Material
(a) Fraudulent
a) Knows or believes…
b) Does not have conflict…
c) Knows…
(b) Material
a) Likely to induce a reasonable person to manifest assent
(c) Type of Misrepresentation
(a) Character or essential terms – no K formed
(b) Fraud or Material
a) Inducement
b) Justified Reliance
i) Not justified in relying on opinion (there are exceptions)
h. Remedies for Misrepresentation
(a) Generally, misrepresentation renders a K voidable
(a) But if the fraud is in the execution, rather than the inducement, the K is void
(b) Reformation – appropriate when one party has been induced by the other party’s fraud to
sign an instrument that does not express their true agreement
C. DURESS AND UNDUE INFLUENCE
1. Duress: when one’s free will has been overcome by a threat, makes the bargain unenforceable
a. As opposed to fraud where one is relying on false information or lack of information
b. This is where the information may be accurate, but one party was forced to agree to the terms
2. Rule  a K is voidable on the grounds of duress when it is established that consent was induced by
wrongful threats precluding the exercise of his free will
a. Threat must be of such a nature and made under such circumstances as to constitutes a
reasonable and adequate cause to control the will of the threatened person and must have that
effect (subjective and objective tests)
b. Threat must be Immediate
c. Threatened party must have no reasonable alternatives
3. R2 § 175: When Duress by Threat Makes a Contract Voidable
(1) If a party’s manifestation of assent is induced by an improper threat by the other party that
leaves the victim no reasonable alternative, the contract is voidable by the victim.
(2) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the
contract is voidable by the victim unless the other party to the transaction in good faith or
without reason to know of the duress either gives value or relies materially on the transaction
4. R2 § 176: When a Threat is Improper
(1) A threat is improper if
(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it
resulted in obtaining property,
(b) what is threatened is a criminal prosecution,
(c) what is threatened is the use of civil process and the threat is made in bad faith, or
(d) the threat is a breach of the duty of good faith and fair dealing under a K with the
recipient
(2) A threat is improper if the resulting exchange is not on fair terms, and
(a) the threatened act would harm the recipient and would not significantly benefit the party
making the threat,
(b) the effectiveness of the threat in inducing the manifestation of assent is significantly
increased by prior unfair dealing by the party making the threat, or
(c) what is threatened is otherwise a use of power for illegitimate ends
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5. Analysis:
a. Is there a threat?
b. Is the threat an improper threat?
c. Did victim have an alternative?
d. Was that alternative reasonable?
6. Rubenstein v. Rubenstein: wife threatened husband with arsenic poisoning and so he sold all his
property to her; Ct. said there was a threat and it was improper as it threatened criminal activity
7. Economic Duress:
a. Rule  a K is voidable for economic duress when it is demonstrated that
(a) Immediate possession of needful goods is threatened
(b) Threatened party cannot obtain the goods from another source of supply, and
(c) Ordinary remedy of an action for breach will not be adequate
b. Austin Instrument v. Loral Corp: Loral had a gov’t K and subcontracted with Austin for certain
parts; Austin demanded increase in price for second subcontract and remainder of first K or
would not perform; Ct. said there was an alternative to seek the parts from a different vendor, but
this was not reasonable b/c Loral didn’t want to look bad in eyes of the gov’t as they did a lot of
contracting with the gov’t and didn’t want it to affect future dealings (alternatives that weren’t
reasonable were sue Austin for breach and find another vendor, but these would delay delivery to
gov’t) so K entered into with Austin for increased price was voidable due to economic duress
8. Undue Influence
a. Developed in courts of equity as a parallel to duress
b. Characterized by unfair persuasion that may fall short of constituting actual duress
(a) High pressure which works on mental, moral, or emotional weakness to such an extent that it
approaches the boundaries of coercion
(b) Ordinarily limited to situations where there is a relationship of trust and confidence (i.e.
parent/child, husband/wife, attorney/client, etc.) and one party is particularly susceptible to
pressure by the other
c. Analysis
(a) High Pressure
(b) Relationship (know each other and have confidence in each other) – this is key
(c) Someone susceptible to the pressure
d. Factors that might indicate undue influence
(a) Discussion of the transaction at an unusual or inappropriate time
(b) Consummation of the transaction at an unusual place
(c) Insistent demand that the business be finished at once
(d) Extreme emphasis on consequences of delay
(e) The use of multiple persuaders by the dominant side against a single servient party
(f) Absence of third-party advisers to the servient party
(g) Statements that there is no time to consult financial advisors or attorneys
e. R2 § 177: When Undue Influence Makes a K Voidable
(1) Undue influence is unfair persuasion of a party who is under the domination of the person
exercising the persuasion or who by virtue of the relation between them is justified in
assuming that that person will not act in a manner inconsistent with his welfare
(2) If a party’s manifestation of assent is induced by undue influence by the other party, the K is
voidable by the victim
(3) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the
contract is voidable by the victim unless the other party to the transaction in good faith and
without reason to know of the undue influence either gives value or relies materially on the
transaction
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D. UNCONSCIONABILITY
1. Policy: to prevent oppression and unfair surprise
2. General Rule  caveat emptor (buyer beware)
3. UCC § 2-302: Unconscionable K or Clause
(1) If the court as a matter of law finds the K or any clause of the K to have been unconscionable
at the time it was made the court may refuse to enforce the K, or it may enforce the
remainder of the K without the unconscionable clause, or it may so limit the application of
any unconscionable clause as to avoid any unconscionable result
(2) When it is claimed or appears to the court that the K or any clause thereof may be
unconscionable the 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
4. R2 § 208: Unconscionable K or Term
If a K or term thereof is unconscionable at the time the K is made a court may refuse to enforce the
K, or may enforce the remainder of the K without the unconscionable term, or may so limit the
application of any unconscionable term as to avoid any unconscionable result
5. Two-Prong Test (sliding scale – both must be present, but not to the same degree)
Oppression and Surprise
a. Procedural – the process of bargaining and K formation; meaningful choice; concerns the
manner in which the K was negotiated and circumstances of the parties at that time
(a) Voluntary (manner in which K was formed)
(a) Absence of meaningful choice (oppression)
(b) Inequality of bargaining power (oppression)
(c) No negotiation – not permitted to modify (oppression)
a) Adhesion K
(b) Reasonable opportunity to understand (oppression)
(a) The individual
a) Age/sophistication
b) Education
c) Experience
d) Intelligence
e) Financial Condition
(b) The document or agreement
a) Fine print (surprise)
b) Deceptive sales practice helps to conceal (surprise)
c) Obscurely worded (surprise)
d) Opportunity to get advice (surprise)
b. Substantive – the terms (some courts: are terms so oppressive as to be onconscionable)
(a) Terms are unreasonably favorable to other party
(b) General commercial background and needs
(a) Commercially unreasonable (what are the terms in light of commercial background and
the commercial needs of the particular trade or case?)
(c) So unconscionable as to be unconscionable (Corbin) 
(d) Similar property – is price similar to property that looks like this
(e) Good sold has little or no value to the customer (price/disparity value)
(f) So one-sided as to shock the conscience
(g) Potential for forfeiture or loss of investment
(a) Terms are one-sided so that one party is deprived of all benefits of the agreement and is
left without remedy for another’s breach
6. Williams v. Walker Thomas Furniture: (two cases) woman with limited education made K to
purchase household goods; the items were sol don a prorated installment plan so that no one item got
paid off until they all were paid off; Walker Thomas wants furniture back and Williams is claiming
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unconscionability; DC Ct. of App. held the K was terrible, but there was no means for the ct. to get
involved as she should have read the K…caveat emptor; US Ct. of App. held that ct. did have power
under common law to find something unconscionable (by enacting UCC merely encoding common
law)
a. Defined unconscionability as an absence of meaningful choice and K terms which are
unreasonably favorable to the other party
(a) Absence of meaningful choice: gross inequality of bargaining power, reasonable opportunity
to understand terms before going forward
(a) Terms unreasonably favorable if they are so extreme as to be unconscionable (bad test)
b. Protean form of Unconscionability: unconscionability changes shape based on the agreement
7. Fleet v. U.S. Consumer Council: USCC represented it could help consumers who were financially
troubled and distraught but could not and did not even after charging $260 simply for referring them
to an attorney which could have been done for free; court ruled the fee charge was unconscionable
8. K of Adhesion
a. Offered on a take-it-or-leave-it basis (no bargaining power) (form Ks or clauses)
b. Not automatically unconscionable
c. Can be a factor in determining other elements indicating unconscionability is present
(a) Ferguson v. Countrywide Credit: arbitration clause which is not on its face unconscionable
signed by employee; Ct. ruled that procedural and substantive elements of unconscionability
were both needed and that such K of adhesion were generally procedurally unconscionable
(take it or leave it, terms hidden in the jargon, etc.) and this was also substantively
unconscionable (one-sided so that employees claims went to arbitration but employers claims
went to court, arbitration fees burden placed mostly on employee, and discovery was onesided as well) – thus this K was ruled to be unconscionable.
9. Zapatha v. Dairy Mart: Π bought a franchise through Δ in a K with a termination clause and Π
thought Δ could only terminate with cause, but meant Δ could terminate without cause; Ct. ruled the
K was not unconscionable b/c he was experienced and educated and had plenty of time to look over
the K and understand it; the terms were not unfair and he had time to understand it so no oppression,
no surprise, not unfair; these types of provisions were not uncommon and allowed under UCC
requiring notice
10. Remedies for Unconscionable Ks
a. Under UCC and RST
(a) K will not be enforced
(b) K will be enforced without the unconscionable term
(c) Unconscionable term will be limited so that it is not unconscionable and K will be enforced
E. ILLEGALITY
1. Illegality: refers to K that are not only over something illegal, but also go against public policy
a. Ks found to be illegal are void
2. R2 § 178: When a Term is Unenforceable on Grounds of Public Policy
(1) A promise or other term of an agreement is unenforceable on grounds of public policy if
legislation provides that it is unenforceable or the interest in its enforcement is clearly
outweighed in the circumstances by public policy against the enforcement of such terms
(2) In weighing the interest in enforcement of a term, account is taken of
(a) the parties’ justified expectations,
(b) any forfeiture that would result if enforcement was denied, and
(c) any special public interest in the enforcement of the particular term
(3) In weighing a public policy against enforcement of a term, account is taken of
(a) the strength of the policy as manifested by legislation or judicial decisions,
(b) the likelihood that a refusal to enforce the term will further that policy,
(c) the seriousness of any misconduct involved and the extent to which it was deliberate, and
(d) the directness of the connection between that misconduct and the term.
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3. Reasons for refusing to enforce illegal K:
a. Want to deter undesirable conduct
b. Enforcing illegal K is an inappropriate use of judicial process
c. Allow altering of logically compelling outcome that just doesn’t seem right, but we don’t know
what is wrong with it
d. Recognize our system of legal rules, principles, and theories are imperfect
e. Safety valve that allows the court to do justice in spite of the law not b/c of the law
4. Reasons for enforcing Illegal K:
a. Not enforcing might encourage opportunism and increase the amount of unwanted activity
b. At times, one party ends up suffering and a party of equal or more guilt gets a reward
c. Concern that a person’s own experiences and beliefs clouds their view of public policy, so judges
are biased
5. Sinnar v. Le Roy: S wants liquor license and pays L $450 to obtain a license which he doesn’t get; S
wants either the license or his money back so sues for the money; Ct. leaves the parties as it found
them b/c both were equally at fault and thus one should not be able to get something back that he lost
a. Exceptions: when the denial of damages causes disproportionate forfeiture
(a) Must be shown that
(a) Π excusably did not know it was illegal
(b) Π was not equally at fault
(c) Π did not engage in serious misconduct and withdrew from transaction before improper
purpose was achieved,
(d) Awarding damages would put an end to a continuing situation that’s against public policy
6. Procedural Issue: Δ cannot waive defense of illegality, court can deny relief on such basis without
pleading as to illegality
7. Covenant Not to Compete
a. General Rule  will be enforced so long as not too broad
b. Public Policy Concern:
(a) Want people to go out and find jobs (right to work, earn a living at chosen occupation)
(b) Want a company to be protected from something such as leak of trade secrets
c. Covenants are assessed to see if they go too far
(a) Whether is protects some legitimate interest of the promisee
(b) Whether it is reasonable in scope
(a) Area covered
(b) Duration
d. Often seen in areas with customer lists, patient lists, confidential information and these
covenants will generally be enforced for a reasonable time
e. Data Management v. Greene: G and V hired by Data and signed a covenant not to compete for 5
years anywhere in Alaska; Ct. found this to be too broad; Ct. adopted the modify rule
f. 3 means to deal with Covenants Not to Compete that are overly broad
(a) Strict View  find it unconscionable and do not enforce it (GA)
(b) Blue-Pencil Rule  it there are words making it too broad, just delete those words
(a) Values the wording of the K over substance, deals only with semantics
(b) Gives huge advantage to employer who can put in a lot of stuff (some real narrow and
some real broad)
(c) Modify/Resaonable  if covenant not to compete can be altered then the Ct. will do so
unless the covenant was not done in good faith
(a) First look for good faith (signal not done in good faith – huge area for extremely long
time)
(b) If good faith, then the Ct. rewrites the document for the parties (this goes against
principle of K that they are between two private parties)
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8. Cohabitation Agreements
a. Not valid if solely based on sexual relations (meretricious relationship)
b. Watts v. Watts: unmarried couple cohabitates and then breaks up, Π claims there was a K
between the two that said they would divide their assets equally and unjust enrichment; Ct. said
that the relationship was something more than just sex and so would enforce the bargain that
didn’t really have anything to do with sex
c. Hewitt case: Ct. finds it ridiculous to say there are separate Ks between unmarried cohabitating
couples beyond the sexual activity; this is a delicate area governing the rights of parties in
something like a marriage and Ct. leaves it to legislature to figure it all out
d. Has the legislature already dealt with this issue by saying no common law marriage?
e. What about between same-sex couples who cannot marry?
(a) Could be viewed as economic b/c combined wealth is better for society
9. As society changes, the thought of what is public good has changed
10. Surrogacy
a. Baby M Case: Mr. and Mrs. K with W to impregnate W by Mr. and then if child is healthy W
was to give child to Mr. and give up parental rights; W had baby and decided didn’t want to give
up her child; NJ Ct. said they would not enforce the agreement based on public policy
b. Public Policy Issues
(a) Essentially selling a person and that is something money cannot buy
(b) Concern with the mental effects on the child
(c) Socio-Economic Factors: may be degrading to the poor or to women in general for the rich to
rent out women’s wombs
c. State legislatures have felt differently about this topic throughout the U.S.
(a) Void (NY), void if for compensation (LA), criminal penalty (Mich), allowed if mother
cannot carry to term without harming her or child (FL)
11. Public Policy is generally in favor of supporting children
a. Wallis v. Smith: woman claims on birth control, goes off it without saying anything and has
child; wants child support; Ct. said had to take precautions to not father a child, both parents are
required to support the child b/c it is a child
12. Exculpatory Clauses
a. General Rule  Parties are allowed to K against liability for negligence when their bargaining
power is not substantially unequal
b. R2 § 195: A party to a K can ordinarily exempt himself from liability for harm caused by his
failure to observe the standard of reasonable care imposed by the law of negligence
(a) Exceptions:
(a) A term exempting a party from tort liability for harm caused intentionally or recklessly is
unenforceable on grounds of public policy
(b) A term exempting a party from tort liability for harm caused negligently is unenforceable
on grounds of public policy if
a) The term exempts an employer from liability to an employee for injury in the course
of his employment,
b) The term exempts one charged with a duty of public service from liability to one to
whom that duty is owed for compensation for breach of that duty, or
c) The other party is similarly a member of a class protected against the class to which
the first party belongs
(c) A term exempting a seller of a product from his special tort liability for physical harm to
user or consumer is unenforceable on grounds of public policy unless the term is fairly
bargained for and is consistent with the policy underlying that liability
c. The law disfavors these by a presumption against the clause unless it is expressed in clear and
unequivocal language
(a) They are strictly construed against the party who is benefited, especially when that party is
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also the draftsman
d. Indemnity Clause: shifts liability for a loss from one party to another
(a) Like an insurance policy
(b) Different than an exculpatory clause which releases people from liability
IV. STATUTE OF FRAUDS
A. General Scope and Effect
1. General Rule  a K does not have to be in writing for it to be valid
a. Exception: when the K falls within the statute of frauds
2. MY LEGS
a. Marriage
b. Year
c. Land
d. Executory
e. Goods over $500
f. Suretyship
3. Purpose of the Statute:
a. Contributes to the business habit of requiring a writing
b. Preserves the exact wording of the terms rather than leaving them to the recollection of the
parties
4. History: developed in England on 1677 over concern of juries deciding without regard to evidence,
then all states but LA have adopted a form of it and England has abandoned it all but for the sale of
Land
B. Within The Statute (covered by the statute and thus must be in writing)
If it is Within the Statute, then the statute must be Satisfied
1. MARRIAGE
a. Promises made upon consideration of marriage
(a) A promise to give $ or goods or property in exchange for marriage or a promise of marriage
b. A mutual promise to marry is NOT within the statute
c. Engagement Rings
(a) If it is the consideration for the marriage then within the statute
(b) Generally  ring is supplemental to the marriage and thus not within the statute
2. YEAR
a. One Year Provision: “Agreement not to be performed within one year of the making thereof…”
(a) Date the K was made is an important date
(b) Find date performance can be completed
(c) Determine if within one year
(d) Construed very narrowly
b. Test is when performance will be completed, not how long performance will take
(a) Ex: K on 2/25/05 to play piano for one hour on 3/1/06; this is within the statute b/c
performance will not be complete for over a year after K is executed
c. NOT within the statute
(a) May not be performed in one year
(b) Unlikely to be performed in one year, but performance is possible by its terms
d. Within the statute
(a) Words of the K must make the K go over a year
(b) Agreement says in express terms that its performance has a duration that will last beyond one
year; not performable in one year
e. What Constitutes Performance
(a) Termination
(a) If parties have a choice between performance and termination, and performance will take
over a year, but termination can occur within a year, courts are split on whether it is
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within the statute
a) Termination Does Not Equal Performance: it is within the statute and a writing is
needed b/c it cannot be performed within a year
b) Termination Equals Performance: it is not within the statue and no writing is needed
b/c it can be performed within a year
i) Some states say if one party can terminate, that is enough
ii) Other states say both parties need ability to terminate in order for termination to
equal performance
(b) North Shore Bottling v. Schmidt: Oral agreement where one party became sole
distributor for as long as Schmidt sold beer in the area; Ct. held outside the statute of
frauds and thus a writing was not needed b/c it was possible for performance to be
completed within a year should Δ stop selling beer before the time was up
(b) Death
(a) Look at the language of the agreement
a) A promises to work for B for the rest of A’s life
i) If A dies, she has performed under the K as she promised to perform for the rest
of her life and death could occur within a year so this lies outside the statute of
frauds, no writing is needed
b) A promises to work for B for five years
i) This is within the statute as the terms of the agreement specifically extend beyond
a year; if A dies, A has not fully performed on the promise, but is excused from
further performance
c) A promises to work for B for 5 years is A lives that long
i) Split among courts as to if this is within or outside the statute of frauds
(b) Covenants not to compete
a) If covenant for 2 years, the person could die at any time
i) Courts are divided
(i) Some say the promise not to compete would be fully performed if A dies
within one year and thus is outside the statute
(ii) Some say an agreement not to compete for 2 years was by its terms not to be
performed in one year and thus is within the statute
(c) The One-Side Rule for complete performance
(a) Majority: if K is within the statute, and one side has fully performed, the K will be
enforceable despite the statute of frauds
(b) Minority: if K is within the statute, and one side has fully performed, the K will not be
enforced without a writing, but the performing party has cause for damages under theory
of quasi-K
(c) R § 198: where any of the promises in a bilateral K cannot be fully performed within a
year from the time of the formation of the K, all promises in the K are within [the one
year clause of the Statute of Frauds], unless and until one party to such a K completely
performs what he has promised. When there has been such complete performance, none
of the promises in the K is [within such provision].”
a) R2 § 130 is in accord
3. LAND
a. A K for the sale of an interest in land is within the Statute of Frauds
(a) Promise to transfer an interest in land
(a) Interest in land: any right, privilege, power, or immunity (present and future interest,
right under easement, or restrictive covenant)
(b) A license is NOT an interest in land
(b) Exception: while a lease is a transfer of an interest in land, courts do not generally apply the
Statute of Frauds to short-term leases of less than a year
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4. EXECUTORY
a. The executor provision is contracts by executor to answer for the duty of the decedent
(a) The dead person has some debts and the administrator of the estate says don’t worry about it,
if it doesn’t come out of the estate, I will take care of it
(a) Debt owed by decedent while living or by the estate for funeral expenses
b. Same limitations as for Suretyships
5. GOODS
a. Goods: things moveable at the time of identification to the K for sale other than the money in
which the price is to be paid, investment securities, and things in action (UCC § 2-105)
b. UCC § 2-201: Formal Requirements; Statute of Frauds
(1) Except as otherwise provided in this section a K for the sale of goods for the price of $500 or
more is not enforceable by way of action or defense unless there is some writing sufficient to
indicate that a K for sale has been made between the parties and signed by the party against
whom enforcement is sought or by his authorized agent or broker. A writing is not
insufficient b/c it omits or incorrectly states a term agreed upon but the K is not enforceable
under this paragraph beyond the quantity of goods shown in such writing
(2) Between merchants if within a reasonable time a writing in confirmation of the K and
sufficient against the sender is received and the party receiving it has reason to know its
contents, it satisfies the requirements of subsection (1) against such party unless written
notice of objection to its contents is given within 10 days after it is received
(3) A K which does not satisfy the requirements of subsection (1) but which is valid in other
respects is enforceable
(a) if the goods are to be specially manufactured for the buyer and are not suitable for slae to
others in the ordinary course of the seller’s business and the seller, before notice of
repudiation is received and under circumstances which reasonably indicate that the goods
are for the buyer, has made either a suitable beginning of their manufacture or
commitments for their procurement; or
(b) if the party against whom enforcement is sought admits in his pleading, testimony or
otherwise in court that a K for sale was made, but the K is not enforceable under this
provision beyond the quantity of goods admitted; or
(c) with respect to goods for which payment has been made and accepted or which have been
received and accepted (§ 2-606)
(b) UCC § 2-606: What Constitutes Acceptance of Goods
(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods
are conforming or that he will take or retain them in spite of their nonconformity; or
(b) fails to make an effective rejection (§ 2-602(1)), but such acceptance does not occur until
the buyer has had a reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller’s ownership; but if such act is wrongful as
against the seller it is an acceptance only if ratified by him
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit
(b) UCC § 2-602(1): rejection of goods must be within a reasonable time after their delivery
or tender. It is ineffective unless the buyer seasonably notifies the seller
c. What if the K is for mixture of goods and services?
(a) Predominant Factor Test:
(a) Goods are incidental to the Service (K to paint a house)
(b) Service is incidental to the goods (K to install a rug)
(c) If close call, analyze as a good and a service (pulse point) (such as K to paint portrait,
although probably service b/c want that particular person to paint it)
d. Imperfect Writing
(a) If missing price, place of delivery, misstatement of terms, etc) it can still be enforceable
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(b) If missing quantity, not enforceable
(a) If quantity is misstated then enforced only for the amount misstated in the writing
e. Special Rule for Merchants
(a) Specially manufactured goods
(b) Admissions
(c) Payment made and acceptedl or goods received and accepted
6. SURETYSHIP
a. Surety – a promise to satisfy the debt of another
(a) Key is what is meant by “another” – someone other than the person you are talking to
b. HYPOS:
(a) Amy owes Ben $, Carrie tells Amy she will pay Ben if Amy is unable to do so
(a) This is NOT a surety b/c the “other” has to be someone else, not a party to the promise
(b) This is indemnity as it is a promise to the debtor to pay the debtor’s debt
(b) Amy owes Ben $, Carrie tells Ben that she will pay Amy’s debt if Amy is unable to do so
(a) This is a promise to pay the debt of ANOTHER
c. Promise must be to the creditor (“another”)
d. Exceptions and Special Cases regarding Surety
(a) Promisor must be secondary/collateral to someone else and not the primary/original party to
the deal
(a) HYPO: Carrie says to Dave: “I will pay you if you deliver flowers to Ed”
a) This is not a surety b/c the promisor must be secondary to someone else (collateral)
and here Carrie is primary (original); she is solely liable
(b) Novation – creditor cancels old debtor and replaces with new debtor as a substitute, there is
no longer the debt of “another”
(a) HYPO: Carrie says to Ben: “I will take over Amy’s debt.”
a) Not a surety but a novation…Carrie has cancelled Amy’s debt, not ensured Ben that
the money will be paid to him if Amy cannot pay it
(c) Main Purpose Rule/Pecuniary Interest Rule  A surety that falls outside the statute of
frauds – no writing needed; promisor’s main purpose is his pecuniary interest
(a) Danger the statute is supposed to protect against is not here: the promisor is making a
promise not to help the debtor, but to help himself
a) Not such a concern that someone is trying to perpetuate fraud under these
circumstances as it makes sense that promissor would make such a promise
(b) HYPO: ABC Corp. has been granted an exclusive license by the NFL. The license allows
ABC the right to market football cards. ABC owes $700,000 to the NFL for this right and
goes bankrupt. XYZ Corp. promises the NFL to pay the $700,000 to become the new
licensee
a) It is a promise to pay the debt of another but for your own benefit
(c) HYPO: Suppose owner of a building is having major work done on the building and has a
general contractor and a sub-contractor; he sees that the general contractor is shaky
financially and might not be able to pay the sub-contractor; since he wants the work done,
the contractor promises to pay the sub-contractor if the general contractor doesn’t pay
a) Owner’s main purpose is to get the building complete
C. Satisfying the Statute
1. Agreement must be IN WRITING (called a memorandum)
a. Memorandum generally must identify
(a) The parties
(b) Nature or subject matter of K
(c) Essential terms of the K (see relaxation of this rule in UCC § 2-201)
b. Memorandum must generally be signed by the person against whom enforcement is sought
(a) Not a rigorous requirement
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(b) Authentication test  does the other party reasonably believe that the “signature” is used
with the intent to authenticate the writing
(a) Cts: may be typed, stamped, printed, even printed letterhead if the other party reasonably
believes
(b) UCC: any symbol adopted by a party with intention to authenticate a writing
(c) Most states: may appear anywhere in the writing, though some statutes require that it be
subscribed
(d) If the other party would look at it and reasonably believe it was made to authenticate the
writing then it will do so
(e) Electronic signatures (pg 182)
c. Can connect two writings
(a) Crabtree v. Elizabeth Arden: Arden and staff came up with employment agreement with
Crabtree to work for 2 years with incremental increases in salary over that period; secretary
writes down what they are going to do, but neither party signs it; three writings produced
between payroll officer and controller about Crabtree’s salary; Ct. says can connect the
signed payroll increases with the unsigned note to create a written memorandum
(b) Can connect writings in two ways
(a) Express reference
(b) Talking about same subject matter
2. Noncompliance
a. Different statutes have different wordings: not enforceable, void, etc.
b. Generally Cts. treat the oral K as unenforceable, rather than void
(a) This means you can waive the statute of frauds defense (if void there was never a K)
c. Admission in a court of law may also make an oral K enforceable
(a) UCC § 2-201(3)(b)
(b) DF Activities v. Brown: oral K to buy chair for $60,000; seller sold chair to a 3rd party for
$198,000; seller submitted affidavit that there was no oral K, but Π wanted to depose her to
see if she would blurt it out; Ct. said since sworn affidavit said no oral agreement, will not let
her be deposed to see if the other side can trick it out of her
(a) Some Cts will let is go further into discovery to see what is said in deposition
d. Reliance
(a) R2 § 139: Enforcement by Virtue of Action in Reliance
(1) A promise which the promisor should reasonably expect to induce action or forbearance on
the part of the promisee or a third person and which does induce the action or forbearance is
enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by
enforcement of the promise. The remedy granted for breach is to be limited as justice
requires
(2) In determining whether injustice can be avoided only by enforcement of the promise, the
following circumstances are significant:
(a) the availability and adequacy of other remedies, particularly cancellation and restitution;
(b) the definite and substantial character of the action or forbearance in relation to the
remedy sought;
(c) the extent to which the action or forbearance corroborates evidence of the making and
terms of the promise, or the making and terms otherwise established by clear and
convincing evidence;
(d) the reasonableness of the action or forbearance;
(e) the extent to which the action or forbearance was foreseeable by the promisor.
(b) Sounds like promissory estoppel, but lots of things in § 139(2) that are required
(c) Easier to replace a writing by reliance than consideration by reliance
(d) Will not always make an oral agreement enforceable
(e) Disagreement over whether this is available under UCC
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V. Performance
A. PAROL EVIDENCE RULE
1. Tells us under what circumstances extrinsic evidence can be presented to the trier of fact
a. Extrinsic evidence must occur before the writing…if occurs after the writing then an attempt at
modification, must deal with negotiations prior to writing it down
2. Policy: to make sure people cannot just claim they orally agreed to do something
a. Worried about fraudulent claims, memory fading
b. Limits opportunity for someone to perjure themselves
c. Limits reliance on faded memory
d. Prevent juries from being sympathetic to parties who are not getting what they claimed to have
bargained for
e. Promote commercial certainty
3. Concerned that parties can evade a promise by inadvertently keeping something out of the writing or
by being dishonest and agreeing to do things they never intended to do
4. Purpose: to preserve and protect the writing as the intention of the parties, as the repository of the
agreement and protect from prior oral statements
5. Mitchell v. Lath: K for sale of land and buyer alleges oral agreement to take down the ice house
across the street; Ct. applies three part analysis and determines that while collateral, the written
agreement was so detailed, if this was truly a condition it would have been included in the K
a. 3 part analysis
(a) Extrinsic evidence must be collateral: distinct, separate, something that might get separate
consideration
(b) Cannot contradict the terms of the written K
(c) Something the parties wouldn’t be expected to put in writing: if ordinarily would have put it
in the agreement, then why isn’t it there…but if ordinarily have been kept separate then
maybe you did reach such an agreement orally
b. Dissent says wouldn’t ordinarily include something on adjacent land in a K for sale of property
6. Analysis
a. Integration
(a) Integration means the negotiations, drafts, talk beforehand, etc. has been integrated into or
merged into the final written version so that the writing will supersede the final discussions
(b) R2 § 209: Integrated Agreements
(1) An integrated agreement is a writing or writings constituting a final expression of one or
more terms of an agreement
(2) Whether there is an integrated agreement is to be determined by the court as a question
preliminary to determination of a question of interpretation or to application of the parol
evidence rule.
(3) Where the parties reduce an agreement to a writing which in view of its completeness and
specificity reasonably appears to be a complete agreement, it is taken to be an integrated
agreement unless it is established by other evidence that the writing did not constitute a final
expression.
(c) Is the agreement integrated at all?
(a) 3 Possible Levels of Integration
a) Fully Integrated
i) At the point where the parties intend that the writing is it, all there is, the end,
nothing else being considered and that is the final story
ii) Parol Evidence Rule Applies – no extrinsic evidence is admitted
b) Not Integrated
i) Still talking, completely unintegrated, may have drafts of an agreement or notes
taken during a negotiation
ii) Parol Evidence Rule Does Not Apply – extrinsic evidence is admitted completely
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c) Partially Integrated
i) Integrated as to certain terms, but there are other things out there that we are not
done with; the parties intend the writing to serve as final in regards to some but
not all the terms of the agreement; okay for what is written, but the writing is not
exhaustive
(b) R2 § 210: Completely and Partially Integrated Agreements
(1) A completely integrated agreement is an integrated agreement adopted by the parties
as a complete and exclusive statement of the terms of the agreement
(2) A partially integrated agreement is an integrated agreement other than a completely
integrated agreement.
(3) Whether an agreement is completely or partially integrated is to be determined by the
court as a question of preliminary to determination of a question of interpretation or to
application of the parol evidence rule
(d) To what extent is it integrated?
(a) R2 § 211: Standardized Agreements
(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise
manifests assent to a writing and has reason to believe that like writings are regularly
used to embody terms of agreements of the same type, he adopts the writing as an
integrated agreement with respect to the terms included in the writing
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly
situated, without regard to their knowledge or understanding of the standard terms of the
writing
(3) Where the other party has reason to believe that the party manifesting such assent
would not do so if he know that the writing contained a particular term, the term is not
part of the agreement.
(b) 4 Tests to determine level of integration
a) Four Corners Test
i) Look solely within the document to determine if it is complete
ii) Examine the document, see if it is complete, if it appears complete then presume
it is fully integrated and so no extrinsic outside evidence allowed before the jury
except for a few UCC exceptions
b) Limited Inquiry into Intent of the Parties
i) Limited inquiry into the intent of the parties to see if they intended full or partial
integration
ii) Look at the circumstances surrounding the agreement, but not the disputed term
itself
c) Intent Analysis
i) Look at any extrinsic evidence including the disputed term itself to determine how
the written agreement was integrated
i. Is the term something that would naturally be omitted from the writing; if
these people did make this statement, it is the kind of thing he would not
put in the written agreement b/c if it is the kind of thing that would not be
put in the agreement, maybe he did say it
ii. Other considerations Courts use: how sophisticated are the parties in
making the agreement; how long and detailed is the document; is there a
merger clause
(c) Merger Clause
a) Only a presumption that the K is integrated
b) If the merger clause is included in terms of bad faith, fraud, mistake,
unconscionability…then the evidence may be admitted despite the clause
c) Luther Williams v. Johnson: Ct. said the integration clause will strengthen the
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presumption that the written agreement is integrated, but the court will still look at the
extrinsic evidence to determine integration
i) Two problems when there is an integration/merger clause
i. Whether evidence can be admitted to show whether the merger clause was
intended
ii. Whether the oral agreement before contradicts a writing that says there is no
oral agreement
(e) R2 § 213: Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)
(1) A binding integrated agreement discharges prior agreements to the extent that it is
inconsistent with them.
(2) A binding completely integrated agreement discharges prior agreements to the extent that
they are within its scope.
(3) An integrated agreement that is not binding or that is voidable and avoided does not
discharge a prior agreement. But an integrated agreement, even though not binding, may be
effective to render inoperative a term which would have been part of the agreement if it had
not been integrated
(f) R2 § 214: Evidence of Prior or Contemporaneous Agreements of Negotiations
Agreements and negotiations prior to or contemporaneous with the adoption of a writing are
admissible in evidence to establish
(a) that the writing is or is not an integrated agreement;
(b) that the integrated agreement, if any, is completely or partially integrated;
(c) the meaning of the writing, whether or not integrated;
(d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;
(e) ground for granting or denying rescission, reformation, specific performance, or other
remedy
b. Inclusion
(a) Would the term have naturally been omitted or certainly been excluded?
c. Contradiction
(a) If found to be Partially Integrated, Are the terms Contradictory?
(a) Two Tests/Definitions of Contradictory
a) Hunt’s Food Test: Negation Test - must negate a specific term of the writing (broad
view of consistency)
b) Snyder Test: Inconsistency Test – see if there is an absence of reasonable harmony in
the terms (narrow view of consistency)
(b) R2 § 215: Contradiction of Integrated Terms
Except as stated in the preceding Section, where there is a binding agreement, either
completely or partially integrated, evidence of prior or contemporaneous agreements or
negotiations is not admissible in evidence to contradict a term of the writing
(a) If contradictory term then it does not get admitted
(c) R2 § 216: Consistent Additional Terms
(1) Evidence of a consistent additional term is admissible to supplement an integrated agreement
unless the court finds that the agreement was completely integrated
(2) An agreement is not completely integrated if the writing omits a consistent additional agreed
term which is
(a) agreed to for separate consideration, or
(b) such a term as in the circumstances might naturally be omitted from the writing
(b) If consistent term then gets admitted
a) Then the trier of fact has to decide what they believe to be true
(c) ***Note UCC says 'whether the term certainly would have been included' as opposed to
'naturally would have been omitted' in the RST.
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7. UCC § 2-202: Final Written Expression: Parol and Extrinsic Evidence
Terms with respect to which the confirmatory memoranda of the parties agree or which are
otherwise set forth in a writing intended by the parties as a final expression of their agreement with
respect to such terms as are included therein may not be contradicted by evidence of any prior
agreement or of a contemporaneous oral agreement but may be explained or supplemented
(a) by course of dealing or usage of trade (§ 1-205) or by course of performance (§ 2-208); and
(b) by evidence of consistent additional terms unless the court finds the writing to have been
intended also as a complete and exclusive statement of the terms of the agreement
a. UCC § 1-205(1) and (2): Course of Dealing and Usage of Trade
(1) A course of dealing is a sequence of previous conduct between the parties to a particular
transaction which is fairly to be regarded as establishing a common basis of understanding
for interpreting their expressions and other conduct
(2) A usage of trade is any practice or method of dealing having such regularity of observance in
a place, vocation, or trade as to justify an expectation that it will be observed with respect to
the transaction in question. The existence and scope of such a usage are to be proved as facts.
If it is established that such a usage is embodied in a written trade code or similar writing the
interpretation of the writing is for the court.
b. UCC § 2-208: Course of Performance or Practical Construction
(1) Where the K for sale involves repeated occasions for performance by either party with
knowledge of the nature of the performance and opportunity for objection to it by the other,
any course of performance accepted or acquiesced in without objection shall be relevant to
determine the meaning of the agreement
(2) The express terms of the agreement and any such course of performance, as well as any
course of dealing and usage of trade, shall be construed whenever reasonable as consistent
with each other; but when such construction is unreasonable, express terms shall control
course of performance and course of performance shall control both course of dealing and
usage of trade (§ 1-205)
(3) Subject to the provisions of the next section on modification and waiver, such course of
performance shall be relevant to show a waiver or modification of any term inconsistent with
such course of performance
8. Exceptions to the Parol Evidence Rule: instances where the rule will not apply
a. Does not apply to using extrinsic evidence to prove there is no K (evidence admitted as to fraud,
lack of consideration, illegality, lack of capacity, mistake, etc.)
(a) The concern here is bringing in more terms to a K that is formed correctly if the K is the final
and exclusive embodiment of the parties’ agreement
b. Interpreting a Term
c. R2 § 217: Integrated Agreement Subject to Oral Requirement of a Condition
Where the parties to a written agreement agree orally that performance of the agreement is
subject to the occurrence of a states condition, the agreement is not integrated with respect to the
oral condition.
B. INTERPRETATION
1. Once decide what evidence is admitted, need to decide what terms mean
2. Sometimes terms will have a plain meaning or will be looked up in the dictionary, but often vague
and ambiguous words must be interpreted
3. R2 § 202: Rules in Aid of Interpretation
(1) Words and other conduct are interpreted in the light of all the circumstances, and if the
principal purpose of the parties is ascertainable it is given great weight
(2) A writing is interpreted as a whole, and all writings that are part of the same transaction are
interpreted together
(3) Unless a different intention is manifested,
(a) where language has a generally prevailing meaning, it is interpreted in accordance
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with that meaning;
(b) technical terms and words of art are given their technical meaning when used in a
transaction within their technical field.
(4) where an agreement involves repeated occasions for performance by either party with
knowledge of the nature of the performance and opportunity for objection to it by the other,
any course of performance accepted or acquiesced in without objection is given great weight
in the interpretation of the agreement.
(5) Wherever reasonable, the manifestation of intention of the parties to a promise or agreement
are interpreted as consistent with each other an with any relevant course of performance,
course of dealing, or usage of trade.
4. Two tests of interpretation
a. Plain Meaning: words have plan meanings, do not need to look at extrinsic evidence to interpret
words
(a) Critics: the court rewrites the intent of the parties that was poorly laid out
b. Extrinsic Evidence that is reasonably susceptible: unless the word has a fixed, standard
meaning familiar to the court, the court should try to ascertain the meaning to the parties by
looking at the extrinsic evidence
(a) The written version must be reasonably susceptible to the oral version
(b) Critics: this allows courts to rewrite K to mean something other than what was written
5. Maxims of Interpretation (pg 647 and 655)
a. The terms in the K are presumed to be consistent with each other
b. Confra Proferentum: ambiguity resolved against the drafter
c. Expressio Unius Est Exclusio Alterius: the expression of one excludes the other; if make a list
and are silent about something it is presumed that which you are silent about is excluded
d. Ejusdem Generis: include only items of the same kind or class (ex: buy house with stove,
refrigerator, microwave, then the gas grill might also be included cause same class of items
relating to food but not included if class is kitchen appliances)
e. Specific terms govern general terms
f. Negotiated terms govern boilerplate language
g. Contract to be construed consistently with the obligation of good faith and in the public interest
C. DUTY OF GOOD FAITH
1. Implied covenant in every K to perform the commitments in good faith and fair dealing (how the
parties must conduct themselves after becoming parties to the K)
2. R2 § 205: Duty of Good Faith and Fair Dealing
Every K imposes upon each party a duty of good faith and fair dealing in its performance and its
enforcement.
a. Comment a: Good Faith performance or enforcement emphasizes faithfulness to an agreed
common purpose and consistency with the justified expectations of the other party; fair dealing
may require more than honesty
b. Examples of bad faith:
(a) Evasion of the spirit of the bargain
(b) Lack of diligence and slacking off
(c) Willful rendering of imperfect performance
(d) Abuse of power to specify terms
(e) Interference with or failure to cooperate in the other party’s performance
3. UCC § 1-203: Obligation of Good Faith
Every K or duty within this Act imposes an obligation of good faith in its performance or
enforcement.
4. UCC § 1-102 (3): The effect of provisions of this Act may be varied by agreement, except as
otherwise provided in this Act and except that the obligations of good faith, diligence,
reasonableness, and care prescribed by this Act may not be disclaimed by agreement but the parties
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may by agreement determine the standards by which they performance of such obligations is to be
measured if such standards are not manifestly unreasonable.
a. The duty of good faith, “which is imposed by law, cannot be ‘disclaimed by agreement,’ but the
parties can determine the standards of good faith if those standards are not manifestly
unreasonable”
5. UCC § 1-201 (19): “Good Faith” means honesty in fact in the conduct or transaction concerned
6. Limits on Discretion in Contractual Performance
a. General Rule (NH Rule)  under an agreement that appears to invest one party with a degree of
discretion in performance sufficient to deprive the other party of a substantial portion of the
agreement’s value, the parties’ intent to be bound by an enforceable K raises an implied
obligation of good faith to observe reasonable limits in exercising that discretion, consistent with
the parties’ purpose in contracting
3 Areas where Good Faith Applies:
(a) contract formation
(a) Honest and forthright. Must refrain from misrepresentation and correct any error.
(b) obligation on the contract itself
(a) can’t act malicious or with bad faith (employment, unless at-will)
(c) contract performance
(a) even if you have discretion, you must act fair, decent and reasonable under justified
expectations.
b. Centronics v. Genicom: (Pg 660) Π argued Δ had breached good faith by not releasing portion of
escrow funds during arbitration; Ct. ruled that Δ was not acting in bad faith b/c the K showed the
parties’ intent was to wait until completion of the arbitration before payment
(a) Souter’s Test  answer four questions
(a) Is there discretion?
(b) Is there so much discretion the K is an illusory promise?
(c) Has the party exercised discretion reasonably?
(d) Was damage cause by abuse of discretion or due to other forces?
c. Burton’s Test  Bad faith is the promisor’s discretionary action intended to recapture an
economic opportunity that was bargained away in the contracting process
d. Summer’s Test  The obligation of good faith performance is better understood simply by
excluding behavior inconsistent w/ common standards of decency, fairness, and reasonableness,
& with the parties’ agreed-upon common purposes & justifies expectations (define good faith by
that which is not bad faith)
e. Exercise of Reserved Discretion (subject to financing)
(a) General Rule  A promisor cannot rely upon the existence of a condition precedent to
excuse his performance where the promisor himself prevents performance of that condition
(a) Must use reasonable efforts to be in good faith
(b) Billman v. Hensel: K to sell home with a clause that buyers would obtain financing first;
Ct. ruled that buyers needed to put forth a reasonable and good faith effort to try to obtain
financing and just talking to a bank does not constitute such an effort
f. Satisfaction Clauses (Reserved Satisfaction)
(a) K that says performance by one party is conditioned upon a party’s satisfaction
(a) Claim of dissatisfaction must be done in good faith, cannot just say it to escape a bad
bargain
(b) R2 § 228: Satisfaction of the Obligor as a Condition
When it is a condition of an obligor’s duty that he be satisfied with respect to the obligee’s
performance or with respect to something else, and it is practicable to determine whether a
reasonable person in the position of the obligor would be satisfied, an interpretation is
preferred under which the condition occurs if such a reasonable person in the position of the
obligor would be satisfied
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(c) RST prefers objective standard of satisfaction – if you can determine whether a reasonable
person would be satisfied
(a) Ex: painter K to paint walls and trim of house – can determine if reasonable person would
be satisfied
(b) Ex: painter K to paint mural on wall of skyline of Florence – more factors go into this so
harder to determine if a reasonable person would be satisfied
(d) If someone is doing something artistic or involving one’s personal taste or fancy, then a
subjective good faith test is more appropriate
(a) Under the UCC, where “honesty in fact” is the standard for non-merchants, the test is
subjective
g. Output/Requirement Ks
(a) UCC § 2-306: Output, Requirements and Exclusive Dealings
(1) a term which measures the quantity by the output of the seller or the requirements of the
buyer means such actual output or requirements as may occur in good faith, except that no
quantity reasonably disproportionate to any stated estimate or in the absence of a stated
estimate to any normal or otherwise comparable prior output or requirements may be
tendered or demanded
(2) a lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods
concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to
supply the goods and by the buyer to use best efforts to promote their sale
(b) General Rules 
(a) Parties to such Ks have impliedly bound themselves to use reasonable diligence as well
as good faith in their performance
(b) In an output K, good faith cessation of production terminates an further obligations
thereunder and excuses further performance by the party discontinuing
a) Ex: factory burned down, or the company went bankrupt
7. Prevention, Hindrance, and the Duty of Cooperation
a. General Rule  It is implied that one party will not intentionally prevent the other party from
performing; thus if cooperation is necessary for th performance of the promise, there is a
condition implied that cooperation will be given
(a) Remedy: breach by prevention, hindrance, or failure to cooperate excuses the aggrieved party
from any duty to continue performance and gives cause of action for damages
(b) Patterson v. Meterhoffer: Π agreed to sell Δ land he would obtain at auction, but Δ went to
auction and outbid Π on the land in the agreement plus a parcel Π was to keep for himself;
Ct. ruled Δ had impliedly agreed not to do anything which would prevent Π from performing
and thus breached when she bought the land for herself; expectancy damages, to place parties
in position as if K had been performed
b. Williston Rule  if a party seeking to secure all the merchandise of a certain character enteres
into a K for the required goods, and subsequently makes performance by the seller more difficult
by making other purchase nad increasing the scarcity of the supply, his conduct would not
excuse breach of the K. Mere difficulty of performance will not excuse breach of K.
(a) Iron Trade Products v. Wilkoff: Π entered K to buy rails from Δ; Δ didn’t deliver so Π suing
b/c had to get rails elsewhere for more money; Δ claims that Π went into the market and
drove down supply by acquiring rails elsewhere and thus increased price so that Δ was
hindered and could not obtain the rails at a price agreed upon; Ct. did not allow Δ’s defense
b/c Π did not have knowledge of the rail market and must have the intent to hinder
performance, in addition just because performance is more difficult doesn’t mean you can get
out of it so Π can recover (would have been different if Π had bought up all the supply and
left nothing to Δ)
c. Traditional Rule  Hindrance is not an excuse, but prevention is
d. Modern Rule  Hindrance can be a breach of good faith & provide the other side w/ an excuse.
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8. Tort of Intention Interference (Tort Inducing Breach of K)
a. Elements
(a) Must have a K
(b) Δ must know of the K
(c) Intentional interference with the K by Δ
(d) Damages
b. Recoverable damages
(a) Pecuniary loss of benefits of the K or the prospective relation
(b) Consequential losses for which the interference is the legal cause
(c) Emotional distress or actual harm or reputation if either is reasonably to be expected to result
from the interference
c. Note: Π must provide sufficient evidence for jury to estimate lost profits with reasonable
certainty
d. K W Plastics case
9. Merchants
a. UCC § 2-103(1)(b): “Good Faith” in the case of a merchant means honesty in fact and the
observance of reasonable commercial standards of fair dealing in the trade.
b. Wrongful Rejection
(a) UCC § 2-703: Seller’s Remedies in General
Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a
payment due on or before delivery or repudiates with respect to a part or the whole, then with
respect to any goods directly affected and, if the breach is of the whole K (§ 2-612), then also
with respect to the whole undelivered balance, the aggrieved seller may
(a) withhold delivery of such goods;
(b) stop delivery by any bailee as hereafter provided (§ 2-705)
(c) proceed under the next section respecting goods still unidentified to the K;
(d) resell and recover damages as hereafter provided (§ 2-706);
(e) recover damages for non-acceptance (§ 2-708) or in a proper case the price (§ 2-709);
(f) cancel.
(b) A seller may recover for breach where the buyer wrongfully rejects goods
(a) Buyer may reject if seller failed to conform to the K
(b) Dissatisfaction claim has to be made in good faith
10. Employment Ks
a. An employment K having no specified term may be terminated at-will by either party
b. Traditional At-Will Rule  An employer may discharge an employee for any cause or no cause
without being in breach of K
(a) Presumption is that all employment Ks are at-will so that employer doesn’t need a cause to
fire; but can K around this default rule
c. Modern Restrictions on At-Will Employment:
(a) Legislative Restrictions
(a) Cannot fire people b/c of their race, color, religion, sec, age, national origin, etc.
(b) Judicial Restrictions
(a) If the termination violates a well-established and important public policy
a) Ex: a whistleblower cannot be fired for whistle-blowing b/c it is for the common good
(b) If there is an implied covenant of good faith and fair dealing (some states, like CA)
a) This restriction has huge split in authority
i) Some states say traditional at-will rule and no covenant of good faith (default
when K is silent as to duration of employment)
ii) Some states imply a covenant and say that good faith must be used in terminating
an employee
iii) 30 states have said the doctrine can be altered by statements in an employee
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handbook (perhaps the theory of estoppel)
b) Hillesland v. Federal Loan Bank: Π fired from job and is trying to get a covenant of
good faith into employment at-will; Ct. will not imply the covenant of good faith and
held to the traditional at-will employment
(c) Tenure: can by fired but only for cause and the University sets up what causes those are –
must have a hearing and notice
D. ALLOCATION OF RISK: WARRANTIES AND CONDITIONS
1. Warranties
a. Representation that something is true; it becomes a part of the promise
b. Parties allocate risk of failure of performance
c. UCC § 2-313: Express Warranties by Affirmation, Promise, Description, Sample
(1) Express warranties b the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the
goods & becomes part of the basis of the bargain creates an express warranty that the
goods shall conform to the affirmation or promise
(b) Any description of the goods which is made part of the basis of the bargain creates an
express warranty that the goods shall conform to the description
(c) Any sample or model which is made part of the basis of the bargain creates an express
warranty that the whole of the goods shall conform to the sample or model
(2) it is no necessary to the creation of an express warranty that the seller use formal words such
as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an
affirmation merely of the value of the goods or a statement purporting to be merely the
seller’s opinion or commendation of the goods does not create a warranty.
d. UCC § 2-314: Implied Warranty: Merchantability; Usage of Trade
(1) Unless excluded or modified (§ 2-316), a warranty that the goods shall be merchantable is
implied in a K for their sale if the seller is a merchant w/ respect to goods of that kind. Under
this section the serving for value of food or drink to be consumed either on the premises or
elsewhere is a sale
(2) Goods to be merchantable must be at least such as
(a) pass w/o objection in the trade under the K description; and
(b) in the case of fungible goods, are of fair average quality within the description; and
(c) are fit for the ordinary purposes for which such goods are used; and
(d) run, within the variations permitted by the agreement, of even kind, quality, and quantity
within each unit and among all units involved; and
(e) are adequately contained, packaged, and labeled as the agreement may require; and
(f) conform to the promises or affirmations of fact made on the container or label if any
(3) Unless excluded or modified (§ 2-316) other implied warranties may arise from course of
dealing or usage of trade
e. UCC § 2-315: Implied Warranty: Fitness for Particular Purpose
(a) Where the seller at the time of contracting has reason to know any particular purpose for
which the goods are required and that the buyer is relying on the seller’s skill or judgment to
select or furnish suitable goods, there is unless excluded or modified under the next section
an implied warranty that the goods shall be fit for such purpose
f. Limitations of Warranties & Remedies
(a) Implied warranties under §2-314 & §2-315 are default rules
(b) The UCC governs the method that parties must use to K around these default rules
(a) UCC § 2-316: Exclusion or Modification of Warranties
(1) Words or conduct relevant to the creation of an express warranty & words or conduct
tending to negate or limit warranty shall be construed wherever reasonable as
consistent w/ each other; but subject to the provisions of this Article on parol or
extrinsic evidence negation or limitation is inoperative to the extent that such
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construction is unreasonable
(2) Subject to subsection (3), to exclude or modify the implied warranty of
merchantability or any part of it the language must mention merchantability & in case
of a writing must be conspicuous, and to exclude or modify any implied warranty of
fitness the exclusion must be by a writing and conspicuous. Language to exclude all
implied warranties of fitness is sufficient if it states, for example, that “There are no
warranties which extend beyond the description on the face hereof.”
(3) Notwithstanding subsection (2)
(a) unless the circumstances indicate otherwise, all implied warranties are excluded b
expressions like “as is”, “with all faults”, or other language which is common in
understanding calls the buyer’s attention to the exclusion of warranties & makes
plans that there is no implied warranty; and
(b) when the buyer before entering into the K has examined the goods or the sample
or model as fully as he desired or has refused to examine the goods there is no
implied warranty w/ regard to defects which an examination ought in the
circumstances to have revealed to him; and
(c) an implied warranty can also be excluded or modified by course of dealing or
course of performance or usage of trade
(4) Remedies for breach of warranty can be limited in accordance w/ the provisions of
this Article on liquidation or limitation of damages & on contractual modification of
remedy (§§ 2-718, 2-719)
(c) NOTES:
(a) The test for disclaimers in other Ks remained the same, except that language satisfying
the conditions for a consumer K satisfies the requirements for any other K
(b) Nowhere is the concern about Ks of adhesion greater than w/ provisions disclaiming
warranties &/or limiting remedies
g. Henningsen v. Bloomfield Motors: Π was wife of car purchaser and was injured due to defect;
manufacturer had disclaimed liability for personal injuries; Ct ruled that the unequal bargaining
power & the lack of an incentive to warrant due to custom made such a disclaimer contrary to
public policy
(a) General Rule  when you sign a K it is binding, the fact that you didn’t read it is irrelevant;
“read it or weep”
(b) Personal Injury Resulting From Breach of Warranty
(a) UCC § 2-715(2)(b): Buyer’s Consequential Damages: Consequential damages resulting
from the seller’s breach include injury to person or property proximately resulting from
any breach of warranty
(b) UCC § 719(3): Contractual Modification or Limitation of Remedy: Consequential
damages may be limited or excluded unless the limitation or exclusion is unconscionable.
Limitation of consequential damages for injury to the person in the case of consumer
goods is prima facie unconscionable but limitation of damages where the loss is
commercial is not
(c) UCC § 2-318: 3rd Party Beneficiaries of Warranties Express or Implied (3
alternatives)
a) A seller’s warranty whether express or implied extends to any natural person who is
in the family or household of his buyer or who is a guest in his home if it is
reasonable to expect that such person may use, consume, or be affected by the goods
& who is injured in person by breach of the warranty. A seller may not exclude or
limit the operation of this section
b) A seller’s warranty whether express or implied extends to any natural person who
may reasonably be expected to use, consume, or be affected by the goods & who is
injured in person by breach of the warranty. A seller may not exclude or limit the
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operation of this section.
c) A seller’s warranty whether express or implied extends to any person who may
reasonably be expected to use, consume, or be affected by the goods & who is injured
by breach of the warranty
A seller may not exclude or limit the operation of this section w/ respect to injury to
the person of an individual to whom the warranty extends
h. Murray v. Holiday Rambler, Inc: K warranty said repair or replace which they kept doing to the
motor home, but to no avail; ct said there comes a time when enough is enough and the remedies
under the UCC will be given, the limited remedy failed so they can claim consequential damages
i. “Lemon Laws” which apply to new cars: after a certain point the car has to be replaced if the
warranty is not working & you have to keep getting repairs
j. Magnuson-Moss Warranty Act: must disclose whether full or limited warranty
(a) Enacted in hopes that consumers would provide full warranties b/c they were too
embarrassed to provide limited ones – didn’t happen, all have limited warranties
2. Conditions (limitation on a K)
a. In General
(a) 3 things taken into account when making commitments for the future
(a) What you are getting
(b) Assuming the return is satisfactory, what could affect the incentive of exchange
(c) What can be done about it
a) If person fails to commit in satisfactory way no K, or if the other person beaches there
is protection…but what if a K is created and Δ is not in breach? conditions protect
from outside events that hinder the value of the bargain to the other
(b) R2 § 224: Condition Defined: A condition is an event, not certain to occur, which must
occur, unless its non-occurrence is excused, before performance under a K becomes due
(c) A form of protection that protects you from having to perform you duty if a condition occurs;
they say there is a condition on your promise
(d) R2 § 225: Effects of the Non-occurrence of a Condition
(a) Performance of a duty subject to a condition cannot become due unless the condition
occurs or its non-occurrence is excused
(b) Unless it has been excused, the non-occurrence of a condition discharged the duty when
the condition can no longer occur
(c) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the
condition occur
(e) R2 § 227: Standards of Performance with Regard to Conditions
(a) In resolving doubts as to whether an event is made a condition of an obligor’s duty, & as
to the nature of such an event, an interpretation is preferred that will reduce the obligee’s
risk of forfeiture, unless the event is within the obligee’s control or the circumstances
indicate that he has assumed the risk
(b) Unless the K is of a type under which only one party generally undertakes duties, when it
is doubtful whether
a) A duty is imposed on an oblige that an event occur, or
b) The event is made a condition of the obligor’s duty, or
c) The event is made a condition of the obligor’s duty & a duty is imposed on the oblige
that the event occur,
The first interpretation is preferred if the event if within the obligee’s control
(c) In case of doubt, an interpretation under which an event is a condition of an obligor’s
duty is preferred over an interpretation under which the non-occurrence of the event is a
ground for discharge of that duty after it has become a duty to perform
b. Language of Conditions  “..only if…”; “…Subject to…”; “…Provided That…”; etc.
(a) If ambiguous courts will call it a promise b/c of substantial forfeiture involved w/ conditions
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c. What a condition can do
(a) Can allocate the risk of the parties failure to perform (if you don’t perform exactly, then I
don’t have to perform my part at all)
(a) Ex: insurance Ks require notice of loss and preservation of property before they will pay
(b) Control Sequence of Performance
(a) Some parties include order of performance in express terms, they can also include
damages and consequences
(c) Remember: there must be a promise involved; if it’s just a condition, no suing for damages
(a) Failure of a condition is not a breach unless there is a promise the condition will occur
d. True Conditions
(a) Nature & Effect
(a) Express Condition: an express provision in K that provides either
a) Condition precedent: a party doesn’t have a duty unless some event occurs or fails to
occur; or
b) Condition subsequent: a party doesn’t have a duty if some event occurs
(b) Ex: I promise you can watch TV, but only if you do your homework
a) The condition limits the promise – you have to fulfill the condition before the other
party’s duty kicks in
i) Event where it is uncertain if it will occur (may not finish homework), but the
duty of one party is conditional on the actions of the other party
(c) “Bite Hard” – must be completely complied with; no substantial compliance
a) Generally  express conditions require strict compliance; full performance to take
effect
i) Failure of a condition relieves a party of his obligation to perform
(i) Not a breach so that there can be no action for damages for failure of a
condition (unless there was a duty to fulfill the condition)
(ii) A shield, but not a sword
(b) Express: Dove v. Rose Acre Farms: Bonus to work ten full weeks and receive $, condition
that must never be absent or tardy; Dove missed last two days and did not receive the bonus;
ct said Dove was out of luck b/c it was an express condition which he entered into voluntarily
and since he didn’t fulfill the terms, he would not receive the bonus
(c) Implied from wording of K: Wal-Noon Corp v. Hill: tenant wants to be reimbursed for repairs
made to the roof; express provision in lease that says landlord will repair at their own costs
unless repairs were caused by negligence or improper use by lessee; ct said there was an
implied condition of notice in this provision b/c only way to tell if not by negligence or
improper use is to see it before the repairs are made
(a) This condition was implied by the words of the K, but came from the K itself
(d) These kinds of conditions (written in the agreement & implied from words of the agreement)
result in forfeiture
(e) In Re Carter’s Claim: this was a condition as it was specifically laid out in the K so forfeiture
(a) Failure of a condition means the other party does not have to perform, there is a complete
forfeiture;
(b) Failure of a warranty or promise is a breach upon which can sue for damages but still
have to perform
e. Excuse of Express Conditions
(a) R2 § 229: Excuse of a Condition to Avoid Forfeiture: to the extent that the non-occurrence
of a condition would cause disproportionate forfeiture, a Ct may excuse the non-occurrence
of that condition unless its occurrence was a material part of the agreed exchange
(b) Ct’s realize true conditions bite hard so they may look for a waiver, or promise, or say
“equity abhors a forfeiture”
(c) Waiver
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(a) Only ancillary conditions can be waived, if it is a material part of the exchange then it
cannot be waived
(b) Two Kinds of Express Waiver (the relinquishment of a known right)
a) Election Waiver: the party imposing the condition proceeds even if the condition is
not fulfilled; they elect to say no problem
i) After it has occurred, you elect not to assert it
ii) Clark v. West: Π hired to write Corporations book but not to drink while doing it;
the no-drinking clause was a condition according to the ct; Π claims Δ waived the
condition by telling him it was no problem he was drinking when they found out
& by saying they would still pay him the $6…Ct says this would amount to a
waiver but remand to develop facts
b) Estoppel Waiver: the condition is waived b/c Π has materially changed his position
in reliance upon the Δ representation
i) “no problem” must be asserted before the condition hasn’t been met
(c) Implied Waiver (look out for these, especially w/ insurance policies) (notes pg 54)
(d) Claim it is ambiguous…unclear…ct will say a promise, not a condition and thus can get
damages but still must perform
(e) Claim it contravenes public policy
(f) Claim hindrance: if you hinder the condition from occurring
(a) Ferguson v. Phoenix Assurance Co.: store owner sued insurance company that wouldn’t
pay for burglary b/c of lack of visible marks of forced entry on outside door to safe; Ct
ruled the purpose of the condition was met w/ marks on the inside door & it wasn’t
necessary that both doors show marks of violence; Ct. said no ambiguity, but what about
public policy…this is contrary to public policy b/c condition is a means for insurance
companies to wiggle out of payments so won’t enforce condition
f. Constructive Conditions of Exchange
(a) Conditions not found in the K, but imposed by the ct out of fairness or justice
(b) Order of Performance
(a) Default Rule  if you can perform simultaneously, then perform simultaneously (can K
around this)
(b) When the performance of only one party requires a period of time then that party must
perform first (can K around)
(c) R2 § 234: Order of Performance
(1) Where all or part of the performances to be exchanged under an exchange of promises
can be rendered simultaneously, they are to that extent due simultaneously, unless the
language or the circumstances indicate the contrary.
(2) Except to the extent states in subsection (1), where the performance of only one party
under such an exchange requires a period of time, his performance is due at an earlier
time than that of the other party, unless the language or the circumstances indicate the
contrary.
(d) Who has to perform first?
(e) If party A has to perform first, how much does A have to perform before B has to do
something?
a) Substantial Performance
(f) Issue of remedy and restitution
(c) Look at the circumstances and intentions and see how to prevent injustice
(d) Independent v. Dependent
(a) General Modern Rule  promises are presumed to be dependent unless see to the
contrary
(b) Kingston v. Preston: promise to deliver business in exchange for providing security;
apprentice doesn’t obtain security but sues for the business; traditionally promises were
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independent but now they are considered dependent
(c) Goodison v. Nunn: K for an estate including liquidated damages; old rule had an
independent system, but now have to offer to perform or perform your part of the
agreement before you can sue someone else regarding their part of the agreement
(e) Substantial Performance
(a) Material breach – can ask for damages; injured party can suspend performance under K
(cannot be intentional)
a) Total Material Breach: can’t be cured or reasonable time for getting a cure has
expired (can’t fix it)
i) Cease, Sue, Cancel
b) Partial Material Breach: if a material breach can be cured
i) Suspend, Sue – can’t rescind/cancel cause they can cure the breach
(i) If no cure w/in reasonable time, it becomes a total material breach and can
rescind
(ii) If cured then sue for damages, but must recommence performance
ii) Delay
(i) Can often be remedied by money damages
(ii) Can also be serious
(iii)Often remedies for delay are placed in the K (liquidated damages, time is of
the essence)
(b) Substantial performance – the injured party has to perform & then get an offset for
whatever was not performed
(c) Palmer v. Fox: seller was supposed to cinderize and maintain the streets in exchange for $
from the sale
a) Two step process: Are the promises independent? Presume Dependent unless see to
the contrary; How much performance does Π have to do before Δ has to pay? If the
breach is material, the duty on the other side remains dormant, if Π has substantially
performed then Δ must pay for that performance
(d) Jacob & Young v. Kent: Owner asked for Reading Pipe, but most of the pipe was Cohost
pipe; this was a breach that could be cured only at a significant price; Ct applied 4 factors
& determines don’t need absolute performance & there was substantial performance here
so can only sue for breach which will recover him difference in value of pipes
a) Cardozo’s 4 Factors to determine if we need absolute performance
i) Purpose to be served by the condition
ii) Desire to be gratified by the condition
iii) Excuse for deviation (was it a mistake, negligence, intentional, etc.)
iv) The cruelty of enforced adherence
(e) R2 § 241: Circumstances Significant in Determining Whether a Failure is Material:
In determining whether a failure to render or to offer performance is material, the
following circumstances are significant:
a) The extent to which the injured party will be deprived of the benefit which he
reasonably expected;
b) The extent to which the injured party can be adequately compensated for the part of
that benefit of which he will be deprived;
c) The extent to which the party failing to perform or to offer to perform will suffer
forfeiture;
d) The likelihood that the party failing to perform or to offer to perform will cure his
failure, taking account of all the circumstances including any reasonable assurances;
e) The extent to which the behavior of the party failing to perform or to offer to perform
comports w/ standards of good faith & fair dealing
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(f) O.W. Grun Roofing and Constr. v. Cope: roof placed on house was not of uniform color;
this was a material breach b/c people expect a roof of uniform color; Cope can suspend,
sue, and since not fixed w/in reasonable time rescind the K
(f) Divisible
(a) Look to see if multiple performances can be apportioned & if these apportioned
performances are equivalent to each other (intent of parties)
(b) Williston Test  A K is divisible by its terms
a) Performance of each party is divided into 2 or more parts
b) # of parts due from each party is the same
c) The performance of each part by one party is the agreed exchange for a corresponding
part by the other party
(c) Progressive payments do not make the K divisible
(d) Tifton v. Firner: if two different considerations, allocated differently, then divisible and if
one part isn’t performed, then still have to perform on other part
(g) Remedies
(a) Net Benefit Rule  benefit received less damages incurred (restitution damages); this
allows party who has performed to recover under quantum meriut for his part
performance
a) Wages: legislation in most states require an employer to pay wages at regular
intervals regardless of substantial performance rule
i) This is so the employer doesn’t drive out worker before completing performance
to avoid paying wages
ii) Keeps worker from quitting before stipulated time for pay w/o sufficient reason
b) Britton v. Turner: Π to work for 1 year but after 9 months leaves and now wants
money for his performance; traditional rule is that if don’t perform then don’t get
paid, ct adopts new rule allowing payment for the amount of work done less damages
(b) R2 § 374: Restitution in Favor of Party in Breach
(1) Subject to the rules stated in subsection (2), if a party justifiably refuses to perform on
the ground that his remaining duties of performance have been discharged by the
other party’s breach, the party in breach is entitled to restitution for any benefit that
he has conferred by way of part performance or reliance in excess of the loss that he
has caused by his own breach
(2) to the extent that, under the manifested assent of the parties, a party’s performance is
to be retained in the case of breach, that party is not entitled to restitution if the value
of the performance as liquidated damages is reasonable in the light of the anticipated
or actual loss caused by the breach and the difficulties of proof of loss
(c) R2 § 370: Requirement that Benefit be Conferred: A party is entitled to restitution
under the rules stated in this RST only to the extent that he has conferred a benefit on the
other party by way of part performance or reliance
(d) R2§ 371: Measure of Restitution Interest: If a sum of money is awarded to protect a
party’s restitution interest, it may as justice requires be measured by either
a) The reasonable value to the other party of what he received in terms of what it would
have cost him to obtain it from a person in the claimant’s position, or
b) The extent to which the other party’s property has been increased in value or his other
interests advanced
(e) UCC § 2-718(2-4):
E. CHANGED CIRCUMSTANCES
1. Impossibility
a. Originally could only be excused from performance when it became impossible to perform
(a) Person died
(b) Subject matter was destroyed
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(a) Taylor v. Caldwell: K to use concert hall which burned down; it was an unconditioned
promise; Ct said there was an implied condition of the existence of the thing (concert
hall)
(b) Now: focus on whether the non-occurrence of the event was an essential element
b. Generally  occurs after the K is formed and before performance is due
2. Impracticability (“I can’t do it”)
a. Then, doctrine was expanded to when the burden of performance changed in ways that went
beyond the risks assumed by the parties & performance became unduly burdensome
b. The non-occurrence of the event (surprise) is a basic assumption of the K (not foreseeable)
c. Generally helps people who are supposed to be furnishing goods or services
d. [(1) nature of risk & impact on contractual rel?; (2) party seeking relief at fault?; (3) did the
agreement allocate risk?; (4) if no agreement, how should ct allocate risk?; (5) nature & scope of
relief; (6) when would a modification be enforceable?]
e. Existing Impracticability
(a) Analyze as both a mistake case and an impracticability case
(b) Mineral Park v. Howard: K to take all gravel and dirt needed to make bridge & Δ did not take
all they were supposed to b/c it was below water level making it too costly to extract so
excused from performance due to impracticability
(c) U.S. v. Wegematic: K for computing system; using the UCC the ct has to determine if the
non-occurrence was a basic assumption upon which the K was made and who assumed the
risk; the gvt did not K to bear the risk of Wegematic’s research & development and
Wegematic should not have bid for something that wasn’t fully developed
f. Supervening Impracticability
(a) R2 § 261: Discharge by Supervening Impracticability: Where, after a K is made, a party’s
performance is made impracticable w/o his fault by the occurrence of an event the nonoccurrence of which was a basic assumption on which the K was made, his duty to render
that performance is discharged, unless the language or the circumstances indicate the
contrary
(b) R2 § 262: Impracticability by Destruction of a Thing: If the existence of a specific thing is
necessary for the performance of a duty, its failure to come into existence, destruction, or
such deterioration as makes performance impractical is an event the non-occurrence of which
was a basic assumption on which the K was made
(c) R2 § 263: Impracticability by Death or Incapacity of a Person: If the existence of a
particular person is necessary for the performance of a duty, his death or such incapacity as
makes performance impracticable is an event the non-occurrence of which was a basic
assumption on which the K was made
(d) UCC § 2-615: Excuse by Failure of Presupposed Conditions: Except so far as a seller may
have assumed a greater obligation & subject to the preceding section on substituted
performance:
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies w/
paragraphs (b) & (c) is not a breach of his duty under a K for sale if performance as
agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the K was made or by compliance
in good faith w/ any applicable foreign or domestic governmental regulation or order
whether or not it later proved to be invalid
(b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to
perform, he must allocate production & deliveries among his customers buy may at his
option include regular customers not then under K as well as his own requirements for
further manufacture. He may so allocate in any manner which is fair & reasonable
(c) The seller must notify buyer seasonably that there’ll be delay or non-delivery &, when
allocation is required under ¶ (b), of the estimated quota thus made available for buyer
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(e) Both RST and UCC allow an excuse if the non-occurrence of the event that disrupted things
was a basic assumption of which the K was formed
(a) Basic assumption goes to foreseeability of the event
(f) Canadian Industrial Alcohol Co. v. Dunbar Molasses: K for molasses, but the refinery
reduced production; Δ could have written into the K an express condition so he is not
excused b/c the subject matter was not destroyed and he could have placed a condition in the
K b/c Δ didn’t, he assumed the risk
(a) A party may not by its own conduct, create the event causing the impracticability of
performance…it must make all reasonable efforts to avoid the impossibility
(g) Dills v. Town of Enfield: K for town to provide D with land after D submitted satisfactory
construction plans & proof of financing; two provisions regarding termination (1) allowed D
to withdraw & reclaim deposit after submission of satisfactory plans b/c no financing and (2)
allowed town to withdraw & keep deposit if construction plans not submitted; D did not
submit plans b/c could not obtain financing; ct said not impracticability when you provide for
the occurrence of the event in the K
(a) **Only in the most exceptional circumstances have cts concluded that a duty is
discharged b/c additional financial burdens make performance less practical than initially
contemplated
(h) Jennifer’s Outline
(a) Surprise makes performance impracticable (almost impossible)
(b) Surprise was a non-occurrence that was a basic assumption of the K
a) Fault: (if one party is at fault do bad faith analysis)
b) Financial Burden / Act of G-d
(c) Who bears loss: did one party assume risk? Intent; foreseeability; superior risk bearer test
(i) Foreseeability (the probability an event will occur) is Key
(a) Often have Force Majeure Clauses which excuse performance in the event that a force
majeure (superior or insuperable force; an event or effect that cant be reasonably
anticipated or controlled) makes the performance impractical or impossible
(b) Was the contingency which developed one that the parties could reasonably foresee as a
REAL POSSIBILITY which could affect performance?
a) If yes – contract around it
b) If so out of the ordinary, so remote that someone wouldn’t possibly think it would
occur, then it will pass the basic assumption test and don’t have to K for it
(j) R2 § 264: If the performance of a duty is made impracticable by having to comply with a
domestic or foreign governmental regulation or order, that regulation or order is an event the
non-occurrence of which was a basic assumption on which the K was made
(k) US v. Winstar: exception to general rule that governmental regulations fall under
impracticability; the gvt in this case had accepted the risk of legal change by approaching the
S & Ls and proposing the deal under the existing regulations (this may not happen every
time)
3. Frustration of Purpose (“I don’t want to”) [define purpose, how frustrated, not in reasonable
contemplation of parties]
a. Generally helps out people who are paying money for something and don’t want to pau cause
they feel the value has changed
b. Paradine v. Jane: ct refused to excuse the tenant from duty to pay rent despite the fact that the
army was possessing the land; had to do what they agreed to do even if didn’t want to anymore
c. Krell v. Henry: booked flat to watch the coronation procession; coronation was cancelled so he
no longer wishes to rent the flat even though he could still do so at the same rate; K was made
based on an assumption and since the substance of the K no longer existed he was excused from
performance
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d. R2 § 265: Discharge of Supervening Frustration: Where, after a K is made, a party’s principal
purpose is substantially frustrated w/o his fault by the occurrence of an event the non-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 contrary
4. Remedies
a. R2 § 272: Relief Including Restitution
(a) In any case governed by the rules stated in this Chapter, either party may have a claim for
relief including restitution under the rules stated in §§ 240 & 377
(b) In any case governed by the rules states in this Chapter, if those rules together w/ the rules
stated in Chapter 16 will not avoid injustice, the ct may grant relief on such terms as justice
requires including protection of the parties’ reliance interests
F. BREACH OF K AND PERMISSIBLE REMEDIAL RESPONSES:
1. Right to Suspend Performance or Cancel upon Prospective Inability or Breach:
a. Repudiation
(a) Unequivocal Test: express words or actions
(b) R2 § 250:When a Statement or an Act is a Repudiation:
A repudiation is
(a) a statement by the obligor to the oblige indicating that the obligor will commit a
breach that would of itself give the oblige a claim for damages for total breach under §
234, or
(b) a voluntary affirmative act which renders the obligor unable or apparently unable to
perform w/o such a breach
(c) R2 § 253: Effect of a Repudiation as a Breach and on Other Party’s Duties
(1) Where an obligor repudiates a duty before he has committed a breach by nonperformance & before he has received all of the agreed exchange for it, his repudiation
alone gives rise to a claim for damages for total breach.
(2) Where performances are t be exchanged under an exchange of promises, one party’s
repudiation of a duty to render performance discharged the other party’s remaining duties
to render performance.
(d) UCC § 2-610: Anticipatory Repudiation
When either party repudiates the K w/ 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 (§ 2-703, § 2-711), even though he has notified the
repudiating party that he would await the latter’s performance and has urged retraction; &
(c) In either case suspend his own performance or proceed in accordance w/ the provisions of
this Article on the seller’s right to identify goods to the K notwithstanding breach or to
salvage unfinished goods
(e) UCC § 2-611: Retraction of Anticipatory Repudiation
(1) Until the repudiating party’s next performance is due he can retract his repudiation unless
the aggrieved party has since the repudiation cancelled or materially changed his position
or otherwise indicated that he considers the repudiation final.
(2) Retraction may be by any method which clearly indicates to the aggrieved party that the
repudiating party intends to perform, but must include any assurance justifiably
demanded under the provisions of this Article (§ 2-609)
(3) Retraction reinstates the repudiating party’s rights under the K w/ due excuse &
allowance to the aggrieved party for any delay occasioned by the repudiation.
(f) Anticipatory Breach
(a) Hochster v. De La Tour: unequivocal language of repudiation; Π brought suit before the
day of performance; Ct said a party can bring suit when the breach (repudiation) occurs
b/c want Π to mitigate and not wait till day of performance
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(b) Assurances:
a) When feeling insecure, request adequate assurance & give a reasonable time to
receive that adequate assurance
b) R2 § 251: When a Failure to Give Assurance May be Treated as a Repudiation
(1) Where reasonable grounds arise to believe that the obligor will commit a breach
by non-performance that would of itself give the oblige a claim for damages for
total breach under § 243, the oblige may demand adequate assurance of due
performance and may, if reasonable, suspend any performance for which he has
not already received the agreed exchange until he receives such assurance
(2) The obligee may treat as a repudiation the obligor’s failure to provide within a
reasonable time such assurance of due performance as is adequate in the
circumstances of the particular case
c) R2 § 256: Nullification of Repudiation or Basis for Repudiation
(1) The effect of a statement as constituting a repudiation under § 250 or the basis for
a repudiation under § 251 is nullified by a retraction of the statement if
notification of the retraction comes to the attention of the injured party before he
materially changes his position in reliance on the repudiation or indicates to the
other party that he considers the repudiation to be final
(2) The effect of events other than a statement as constituting a repudiation under §
250 or the basis for a repudiation under § 251 is nullified if, to the knowledge of
the injured party, those events have ceased to exist before he materially changes
his position in reliance on the repudiation or indicates to the other party that he
considers the repudiation to be final.
i) Taylor v. Johnston: horse case; repudiation when horse was sold, it was retracted
when made arrangements for mares in KY, then there really wasn’t a repudiation
just some difficulty getting an appointment; ct said should have gotten assurance
that horses would be bred
d) UCC § 2-609: Right to Adequate Assurance of Performance
(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 w/ respect to the performance of either party the other may in
writing demand adequate assurance of due performance and until he receives such
assurance may if commercially reasonable suspend any performance for which he
was not already received the agreed return
(2) Between merchants the reaosnableness of grounds for insecurity and the adequacy
of any assurance offered shall be determined according to commercial standards
(3) Acceptance of any improper delivery or payment does not prejudice the aggrieved
party’s right to demand adequate assurance of future performance
(4) After receipt of a justified demand failure to provide within a reasonable time not
exceeding 30 days such assurance of due performance as is adequate under the
circumstances of the particular case is a repudiation of the K
i) AMF v. McDonalds: McDonalds was feeling insecure about system AMF was
supposed to be providing them but didn’t make request for assurance either in
writing or explicitly; Ct went ahead & found McDonalds was felling insecure,
asked for assurance, didn’t get any & therefore could treat it like a breach
(c) Remedies
a) UCC § 2-711: Buyer’s Remedies in General; Buyer’s Security Interest in
Rejected Goods
(1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects
or justifiably revokes acceptance then w/ respect to any goods involved, & w/
respect to the whole if the breach goes to the whole K (§ 2-612), the buyer may
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cancel & whether or not he has done so may in addition to recovering so much of
the price as has been paid
(a) “cover” & have damages under the next section as to all the goods affected
whether or not they have been identified to the K; or
(b) recover damages for non-delivery as provided in this Article (§ 2-713)
(2) Where the seller fails to deliver or repudiates the buyer may also
(a) if the goods have been identified recover them as provided in this Article (§ 2502); or
(b) in a proper case obtain specific performance or replevy the goods as provided
in this Article (§ 2-716)
(3) On rightful rejection or justifiable revocation of acceptance a buyer has a security
interest in goods in his possession or control for any payments made on their price
and any expenses reasonably incurred in their inspection, receipt, transportation,
care and custody and may hold such goods and resell them in like manner as an
aggrieved seller (§ 2-706)
b) UCC § 2-712: “Cover”; Buyer’s Procurement of Substitute Goods
(1) After a breach w/in the preceding section the buyer may “cover” by making in
good faith & w/o unreasonable delay any unreasonable purchase of or K to
purchase goods in substitution for those due from the seller
(2) The buyer may recover from the seller as damages the difference between the cost
of cover and the K price together w/ any incidental or consequential damages as
hereinafter defined (§ 2-715), but less expenses saved in consequence of the
seller’s breach.
(3) Failure of the buyer to effect cover w/in this section does not bar him from any
other remedy
G. THIRD PARTY INTERESTS
1. Assignments
a. General Rule  parties who have acquired the right under a non-performed contract have the
right to assign that right to someone else (based in property rights)
(a) Doctrine of privity was relaxed to allow for assignments
(b) Transfer not only the right to the property, but also the right to sue under the K
(c) Most common in mortgages and credit card debts
b. R2 § 317: Assignment of a Right:
(1) An assignment of a right is a manifestation of the assignor’s intention to transfer it by virtue
of which the assignor’s right to performance by the obligor is extinguishes in whole or in part
& the assignee acquires a right to such performance
(2) A contractual right can be assigned unless
(a) the substitution of a right of the assignee for the right of the assignor would materially
change the duty of the obligor, or materially increase the burden or risk imposed on him
by his K, or materially impair his chance of obtaining return performance, or materially
reduce its value to him, or
(b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public
policy, or
(c) Assignment is validly precluded by K
b) Only applies to those Ks that don’t fall w/in UCC Article IX
c. Exceptions to Generally Free Assignability
(a) Material change duty or risk
(a) Owen v. CNA Insurance: tort victims assigned rights to lump sum payment; might
change an obligor’s duty b/c of tax incentives (IRS code) to pay the victim; however not
in this case cause the IRS code wasn’t passed at time of agreement and there was no
structured settlement company
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(b) It would materially change the duty of the insurance company to transfer your insurance
policy when you sell your car
(b) Public policy / statute
(a) Doctrine of Maintenance / Champerty: Cannot really sell rights to a lawsuit
a) Cannot assign tort claims b/c possibility of fraud and collusion; it is a personal claim
so why should someone recover for injuries another sustains, it will encourage more
litigation (dealing w/ another’s claim)
b) Fitzroy v. Cave: Irishmen assigned their right to receive money from C to F; F is
seeking the money from C so C declared bankruptcy and was removed from position
in business; Ct said this was an acceptable assignment and the motives behind it did
not matter
(b) Future Wages cannot be assigned under Modern legislation for public policy reasons b/c
if assign away future wages then in the future won’t have an income to live on
a) Some exceptions in some states regarding child support
(c) Expressly precluded
(a) Anti-Assignment Provisions: key word is VOID and be clear
a) If just say your can’t assign – this is a promise and if breached you can sue for
damages but the right is still assigned
b) If say can’t assign or it is void – assignment is treated as void as if it didn’t occur
(b) Cts are reluctant to enforce these so construe them narrowly
2. Delegation of Duties
a. R2 § 318: Delegation of Performance of a Duty
(1) An obligor can properly delegate the performance of his duty to another unless the delegation
is contrary to public policy or the terms of his promise
(2) Unless otherwise agreed, a promise requires performance by a particular person only to the
extent that the obligor has a substantial interest in having that person perform or control the
acts promised
(3) Unless the oblige agrees otherwise, neither delegation of performance nor a K to assume the
duty made w/ the obligor by the person delegated discharges any duty or liability of the
delegating obligor
b. UCC § 2-210: Delegation of Performance; Assignment of Rights
(1) A party may perform his duty through a delegate unless otherwise agreed or unless the other
party has a substantial interest in having his original promisor perform or control the acts
required by the K. No delegation of performance relieves the party delegating of any duty to
perform or any liability for breach
(2) Except as otherwise provided (§ 9-406), unless otherwise agreed all rights of either seller or
buyer can be assigned except where the assignment would materially change the duty of the
other party, or increase materially the burden or risk imposed on him by his K, or impair
materially his chance of obtaining return performance. A right to damages for breach of the
whole K or a right arising out of the assignor’s due performance of his entire obligation can
be assigned despite agreement otherwise
(3) The creation, attachment, perfection, or enforcement of a security interest in the seller’s
interest under a K is not a transfer that materially changes the duty of or increases materially
the buyer’s chance of obtaining return performance w/in the purview of subsection (2)
unless, & then only to the extent that, enforcement actually results in a delegation of material
performance of the seller. Even in that event, the creation, attachment, perfection, &
enforcement of the security interest remains effective, but (i) the seller is liable to the buyer
for damages caused by the delegation to the extent that the damages could not reasonably be
prevented by the buyer, & (ii) a ct having jxn may grant other appropriate relief, including
cancellation of the K for sale or an injunction against enforcement of the security interest or
consummation of the enforcement
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(4) Unless the circumstances indicate the contrary a prohibition of assignment of “the K” is to be
construed as barring only the delegation to the assignee of the assignor’s performance
(5) An assignment of “the K” or of “all my rights under the K” or an assignment in similar
general terms is an assignment of rights & unless the language or the circumstances (as in an
assignment for security) indicate the contrary, it is a delegation of performance of the duties
of the assignor & its acceptance by the assignee constitutes a promise by him to perform
those duties. This promise is enforceable by either the assignor or the other party to the
original K
(6) The other party may treat any assignment which delegates performance as creating
reasonable grounds for insecurity & may w/o prejudice to his rights against the assignor
demand assurances from the assignee (§ 2-609)
c. Will be improper if the duty of performance is personal in nature where one has a substantial
interest in getting it from the original party (ex: surgery, artistic services, athletic services)
d. Sally Beauty v. Nexus: the exclusive distributor of N products wanted to delegate the distribution
right to SB during a merger; SB was owned by direct competitor of N and the Ct held that it was
not delegable b/c N had substantial interest in not having a direct competitor be the sole
distributor of their products
3. Third Party Beneficiaries
a. Third Party Beneficiaries do not have to be named in the K
b. R2 § 302: Intended & Incidental Beneficiaries
(1) Unless otherwise agreed between promisor & promisee, a beneficiary of a promise is an
intended beneficiary if recognition of a right to performance in the beneficiary is appropriate
to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy the obligation of the promisee to pay money
to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit fo
the promised performance
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary
(b) This is a default rule that you can K around
c. Kmart v. Balfour: looking at language of the K and deciphering parties’ intent, Kmart was
intended to be a 3rd party beneficiary
(a) Look at who the original parties are; then who the 3rd party trying to assert rights under K is
(b) Was it the intent of the parties to benefit that 3rd party?
d. *Note: if there is a problem w/ the K in the first place, it affects the 3rd party in the same manner
e. Johnson v. Holmes Tuttle: promise by dealer to procure 3rd party insurance for C; C was in
accident w/ J and J is suing the dealer for not getting that insurance; Ct said J was in the class of
people the insurance policy would have covered; K to obtain insurance was not just to benefit C
but to benefit any person harmed by C
f. Zigas v. Superior Ct: landlords K w/ HUD to keep rent at a certain level in return for financial
and insurance aid, purpose was to provide low-income housing; tenants complaining rent was
above cap & they were 3rd party beneficiaries;
(a) Shell Case: if language of K gave a notion that the K was meant to benefit a certain class,
then members of that class were 3rd party beneficiaries
(b) Martinez Case: ability of 3rd party beneficiaries depends on the intent of the parties as
manifested by the K & the circumstances surrounding its formation (if meant to help the
broad community then incidental 3rd party beneficiaries are out of luck)
g. When 3PB Rights Vest:
(a) Time the K was made
(b) When 3PB found out about it (3PB must have knowledge of it)
(c) Reliance
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(d) R2 § 311: Variation of a Duty to a Beneficiary:
(1) Discharge or modification of a duty to an intended beneficiary by conduct of the
promisee or by a subsequent agreement between promisor & promisee is ineffective if a
term of the promise creating the duty so provides
(2) In the absence of such a term, the promisor & promisee retain power to discharge or
modify the duty by subsequent agreement
(3) Such a power terminates when the beneficiary, before he receives notification of the
discharge or modification, materially changes his position in justifiable reliance on the
promise or brings suit on it or manifests assent to it at the request of the promisor or
promisee
(4) If the promisee receives consideration for an attempted discharge or modification of the
promisor’s duty which is ineffective against the beneficiary, the beneficiary can assert a
right to the consideration so received. The promisor’s duty is discharged to the extent of
the amount received by the beneficiary
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