Contracts Outline Professor Paleaz

Section B 2006-2007

Contracts Defined: (a legally enforceable promise): Restatement: A contract is a promise or set of promises, for the breach of which the law gives a remedy, or the performance of which the law in some way the law recognizes as a duty.

(1) An agreement (2) Between competent parties (3) Supported by consideration (or other validating

device) (4) Based upon the parties genuine assent (5) Made for a lawful purpose (6) In the form required by law, if any form is

required

Chapter I: Basis for Enforcing Promises1. Meaning of Enforce- (consequences for not

performances of a K)a. K law is concerned w/ the relief of breached

promises for the P, not to punish the breaching party, D

i. The central objective behind the system of contract remedies is compensatory, not punitive(only awarded for egregious wrongs in torts).

b. The fundamental assumption in enforcing promises is that the relief granted is to restore the victim of a breached K to the position the victim would have expected if the promise had not been breached or promise had been performed

i. 3 Interests of concern for compensation (R §344):

1. Expectation Interest: the amount the complaining party expected to receive had the contract been performed;

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calculated by the difference between where the non-breaching party is now andwhere they would have been had the K been carried out.

His interest in having the benefit of his bargain by being put in as good position as he would have been in had the contract been performed.- One way to accomplish expectation benefit is for court

to compel performsnce of what was promised, using the remedyknown as specific performsnce.- However, because specific performance is not available

or desired or a set of time-consuming performance might require continuing judicial supervision, the appropriate form of relief is compensation for the breach, rather than requiring the promisor to perform. Courts order specific performance only sparingly 点点点一, and only in case where conpensation is inadequate.- How to accout expectation interest? The promisee’ s

injury consists in being worse off than if the promise had been performed, and expectation damages undo the effect of breach on the promisee.

2. Reliance Interest: (expenditure relief or “out of pocket expenses”) compensation for the costs the complaining incurred or suffered while relying on the D to perform his part in the K; law would try to put P back in the same economic position in which it would have been had the promise not beenmade.

His interest in being reimbursed 点点 for loss caused by reliance on the contract by being out in as good position as he would have been in had the contract not been made.- The promisee’ s injury consists of being worse off if

the promise have not been made.3. Restitution Interest 点点点点: P is able to

receive the benefits the breaching partyreceived that were caused by the breach

a. Unjust Enrichment 点点点点: One party isenriched at the expense of another

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(restitution is designed to preventunjust enrichment)

b. Usually, the breaching party just has to refund or give back the money it received

His interest in having restored to him any benefit that he has conferred on the other party.- The purpose of protation of this interest is undoing the

promiso ny putting the promiser in the position in which it would have been had the promise not been made.

ii. Specific Performance: suit for a breach of K seeking that the breaching party performhis specified part in the K 1. Seldom used, typically

compensation is monetary because the relief is substantial

2. The court will only order this if monetary damages are inadequate to protect the expectation interest of the injured party.

3. Three typical Fact Patterns for specific performance

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a. Rules for Real Estate Deals- in contracts for the sale of real estate, the buyer can always get specific performance (because land is unique)

b. Situations involving Services Contracts- contract to

perform service is never specific performance

1) Player doesn’t want to play for the Lakers. Lakers can’t make him play even if they sue him, but theycan possibly get injunctive relief2) Injunctive relief- can get an order to prevent him from playing on another team

c. Contracts for the sale of goods- specific performance is available only when the goods are unique (custom made, art, or antiques)

iii. Punitive Damages: Damages designed to punish the wrongdoer are available in tort law and only granted in K law for tortuous conduct that is sufficiently outrageous to justify punishment (remember K law is not concerned w/ punishing the breaching party even if it was willful of malicious)

iv. Nominal Damages: Plaintiff who proves abreach of contract but fails to prove damagesis traditionally awarded nominal damages (usually $1.00).

v.Liquidated Damages- contract provision that sets a fixed amount for damages if one party should breach.

c. Limitations on Money Damages

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i. Plaintiff must prove with Reasonable Certainty of the amount in damages- this is a fact question and judgment call. If not, one gets only nominal damages.ii. Avoidable Damages- a plaintiff cannot

recover for damages that she could have avoided. Damages are avoidable if one could reduce theamount incurred by taking a separate route or taking a position somewhere else.

iii. Foreseeability of Damages- Damages must be foreseeable by the defendant at the time the contract was made. If the damages werenot foreseeable, then the plaintiff cannot recover for those damages.

d. Void/Voidable/Unenforceablevi. Void K: No K has been formed – no legal duties or rights exist

vii. Voidable K: One of more parties to an otherwise valid K has the ability/power to nullify the K (capacity)

viii. Unenforceable K: K that has legal consequences but there are no recoverable damages

II. Consideration (primary validating device; where a validating device is what makes a K enforceable because it provides evidence of the existence and terms of a contract):a. Restatements sect 71

i. To Constitute consideration, a performance orreturn promise must be bargained for

ii. A performance or return promise is bargained for if it is sought by the promisorin exchange for a promise and is given by thepromisee in exchange for that promise

iii. Consideration for a promise is:1. An act other than a promise

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2. A forbearance (to give up the right to do something)

3. The creation, modification, or destruction of a legal relation

4. A return promiseiv. The performance or return promise may begiven to the promisor or to some other person. It may be given by the promisee or by some other person.

b. In Paleaz terms: consideration is any performance or return promise that is bargained for;

i. Being that the performance or promise is either to do an act the promisee has no legalobligation to do or to forbear from doing an act the promisee has a legal right to do

ii. A benefit to promisor and detriment to promisee

c. Consideration is proved and determined through twoissues:

i.Is there Evidence of a Bargain for Exchange?1. Bargain: the inducement to exchange acts

& or promisesa. Inducement must be established, the

promisor must intend to induce the promisee to perform and the promisee must be induced by the promise

b. Must change promisee’s future duty.2. A K must have a bargain to be legally

enforceable while the mere existence of a bargain does not guarantee the validity of a K

3. Promise to make a gift is not enforceable because it lacks consideration, there is no bargain and there is no detriment suffered by the promisee.

4. Something that has already taken place in the past is not enforceable because

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it was not bargained for or given in exchange for a promise.

5. Promisee must be aware of the promise, if not, any act she performs is not bargained for. (Rewards- if B never knows of the offer, B could never have accepted it)

ii. Was the consideration sufficient?1. Courts only look at sufficiency of the

consideration and do not consider the adequacy of consideration

a. Adequate consideration is subjective to the contracting parties (EX: a peppercorn may be worth $100 to Emeril who really enjoys pepper on his sandwich; while normally a peppercorn is basically worthless – thus courts do not attempt to regulate adequacy)

b. However, if something was given only as a token or for an insignificant sum, the courts may believe that the consideration was not really bargained for and is usually a good indication that there was no bargain at all, but rather a gift.

2. Courts do regulate Ks based on if the consideration was sufficient

a. The consideration is only sufficient if there is detriment tothe promisee

i. Meaning the promisee musteither be required to do something that he is not legally obligated to do, or hemust refrain from doing something that he is legally

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privileged or has a right to do.

ii. Must change promisee’s future duty

b. If there is no legal detriment, theagreement becomes an Illusory Contract (Illusory Ks are not enforceable but Conditional Ks are)

i. Illusory Contract: Occurswhen one party words a K in such a way so that only a second party is bound to the K, and the first party’s beingbound to the K is optional, such a K is generally unenforceable at law.

1. Ex: A promises to sell B his car, unless he changes his mind = illusory promise – even if B validly accepts, theK is unenforceable because A had no requirement to perform – thus he incurred no detriment where B was required to perform and would incur detriment

iii. Conditional Contract: where both partiesare required to perform upon the occurrence of a condition

1. Distinguished from illusory K as a conditional K requires both parties perform upon a stated event while Illusory K allows one party to renege the K upon his volition while the other party must perform (ex above)

a. Ex (of conditional K): A promises to sell B his car if A gets a new

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car by the end of month – enforceable K as if A does get a new car, both of the parties incur detriment and are both required to follow through with the K

d. Bargain Element in Detaili. There are two types of Ks based upon what is being bargained for

1. Unilateral Ks: Bargain for a performance(no obligation for offeree to perform his act – but once he does complete the performance the offeror is obligated to perform his promise); promise for an act

a. As soon as the action is completelyperformed the K is enforceable (meaning the acceptance occurs onlywhen the performance is completed –this is explained in detail infra)

b. Only the promisor has future duties, the promisee’s side of the K is fulfilled as soon the K is enforceable

i. Thus the Promisee has a right to the Promisor’s promise

ii. The Promisor has a duty to perform his side

2. Bilateral K: Bargain for a promise or performance (legal detriment and bargainmust exist)

a. As soon as the K is validly accepted (explained in detail infra) the K is thus enforceable, in this case the performance will not be completed, but merely started or it is promised to be started

b. Restatements Sect 75: A promise for a promise is valid when a promise,

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which is bargained for, is consideration if and only if the promised performance would be consideration (meaning if the promise was performed the performance was sufficient consideration)

c. Both Parties have future duties andfuture rights

i. The Promisee has a right to the Promisor’s promise to perform

ii. The Promisee has a duty to perform his promise

iii. The Promisor has a right to the Promisee’s promise

iv. The Promisor has a duty to perform his promise

e. Gratuitous Promises: Promises that are given without consideration, that are given purely out of gratuity and only one party incurs detriment while the other party only benefits, such a promise is not enforceable by law (unless supported by a validating device other then consideration)

i. Sham Consideration: where consideration is for pretense only, i.e. a worthless object only to provide consideration, although court’s do not look to adequacy of consideration, obvious sham considerations are not enforceable because there is no bargain in such situations (ex: where a promise to convey a car is given to A by B and A gives B one quarter for no other reasonexcept to create consideration between the two parties) however, under right circumstances seemingly worthless items may be bargained for and thus consideration wouldbe sufficient, this is a matter of fact left

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to the fact-finder (ex: where A sells his carto B for one quarter, but A stands to make a billion dollars if he can make a phone call and he needs a quarter to do so)

ii. Conditional Gifts: in some cases the promisee may undergo a detriment, but there is still a lack of consideration because of alack of bargain; the detriment occurs when the promisee must meet certain conditions in order to receive the gift, however the meeting of these conditions have not been bargained for; they were not part of the promisor’s motive for making the promise

1. A detriment must be bargained for, this occurs when the detriment is of benefit to the promisor … in other words the promisor must be induced by the promise,there must be something in return the promisor wants for sufficient consideration

2. Motive plays a role in determining the whether the detriment was bargained; promisee must be induced by the promise (Ex: a student is hired by Paleaz to paint his house for $. The student has previously failed the K class and being vengeful the student rents a helicopter and dumps a barrel of paint on the house; amazingly the paint perfectly adheres to the proper surfaces and the paint job is fantastic. The student seeks to collect the $ but he cannot because he was not induced by the promiseto pay the $ he was induced by vengefulness)

3. Intangible (non-economic) detriments canbe considered bargained for even though the promisor does not receive an economic benefit

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a. Emotions cannot be bargained for and are thus not sufficient consideration

4. Bargain and Gift can be combined (ex: a friend sells a car to B for significantly less then value of said car out of gratuity, the promise may still be bargained for)

5. Both Parties must be aware of the promise, otherwise it is obviously not bargained for (ex: A bumps into “Dangerous Dan the Felony Man” and knocks him over and subsequently picks him up to clean him off and apologize, where there is a reward for $10,000 for D.D.F.M.’s capture; the police see A holding DDFM and say you captured DDFM, A says “I DID??” policeman says, there is a $10,000 reward on for his capture; A says “I did!” No enforceable K as there is no bargain as A was not inducedby the offer) Put simply: the PROMISE MUST INDUCE THE PROMISEE TO INCUR DETRIMENT, where detriment is either (1)to perform an act the promisee had no legal obligation to do or (2) to forbearfrom doing an act the promisee had a legal right to do

iii. Donations (charitable gifts): Typically – chartable donations are enforceable as a matter of public policy – it is held that chartable donations are given in consideration for the donation itself

f. Past Consideration: Requirement of Exchange: It isnot possible to bargain for past acts

i. Exchange: act of transferring interests in consideration for each other

ii. Past Actions cannot be sufficient consideration: where the detriment has been

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suffered before the promise is made, it is not bargained for by the promisor – past services or past acts cannot be considerationfor a present promise, the present promise does not, in any way, change the promisee’s future duties as he has already performed theact the promise seeks

1. Promises to pay for services after are made after the services have been rendered are not enforceable, they are seen as gratuitous promises, and the services that were rendered without a promise for compensation are also seen as gratuitous

2. Raises issues in Employment situations; i.e. work has been done with an expectation of payment although there has been no K for such work (ex: Feinberg v. Pfeiffer Co. – Employer promises to pay employee X amt per monthas retirement pension based on her previous good employment record – Employer not required to pay based on consideration as the pension was issued for past services (ex will be brought upinfra for methods of how this promise may be enforced))

a. At – Will Employments: most employments are “ at will” meaning employer may fire employer for any reason or no reason and employee may quit for any reason or no reason

b. Continued Employment can be sufficient consideration based on circumstances, i.e. an employer promises to continue the keep the employee as a paid worker so long as the employee performs or

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promises to perform (ex: CAB case: where employee signed a non-competition clause thus incurring detriment by giving up his legal right to compete against the employer for the employer’s promiseto continue the employment relationship for a certain period of time; the period of time must exist because otherwise the employer would promise to continue the at will employment which would literally mean that the employer would continue the relationship “aslong as he felt like it” and this would not be sufficient consideration as the employer wouldnot be incurring detriment and onlywould be receiving a benefit)

g. Although the book discusses Unilateral and Bilateral Ks and rewards as offers, this will be discussed infra to keep a proper organizational outline; at this point is crucial only to notice that Performances may be sufficient consideration and Promises may be sufficient consideration – based upon the offer and the type of K created

2. Validating Devices as a Substitute for Consideration-h. Moral Obligation: rarely used – occurs when a

promise is not otherwise legally enforceable because of a circumstance outside of the actual agreement- to do the right.

i. Moral Obligation is used under one primary circumstance:

1. Where a Legal K is made between two parties

2. That K is not fulfilled

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3. A circumstance has arisen that will legally prevent the enforceability of that K

a. Statute of Frauds has run out4. The parties make a 2nd promise to

perform their prior K that is no longer enforceable as a matter of law (2nd Promise is based on past acts and there is no valid consideration)

5. That 2nd promise can be legally enforcedas a matter of Moral Obligation

ii. Example: A and B are good friends and A and B enter into a valid written K as A is going to sell B his car in consideration for B’s promise to pay A X amount of $ - B takes A’s car and promises to pay him in the future– several years later the statute of limitations has run for Ks claims and A is unable to bring a legal cause of action against B to make him pay – A and B run into each other on the street and B tells A; I promise I will pay you the $ for the car = B’s first promise to pay cannot be enforced because the statute of limitations has run, B’s 2nd promise is without consideration, because his promise was made for A’s past actof giving him the car; the doctrine of Moral Obligation will allow A to bring a cause of action for B’s second promise

iii. Restatements 2nd §82: A promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except for the effect of a statute of limitations

iv. Expanded Moral Obligation Definition: Restatements §86: Allows a recovery where the services were performed and a promise to pay was made afterward – i.e. past services

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can be used as a basis for enforcement under this doctrine

1. Important Notes: Medical Professionals are presumed to perform medical services with an expectation of gain

2. Recovery will be allowed only to preventinjustice, i.e., only the amount of the services rendered. Under regular moral obligation, a recovery will be allowed in accordance with the promise made.

a. Ex: A is hit with a car and is bleeding in the street injured – B runs to A’s aid and B is not a medical professional – A makes a full recovery and promises to pay Bfor his services – under Consideration A’s promise is not enforceable because it was made forpast services – under Expanded Moral Obligation it will be enforceable

b. Ex: same situation except that B isa medical professional – it is an assumption that B’s performance is done with an expectation of gain and B will recover through a Consideration Basis

i. Promissory Estoppel: reliance as a basis for enforcement (also termed detrimental reliance) – must be a promise, reliance on that promise, and detriment caused by that reliance (can replace consideration as a method for enforcement) – the point is to prevent injustice, not to create justice as such damages under this method are limited to Reliance Interest Damages

i. Defined: if a person makes a promise to another under such circumstances that the promisor should reasonably foresee that the promisee will be induced to rely thereon and

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that the promisee will then sustain substantial loss if the promise is not kept, the promise is binding even when there is no consideration for it

1. Restatement §90: Elementsa. Someone makes a promiseb. Which he should reasonably expectc. Will lead to the promisee’s action

or forbearanced. The promisee does in fact

justifiably rely on the promise to his detriment, and

e. Injustice can be avoided only by enforcing the promise

ii. The Reliance must be foreseeable, reasonable and expected by the offeror – meaning the reliance must be directly relatedto the promise

iii. The Reliance must be necessary for performance

1. Ex 1: In a situation where the promise for example is for the sale of a house –it seems that the seller of the house could expect any and all potential buyers to take out loans or mortgages toraise the money so the buyer may performhis part – but this situation would not fit under promissory estoppel because itis not necessary that the buyer incur such detriment

iv. Distinguished from Consideration: Consideration specifically requests the promisee’s detriment through bargaining – while promissory estoppel the promisor does not specifically request the promisee’s detriment

v.Examples: 1. A promises to give B $1,000 for his

birthday, B relying on this promise buys

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a new car – A does then not give B the $= A’s promise is not enforceable becauseit is not reasonably foreseeable that A would incur that particular detriment inreliance of the gift

2. A promises to give B $500 a month for the rest of her life – in reliance on this promise B quits her job; A pays the$500 for a year and then stops paying B the $ - A’s promise to pay will be legally enforced as a matter of promissory estoppel because although there was no consideration for the promise – B’s reliance on the promise was reasonably foreseeable

3. Other Specific Situations that Promissory Estoppel will Enforce

a. Promises to make gifts that induce Detrimental Reliance

b. Promises of Charitable Subscriptions (Alleghany College Case)

c. Employers promise to pay pensions d. Bids by Sub-Contractors to general

Contractorse. Promise of a at-will jobf. Promises made between family

membersg. Promises to convey land and offeree

relied on it by moving onto it and making improvements.

j. Quasi Contract/Restitution – fictitious contract without any promise. An Unjust Enrichment – where one party receives a benefit from a promise – where the law creates an obligation for the purposes of equity (recovery is limited to the value of the benefit that was conferred “restitution interest”)

i. Elements:

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1. Benefit must be conferred 2. Under a color of right

a. Not an Officious Intermeddlerb. Must be genuine intent (a

reasonable mistake only – if the mistake is intentional or unreasonable = restitution not applicable)

i. Ex: A is a house painter – A paints B’s house knowing that B did not want his house painted – A cannot recover from B because A is an officious intermeddler

ii. But – A paints B’s house mistakenly believing B’s houseto be C’s house, where C ordered his house to be painted – B would have been unjustly enriched and A was not an officious intermeddler – A may recover his costs of painting

3. Must have been done with the expectationof gain, or, in circumstances where gainis expected or if the true facts were known, gain would be expected

Chapter II: The Bargaining Process3. The Nature of Assent (determined objectively)

k. Four Ways by which a contract is set aside due to failure of assent

i. Undue Influenceii. Duressiii. Bilateral Mistake of Factiv. Fraud

l. Four Ways Assent can be validly achieved

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i. Constructive Assent: assent that is based on the conduct of the parties rather then the expressly made statements

ii. Express Assent: where the assent is clearly communicated

iii. Implied Assent: inferred assentiv. Mutual Assent: agreement by both parties(expressed through offer and acceptance)

m. Test for Intent: the objective test for a party’s intentions, in most circumstances, is that that party clearly intended what a reasonable person inthe position of the other party would conclude that his objective manifestations of intent meant – in other words whether a reasonable person in the position of the first party had a clearly reasonable belief that the other party’s intent tobe contractually bound existed

i. Thus the intent to be contractually bound does not have to actually exists – if the other party had a reasonable belief that it did

1. Ex: Lucy v. Zehemer: the offeror claims hisoffer to sell his farm to the offeree was made only in jest – but because the offeree had a reasonable belief that theoffer was legitimate the offer was legally enforceable and assent was valid– in this particular situation the offerwas signed and written on a napkin and thus the court had clear evidence that confirmed the offeree’s reasonable belief

n. Offeror makes an offer to another party, the offeree, which the offer accepts

4. The Offero. Restatements §24: offer defined: an offer is the

manifestation of willingness to enter into a bargain, so made as to justify another person in

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understanding that his assent to that bargain is invited and will conclude it.

p. Requirements for a valid offeri. Offeree must reasonably believe that the offeror has a present intent to create the power of acceptance in him (assent): where the offeror’s subjective intentions is not taking into account

1. Assent/intent to enter into a bargain2. Definiteness3. Communication of the offer to the

offereeii. The offer must be more then a mere invitation for offers (invitation to negotiate) or an inquiry

1. Must show the intent to a reasonable person that the offeror intends to create the power of acceptance in the offeree or that he wants to enter into abargain

2. An offer must contain some promise or commitment rather then a mere opinion

3. Look at the words of the offer to determine if is an offer or a mere invitation or inquiry

a. An inquiry would be when a party isonly asking for the possibility of an offer

b. An invitation for an offer is when one party is letting the other party know that he would consider negotiating

i. Examples1. “I am looking to sell my

house and I would consider $20,000 for it” – this is not an offer then can be accepted – where another party says,

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“OK I will give you $20,000” there is no K – the first statement was an invitation the second statement was an offer

2. “I would not sell unless I was receive at least $400” – not an offer onlyan invitation

ii. Words that show future intentions are not offers (ex:“I am going sell my car for atleast $1,000” – not an offer)

4. Price Quotations and requests for quotations are not offers– business based situations – think of this situation as a request for a catalog anda company sending you the catalog – neither asking for the catalog nor the company sending you the catalog gives any contract for the sale of a specific item (ex: Company A sends Company B a letter stating “We would like to buy 10,000 widgets that meet X specifications, could you please quote us how much such a purchase would be” Company B then sends Company A a response letter that states “We charge $1 a widget, unless the order is for over 5,000 items, then the price is reduced by 15% per widget” – no offer orcontract exists here at all the next step would be for A to send B an order for so many widgets and such would then probably be an offer)

5. Advertisements by stores are merely invitations, not an offer: where a storehas a sign that states a can of tuna is only $1 – this is not an offer – only an

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invitation for offers – thus an implied offer is made only when the purchaser attempts to buy the item – the store then has the power of acceptance and therefore does not have to sell the purchaser the item but the store can refuse the sale as the store is the offeree

a . An ad can rise to the level ofan offer if the ad is clear, explicit, definite, leaving nothingopen for negotiation. (Ex- “first 500 people who come…” turn this into a true offer)

6. Auctions – the auctioneer does not make an offer, but gives invitations – thus bids from the audience are thus only offers and the acceptance is made later by the person who has entered the item in the auction (not the with and withoutreserve situations – see restatements §28)

iii. The terms of an offer must be definite 1. Ex: Offer: “I will see you an

undisclosed an item for a price I can’t reveal” Acceptance “Done Deal” – NO K – too indefinite

iv. Contactors – a contractors bid to a hiring company is an offer and likewise a subcontractors bid to a contractor is also anoffer where if such bid is accepted both willrequired to perform according to their bid

1. Clerical Error Mistake: contactors commonly make mistakes in their bids – but such bid is still enforceable as a valid offer UNLESS the offeree knows or should know that there is a mistake in the bid (ex: where one contractor’s bid is 10,000 dollars less then all the

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other contractors’ bids, that offeree should be aware that the contractor probably made a mistake and thus the bidis not enforceable as it is revocable)

2. Mistakes or Errors in Judgment- courts are not sympathetic to error in judgmentand are always enforceable (otherwise itwould be too easy for people to get out of contracts)

3. Unilateral Mistake v. Bilateral Mistake-one party mistakes, there is still an enforceable contract; if both parties were mistaken, a contract never came into being and is thus not enforceable.

v.Rewards: a reward poster is an offer for a unilateral K that can be accepted only by thecomplete performance of the offeree. Offereemust be aware of the offer because it must change the offeree’s future duty. If offereeis not aware, he cannot accept the reward, because he there is no consideration.

5. The Acceptanceq. A valid acceptance is dependant entirely on the

terms of the offer – thus the offeror determines when and how acceptance will be valid

i. An acceptance can be a return promise (bilateral K)

ii. An acceptance can be performance (unilateral K)

1. Unilateral K: where the offer seeks performance by the offeree and only thatperformance or beginning performance will constitute valid acceptance – wherenotice is usually not necessary

2. Bilateral K: where the offer seeks a return promise by the offeree and only that promise will constitute valid acceptance

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r. An acceptance is the exercise of the power to create a K, when a valid acceptance follows a valid offer there is a valid K

s. Only the person to whom the offer is directed at may accept the offer – whoever the offeror reasonably expected to accept may do so

i. The offeree must be aware of the offer – ex: dangerous Dan captured by the hillbilly – thehillbilly must have been aware of the offer before he can collect on the reward

t. Requirement of Notice: a valid acceptance requiresnotification of such acceptance dependant on the terms of the offer – unless the offer is for a unilateral K then performance itself will be held as notification (ex: reward poster for dangerous Dan, a person who chooses to accept cannot accept by stating so and notifying the offeror – the offeree can only accept by capturing Dangerous Dan– when the capture is complete the acceptance is valid – but not before and the offeror does not have to be notified that you intend to accept)

i. Where one intends to accept – the offeror does not need to be notified – only of true acceptance is notification required (see above) – so even for a unilateral K if the hillbilly does complete the performance by capturing Dangerous Dan – the K is enforceable at such time and the offeree needonly prove that performance was completed

ii. Modes of Acceptance: the acceptance is valid any time it is in accordance with the offer

1. Where the offer does not state any particular mode of acceptance is necessary – then the acceptance is validso long as it is communicated to the offeror within a reasonable time and themethod of acceptance is irrelevant (ex: A signs a note that states his

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acceptance of B’s offer and he puts the note in a bottle and throws into the river and B fishes it out of the water by chance – he then receives the acceptance and there is a valid K)

a. The method the offer is made it is assumed that a valid acceptance maybe made in the same fashion

2. Where the offer does require a particular mode of acceptance:

a. Unilateral K: normally full performance of the act is required for valid acceptance (ex: A offers to pay B 50 bucks for walking across the bridge – the acceptance is not valid until A is completely across the bridge) – although beginning/partial performance or preparations made to perform may beused as promissory estoppel to force the K to remain open as an option K (explained infra) such partial performance will not be held as complete acceptance that forces the offeror to complete his side of the K – however partial performance may be used to recover reliance interest and expectation interest damages – it will not be valid for specific performance suits because the offeree’s side has not fully been performed either(such is explained further infra)

b. Bilateral K: completely depends on the offer – can be accepted any method that communicates the acceptance to the offeror – unless the offer expressly or implicitly

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requires otherwise – notification for bilateral Ks must be given

i. Silence is never Acceptance – even if the offerstates that silence will be acceptance (ex: A says – I am going to sell you my watch for$100 and unless I hear from you acceptance is valid – no Keven if offeree does not replyto the offer because silence is not acceptance)

1. Not only silence – but omissions in general are not acceptance (ex: A states I am going to sellmy watch for a $100 and you can accept such offerby standing up) – although standing is not an omission this is something you would do inthe ordinary course of the day and it is unreasonable to enforce such a K unless the offeree clearly wanted tobe become bound

ii. Face to Face: Offer terminates when parties leave.

u. Acceptance can be valid when such acceptance has begun and the Offeror is still not actually notified

i. Ex: in a situation where an email could show valid acceptance – common law is that the email is a valid acceptance as soon as it is received in the offeror’s box even if he doesn’t read it or doesn’t open it…etc

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ii. MailBox Rule: An acceptance is valid as soon as it is sent – when the acceptance is deposited in the mailbox it is a valid acceptance; however, rejection of an offer isvalid only when it is received even through the mail (situations: Rejection put in the mail on Monday, on Tuesday an acceptance is put in the mail – the offeror receives the rejection on Wednesday – the rejection is invalid because the acceptance was valid as of the moment it was put in the mail which was before the rejection was valid which would be at the moment the rejection was received – thus even if the offeror believes the offer to have been rejected because he had not actually been notified of the acceptance yet – there is an actual and legalK and the rejection is void)

1. Exceptions to Mailbox – again if the offer itself expressly states provisionsagainst the mailbox rule – the offer’s terms prevail over the rule – ex: the offer states that acceptance is not valid until it is actually communicated to me – mailbox rule is inapplicable

a. Offeror designs the terms of the offer.

2. Valid if the letter of acceptance was mislabeled or mis-delivered – applies only to US mail – not to Fed-Ex or otherwise unless that was the (1) the method the offer was sent or (2) allowedby the terms of offer expressly (ex: President Bush sends VP Cheney on Airforce 1 with an offer – if I give theacceptance to Cheney to return the acceptance in the same manner the offer was received the acceptance is thereforevalid the moment it is sent)

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I. Termination of the power of acceptance (destructibility of offers)a. Restatements §36: An offeree’s power of acceptance

can be terminated byi. Rejection or Counter-offer by the offeree

ii. Lapse of Timeiii. Revocation by the offeroriv. Death or Incapacity of the offeror or offeree

v. (In addition): an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer

b. Rejection or Counter-Offeri. If the offeree rejects any term of the offer or the offer itself the offer is terminated and thus so is the offeree’s powerto accept – unless the offeror expressly states that the offer is still open (The mirror image rule)

ii. If the offeree attempts to change or modify the offer or any term of the offer theoffer is terminated and thus so is the offeree’s power to accept (ex: A offers to sell B item X for $1,000 and B says I will give you $800 – there has been a counter offer and the original offer has been terminated and now A is the offeree and has the power to accept B’s offer of $800 or the power to terminate the said offer)

c. Lapse of Timei. If the offer is not accepted within a time limit, the offer will be automatically terminated

1. Time Limit

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a. Determined by Offer stating this offer will remain open for said amount of time or

b. Determined by a reasonable time – if the acceptance is not made within a reasonable amount of time the offer is destroyed where the reasonableness is determined objectively and it is based on the totality of the circumstances

2. Specific Situations – always dependant on circumstances

a. Conversation – if an offer is made in a normal conversation an acceptance is usually not valid unless it is made in that same conversation

d. Revocation: where the offeror himself terminates the offer before it is accepted

i. Requirement of Notification: a valid revocation must be notified to the offeree – general rule is that the offer must be revoked in the same manner the offer was made

1. Notification is effective where the offeree has received reliable information concerning such (ex: A offers to sell B his car and B can have until Friday to accept – then on Wednesday A sells the car to C and a mutual friend of both A and B informs B that A has sold the car – such information is reasonably reliable and the offer will be validly revoked)

2. Mailbox rule does not apply – offeree must be personally informed through a reasonable means

3. Public Notification: offer must be reasonably equal to the offer (ex: offerfor reward for lost dog in the newspaper

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X – revocation would be effective if made in newspaper X, but probably not ifmade in newspaper Y because the readers of X probably do not read Y and it is therefore not equivalent)

e. Incapacity/Death of a partyi. If either party dies or becomes incapacitated the power to accept is terminated (however will often time not destroy a valid K if is already enforceable –recover from estate … etc)

II. Irrevocable Offersf. Option Ks: where an offer will remain open: a

binding promise supported by an independent validation device which acts to keep an offer openfor a stated period of time or until a specific date

i. Promise within the Promiseii. Consideration: If the offeree offers theofferor $100 to keep the original offer open and the offeror accepts there is an option K based on consideration

iii. Reliance Basis/Partial Performance – Promissory Estoppel is often times used to enforce an option K – where the offeree incurs detriment in an expectation that the offer will remain open – same reliance rules apply

1. Situations where the offer is for a unilateral K an option K may be enforcedwhere the offeree begins the performance– because acceptance for a unilateral K is not valid until the performance is complete when the offeree begins his performance he is thereby relying on theoffer to remain open and through promissory estoppel the Option K will beenforced (ex: A makes an offer to B for B to paint his house – unilateral K –

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where acceptance is not valid until the complete job is done – B begins to paintthe house and gets all but one square foot painted and A runs out of the houseand says “offer revoked” the offer is still open as an option K through reliance basis)

2. The reliance must be foreseeable howeverin cases where one is preparing to perform (ex: A makes an offer for a unilateral K to B to pay B $10,000 if B climbs Mt. Everest – B spends $ getting the proper equipment and plane tickets …etc … his actual performance has not yetbegun and would not begin until he takeshis first step up the mountain when at such point an option K would clearly be created – however after incurring all the detriment involved in preparing to perform – the option K may be enforced prior to any actual performance so long as the detrimental reliance was foreseeable and reasonable and expected by the offeror – in the above example such detriment should be expected by theofferor and the offer will be forced to remain to open) note however that if B sued A, A would only be required to pay the reliance interest damages and could not be required to specifically perform

III. UCC Exceptions – battle of forms (acceptance differs from offer)g. UCC §2-207

i. A definite and seasonable expression of acceptance or a written confirmation which issent within a reasonable operates as an acceptance even though it states terms additional to or different from those offered

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or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms

ii. The additional terms are to be construedas proposals for addition to the contract, between merchants such terms become part of the contract unless:

1. The offer expressly limits acceptance tothe terms of the offer

2. They materially alter it3. Notification of objection to them has

already been given or is given within a reasonable time after notice of them is received

iii. Conduct by both parties which recognizesthe existence of a K is sufficient to establish a K for sale although the writings of the parties do not otherwise establish a K…

iv. If one party is a non-merchant, terms ofthe offer usually govern. The additional or different terms are treated as mere proposalsto modify the contract that do not become part of the contract unless the offeror agrees.

v. If both parties are merchants, differentterms are treated like additional terms most times, but some courts follow the “Knockout Rule”- which states conflicting terms in the offer and acceptance are knocked out of the contract because each party is assumed to object to the inclusion of such terms in the contract,

h. Meaning of 2-207i. In contrast to the common law – where anacceptance is sent in reply to an offer and that acceptance states additional terms – a Kstill exists and the acceptance is not deemeda counter offer unless the additional terms

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materially change the offer or if the acceptances requires that for a valid K the additional terms must be met as a condition for the effectiveness of the proposed K; moreover those additional terms stated will not be actual terms of the K – but only proposals that may be accepted or rejected within a reasonable time – unless the negotiations are between two merchants – thenthe additional terms are actual enforceable terms and not mere proposals

ii. Even where the offer and acceptance do not create a valid K because of their differences in accordance with part 1 – if the parties behave and act and perform as though the K was valid – such K is then valid

IV. Pre-contractual Liabilityi. Such is a rare exception to the general rule where

no liability will exist prior to the formation of a valid K

j. Exists when a K fails to ever become a valid K occurs

k. Occurs under only two circumstancesi. Promissory Estoppel: where one party takes extraordinary efforts in an reasonable expectation that a K will occur (ex: where a grocery store tells A that if he buys anotherstore and then sells it and then buys more property and makes payments to the store thatit will allow him to open a franchise and then after all this is done the store does not allow a franchise – A is able to recover because of his extraordinary reliance)

ii. Restitution – Unjust enrichment1. Where a party is unjustly enriched by

the honest efforts of another – that other may recover Precontractually (ex: where A paints the house of B and just

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before B is finished B revokes his offer(assuming no Option K) A can recover forthe value A received)

V. Requirement of Definitenessl. A K must be definite to be enforceable (ex: I will

sell you something I can’t reveal for a price I can’t divulge + Done Deal = No K)

m. Not every term must always be spelled out for sufficient definiteness – can be impliedly assumedby parties and filled in by those assumptions (keyelement that can never be assumed – quantity of items)

n. However some terms are essentiali. Who the Parties areii. What is bargained for: subject matter and price

iii. How many/much of ii is being bargained for

o. Definiteness can be inferred from the circumstances itself, it need not occur in the agreement itself.

i. Conduct of the partiesii. The negotiations that lead to the transaction

iii. Custom and usage in the industryiv. Course and dealings between the partiesv. Reasonableness obligations and termsvi. Parties intended to be bound

Chapter III – Requirement of Writing for EnforceabilityVI. Statute of Frauds:

p. The statute of frauds is designed to prevent fraudulent Ks; it requires the K to be in writing and it prevents the admission of oral evidence contrary to the written terms (explained infra as parol evidence rule)

i. This issue of if the statute of frauds is satisfied will not exist unless there is adisagreement over facts or evidence

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ii. Two Step process after you determine if an issue exists (1) Is the K w/in the scope of the statute of frauds? i.e. does it fit into one of the categories (2) Can it be satisfied?

q. Categories of Ks that MUST be in writing to satisfy statute of frauds: restatements §110

i. Land Contracts: Ks for the sale of an interest in real estate (any document that transfers an interest in real estate – see property outline for details)

1. Does not apply to leaseholdsii. One Year Contracts: Ks, in which, performance cannot be completed w/in one year

1. Time starts when the K was madea. Example: O leases X to A for 9

months, where the lease is to not to begin until 6 months from now; is within scope = clock starts the day the K is made

2. Entire & Full Performance must be completed w/in the year

a. If either party has the right to terminate before the end of that year – it is not w/in the scope

3. Example: 2 year lease agreement/ 2 year cell phone Ks, etc

4. Example2: D hires V for life; because V may die w/in one year this K is outside the scope of the statute of frauds; thusit must be certain that the K will take longer then a year; i.e. it must be impossible to perform w/in a year, cannot just be likely or expected

a. Death is an excuse for non-performance; in the above example performance was completed, but if Dhired V for 5 years and V died in the first 8 months, performance

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would not be complete; but non-performance would be excused (explained further infra)

iii. High Priced Contracts: Ks for the sale of goods exceeding $500 in price (regardless of if the actual value of the goods is $500 or less or more)

1. Governed by UCC §2-2012. If several items combined are over $500,

but only one item is $50 – it depends onif the K is divisible or one full K (explained infra)

iv. Suretyship Contracts: K’s to answer for another’s debt

1. Example: A owes B $2,000; C owes A $5,000; C promises to pay A’s debt to B;for an extension in the remaining debt owed to A (note: there still must be valid consideration!)

2. Must be done for the benefit the party whose debt is being paid (explained further supra – main purpose doctrine)

v. Marriage Provision: any K that includes marriage as part of the consideration

1. Does not apply in PAr. Satisfying the Statute of Frauds – excusing the

written requirementi. Any Written Documentation: even a document of receipt nature will satisfy; it just prove that the K actually existed

1. Must be signed by adverse (non-moving) party; any sign of adverse party’s intent/involvement will suffice as a signature – ex: letterhead w/ name or initials … etc

2. Must give identity of the parties3. A writing is not insufficient because it

omits or incorrectly states a term

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4. But the writing MUST state the QUANTITY of goods (UCC) – if an err exists in thewriting about the quantity of goods – whatever is written will stand

5. It must show an agreement6. Must set forth any essential terms

ii. Main Purpose Doctrine: applies to suretyship Ks; if K to pay the debt of another is done primarily for the Payer’s benefit; it will be enforceable regardless of if a writing exists (if the K was primarily for the payer it is not a suretyship, if the K was primarily for the party whose debt is being paid off – it is a suretyship and the statute of frauds applies)

1. 3 main factors for determining main purpose rule

a. Whether promiser intended a Suretyship

b. Whether there is considerationc. Whether consideration was primarily

for the payeriii. UCC exceptions:

1. Reasonable Time has passed without Objection: exception given by UCC; thus applies only between merchants, where one party has sent a confirmation and the other party does not object to the confirmation w/in 10 days (fits in w/ battle of forms section, see supra, where additional terms are not counteroffers; but only optional terms)

2. International Sales do not require writings

3. Partial Performance will satisfy (explained infra)

4. Does not apply to Services – only to goods

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a. Example: B promises to build a house for C for $300,000; not w/in the scope because building is a service and not a good

iv. Partial Performance: partial performancecan sometimes satisfy the statute of frauds; but only when the performance shows the clearintentions of the parties

1. Example: 2 year lease K (takes longer then a year for performance); TN pays rent for 14 months, and LL accepts rent each time; courts will hold that this partial performance of the 24 month K will satisfy the statute of frauds

2. For this doctrine to apply – *at least apart of the payments must have been completed as well as the partial performance*

3. The performance does not have to be substantial – so long as it clearly shows an agreement and the intent of theparties to be bound by that agreement

4. Restitution: Crucial to remember that a party may recover for partial performance when the doctrine of unjust enrichment applies and an undue benefit has been conferred

v. Full Performance: when both parties havecompleted and fully performed all the obligations, the statute of frauds requirement is satisfied (parties’ intentionsare clear)

vi. Admissions: if the adverse party admits the existence of a K, it will be outside the scope

Chapter IV – Policing the Bargain

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VII. Policing the Bargain: Ks are assumed valid – unless shown otherwises. Capacity: Default Rule: everyone is legally

presumed to have capacity – up to party with burden to prove incapacity

i. Minors: Ks with minors are voidable Ks; where only the party who is a minor has the right to void

1. The minor may disaffirm the K at anytimewhile he is still a minor AND for a reasonable time thereafter

a. Example: A who is 17 buys a car from a dealer; A subsequently turns18; A can still void the K due to incapacity for a reasonable amount of time

2. In order to disaffirm the K; the minor MUST return opposing party’s rights/duties owed/paid (using above example, A must return the car to dealerwhen he voids the K)

a. It does not matter if the returned item is in a lessened condition (using above example, if A crashed the car and then returned it – the K is still void and dealer cannot recover any damages – in essence heassumes the risk by entering into avoidable K with a minor)

3. Misrepresentation: however, if the minormisrepresents himself to be of age thus giving the adverse party a REASONABLE belief (must meet objective standard); then the minor can still void the K, buthe will be liable for the damages suffered (using above example, if A liedto the dealer and showed him a fake ID representing himself as over 18; A then crashes the car and voids the K – A will

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be responsible for any damages the dealer suffered – thus even if he didn’tcrash, he will still have to pay deprecation costs: must restore party tooriginal position)

4. Items for Necessity: A minor cannot voidKs for items of necessity

a. What makes an item an actual necessity? – Depends on the infantscircumstances or station in life; must not have a reasonable alternative;

b. Examples always held as necessities:

i. Food, clothes, shelter, etc.

5. The rules of minors is irrelevant of emancipated minors

ii. Mental Capacity: if the party is able tounderstand the terms and rights/duties then that party is mentally capable – even if the K is obviously a bad K

1. Courts want to allow everyone the freedom to K; thus only when the party is clearly incapable as he cannot and does not understand the terms and the nature of the K will the K be held as void

a. Note: when a party is judicially determined to be incapable to K; the Ks at dispute are held as void (not just voidable)

2. Restatements §18C: gives 2 prong test for void K based on mental infirmity

a. Mental Infirmity caused the K (i.e.it would not have occurred w/o the infirmity)

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b. The other contracted party knew/should have known of the infirmity

iii. Extreme Intoxication: can be an incapacity – especially when intoxication wasinvoluntary

t. Unfairness: gross inequityi. Adequacy of Consideration (disparity)

1. Courts will not generally look at adequacy of consideration: i.e. was whatwas given worth what was received?

a. Only Exception = suits for equitable relief will look at disparity – specifically = specificperformance

b. Fairness is viewed from a prospective viewpoint at the time of the K contract creation – foresight used not hindsight

2. When will specific performance be appropriate relief – thus allowing courts to look at adequacy of consideration?

a. Only when a remedy at law (i.e. pecuniary damages) will not restorenon-breaching party to proper position

b. No physical damage will exist, thus$ will not satisfy

ii. Overreaching: 1. Pressure in bargaining: some amount of

pressure will be allowed – but at what point does it become overreaching?

2. Threatening to do something you have a legal right to do or to not do somethingyou have a legal obligation to do?

a. Pre-Existing Duty Rule: where a party already has a legal duty to perform that duty – he cannot

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threaten not to perform that duty and he cannot use that duty in a 2nd K as consideration (explained further infra)

i. Example: QB of Steelers in K w/ team to play for the season; QB tells coach he is not going to play unless he gets more $ - coach agrees andthey even sign a K; does not matter it is not enforceable because pre-existing duty rule; one cannot use a prior obligation as consideration for a second K

ii. However, this rule can beavoided through 2 methods

1. Rescission: if both the parties formally agree torescind the K – it will be null; they can then create a new K; allowing the previous obligations to be valid as new consideration

2. Changing the original consideration; if the parties change the original obligations in anyway it is not the samepre-existing duty; it is new consideration; however both parties mustalter their obligations/rights

iii. Good Faith Requirement: (explained in detail infra) – in the above example because courts will imply a good faith

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requirement the QB could not say fine then, I will just play shitty

iv. 3rd parties apply to thisrule as well: example: promiseby A to B to induce B to keep his K w/ C = void via PED rule

v. Recovery: take the following example: B contractsw/ O to build a house; in digging the foundation – B discovers large rocks that must removed – he asks O for more $, O verbally agree but then does not pay

1. Can B recover via Promissory Estoppel: no because he already had a legal obligation to dig the foundation – cannot detrimentally rely by performing something which already had a legalobligation to perform

2. Can B recover via restitution: this would be his best bet if the K was unilateral – however if it was bilateral his ceasing performance will be a material breach and he will be liable to O

3. Can B get out via bilateral mistake: no – he assumed the risk; he should have left a provision in the originalK; or used one of the 2

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methods available to escape the PED rule

3. Categories of Overreachinga. Duress: impermissible pressure;

threat of both economic or physicalharm to party or 3rd party

i. It is NOT duress to threaten to do something, one has a legal right to do – unless it is unjust and unequitable (Example: E threatens to fire V unless he agrees to buy his car – although E has the legal rightto fire V (assuming an @will K) this will be duress)

ii. There is a requirement that the party being pressuredMUST RESIST – a minimum level of resistance is required – ifthe party immediately agrees to the pressure – unreasonable, looks as if he wanted the K

1. Standard of resistance = reasonably firm person

iii. Duress is only applicablewhen there is no other available alternative (i.e. nochoice but to comply) and party seeking to nullify K is not in bad faith

iv. 4 general classes of threat that will be duress

1. Violence2. Imprisonment3. Wrongful Seizing of P’s

property

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4. Exposure of secret (blackmail), etc

5. Breach of a preexisting Kb. Fraud: when a party intentionally

misrepresents a material fact in the K

i. Bare Nondisclosure: no legal duty to disclose defect of an item – duty to disclose only to point that it satisfies the definitive requirement (discussed supra)

ii. Concealment: active concealment of material fact falls in same category as fraudulent misrepresentation

iii. Note: a K that is createdvia concealment or active intentional misrepresentation will be voidable at the innocent party’s discretion

iv. Elements required for Fraud/Concealment are the sameas tort law – result is that Pwould not have entered into the K w/o the misrepresented fact:

1. D knowingly made false statements

2. Of a material Fact and not of opinion

3. Reliance upon that misrepresentation was justifiable (objectively determined cannot be obvious hyperbole or puffing)

c. Undue Influence: where party is in such an authoritative/superior

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position that the 2nd party’s agreement is tainted

i. A statement made by an authoritive figure will also be held as a fact rather then opinion for the purposes of fraud

ii. Such relationships also give rise to an increase in the duty to disclose

u. Adhesion & Unconscionable Contracts:i. Adhesion Contracts: “sticky substance” –dominate party sticks K on other – party has no choice but to enter into the K – if an alternative exists the contract is not one ofadhesion

1. Examples: A shoe store that does not letyou enter unless you sign a liability waiver K = leaves a choice not to enter the store v. Parking Garage that gives aticket when you enter – you can’t back out and turn around: you must enter the garage

2. Courts are reluctant to enforce adhesionKs

3. Black’s definition of adhesion: – a standardized contract form offered to consumers of goods and services on essentially a “take it or leave it” basis without affording the consumer realistic opportunity to bargain and under such conditions that the consumer cannot obtain the desired product or services except by acquiescing to the form. The lack of “bargained for” exchange is what makes it unconscionable.

4. Standard Form Contracts: these are not inherently bad – Contract forms that are

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pre-designed and offered as a take it orleave it – without an attendant circumstance these will be generally be enforceable

a. There is no duty to read – thus adhesion Ks and standard form contracts will be enforced only to the extent that a reasonable personwould expect to be bound

5. Litigant must make two showings:a. The contract itself is an adhesion

contract; andb. The contract either violates his

reasonable expectations or is unconscionable.

6. Ticket stubs and other psuedo-contracts often fail under this, because the litigant was unaware that he made a contract – thus they are enforceable andnot binding because the average person would not recognize them as Ks

a. Duty to read: when a party enters into a contract, there is a duty toread that contract and failure to read is no excuse for enforcement of the clearly expressed terms

b. In the above types of Ks – where a party is not aware that he is in a K – there is no duty to read

7. Adhesion Contracts: are thus generally enforceable to the extent that a reasonable person would expect to be bound – any terms or clauses that go beyond reasonable expectations will NOT be enforced unless

a. They are clearly set out and so obvious that a reasonable person would read the clause (e.g. printed

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on the ticket in huge bold red letters with a black background)

b. If the subordinate party who signedthe adhesion K can be reasonably held to have seen, understood, and assented to the unfavorable terms, then and only then are they enforceable

8. Doctrine of Reasonable Expectations: thereasonable expectations of a buyer will be honored, even when the K explicitly states otherwise – unless the buyer was adequately give notice in advancement tothe agreement

a. Professional Standard: if the partyfrequently engages in Ks of like kind – he is held to a professionalstandard of expectations, rather then a reasonable standard

9. Remedies for adhesion contracts:a. Refusal of court to enforce

offending clauseb. Reformation of the contractc. Refusal to enforce the whole

contractii. Unconscionability – focuses upon the fairness and effect of the terms, as circumstances existed at the time the contract was formed and not as of the time ofperformance of the contract. The idea was intended to prevent oppression and unfair surprise and not to relieve a party from the effect of a bad bargain. Question of Law notof Fact.

1. Important to note: that a contract of adhesion is not necessarily unconscionable – adhesion Ks are oft times enforceable according to the rulesdiscussed supra

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2. Illusory Ks are not enforceable via Unconscionability doctrine – Illusory Ksare Ks that are worded in such a way that a dominate party is not bound by the terms, but the subordinate party is bound (e.g. I am bound until such time as I deem necessary)

a. However, satisfaction clauses are not illusory – must make clear and fine distinction

3. Campbell’s Soup Example: CS contracts w/F to buy his produce; but if the output produce does not satisfy certain requirements, CS holds the right to rescind and F cannot sell his output to any other party w/o CS express consent –result = this is unconscionable K, the satisfaction clause was enforceable – itwas preventing F from mitigating his losses that makes the K unenforceable

4. Arbitration Selection and Forum Selection Clauses are not unconscionableon their face – unless they are chosen clearly biased for dominate party

v. Public Policy: when a K goes against public policy(i.e. the overall interest of the community) courts will not enforce the K

i. Exculpatory Clauses: release a party of negligence liability - these are often void via public policy – especially in situations where a duty exists (ex: LL/TN), cannot get rid of a legal duty

1. Abusive Clauses: clauses in a K known tobe unenforceable that are designed to dissuade a tenant from bringing suit

2. Boiler Plate Clauses: where a party seeks to limit liability, in situations like a bailment relationship, the party

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must give full and adequate and advance notice to the other

ii. Covenants Not to Compete: will no be enforceable when it contradicts public policy- there must be a legitimate purpose toprevent the competition & will be restrained by proximity restrictions or certain companies (ex: preventing a fry cook from cooking at another restaurant v. preventing aveterinarian from competing)

iii. Restatements §211: where a dominate party has reason to believe that a subordinate party would not have agreed had he known about a term in the Contract – that term is unenforceable

1. Factors in Public Policy Issuea. Disparity of bargaining power

(undue influence)i. Both parties must have freedom to K – ask was there achoice or was it an unconscionable K of adhesion?

ii. Commercial Contracts are much tougher to show a disparity, as both parties areusually powerful.

b. Adequate notice of the term/clause in dispute

i. Unintelligible – if by reading the K, it is written in such a manner as to be virtually impossible to understand – the provision is null as if the P never was notified of it in the first place

c. Balancing Test of burdens on D and P

d. Judicial Economy

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e. Public Economyf. Specific Language in clause

iv. Note: unconscionable and adhesion and public policy concerns all really deal with the same issue – did the offeree freely enterinto the K and if so, was he put on adequate notice; must to look to method/procedure contract was made once procedural aspects aredetermined, then and only then look to substance.

1. In situations where the K is so unfair that without overreaching or fraud or duress the K would not exist may be unenforceable. – This occurs solely in situations where subordinate party is ina vulnerable financial state that the dominate party knows this (i.e. undue influence)

2. Pure Price Disparity will not give rise to unconscionability – must look to attendant circumstances

v. Public Policy: basic underlying & fundamental right of freedom to K and bargain– really boils down to cost/benefit analysis = freedom to K v. public interest

w. For Exam: watch for claim check/parking ticket situations & perform an overall 2 prong approach (1) any procedural irregularities (2) any substantive irregularities

Chapter VI – Finding the Law of ContractsVIII. Finding the Law of Contracts:

x. Parol Evidence Rule: general rule: where a writtenK exists, oral evidence that contradicts or modifies any term in that K will no be allowed;

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any written evidence that pre-dates the original Kwill also not be allowed; however, when the K termis ambiguous and thus not clearly definite on its face; any evidence will be allowed that seeks to clarify or explain that language – so long as the evidence is not contradictory to the agreement (not an evidence rule; but a matter of substantivelaw)

i. Generally: Sometimes when parties have awritten document, one party will say the document does not represent the whole contract, that other terms are part of the contract as well. These other terms may be prior to the creation of the document or contemporaneous with it. They may be oral orwritten. The Parol Evidence Rule governs whether these terms are admissible.

ii. Parol Evidence Rule & Pre-Existing Duty Rule: when evidence subsequent to the original document seeks to alter or modify the original terms – be aware that this can be a rescission when there is consideration and mutual agreement – but seeking to alter just one term will be barred not through the parol evidence rule but the pre-existing dutyrule; so when subsequent evidence = watch forpre-existing duty; for precedent evidence = watch for barred evidence

1. Any oral agreements made at the same time of the contract are also dictated by the Parol Evidence Rule: only subsequent agreements are outside its scope

iii. Parol Evidence Issue are easy to spot watch for (1) a written K &(2) a party attempting to introduce evidence of a prior contrary agreement

iv. Definition of Restatements: §213:

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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 tothe 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 beenpart of the agreement if it had not beenintegrated.

v. Collateral Agreements: 2 or more agreements between the same parties that haveabsolutely nothing to do with each other is aparol evidence red herring; these are simply distinct contracts that the rule does not alter

vi. Integration: did the parties intend the document to be their final agreement?

1. Integrations are either complete or partial: Restatements §210: If the document is a final agreement on all theterms of the contract, then it is a complete integration. If it is the final agreement on only some of the terms in the contract it is partially integrated. – If writing was adopted as the complete/exclusive statement of the terms it is complete integration.

a. Partial Integration will allow someextrinsic evidence – only to the extent to state the terms that are not integrated

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b. Complete Integration will allow NO extrinsic evidence

2. Merger Clause: a merger clause in a K specifically states, that every term is inclusive, and that the K is completely integrated – such clauses are enforceable subject only to unconscionablity

a. No – Oral Modification Clause: clauses that prevent subsequent oral modifications to a K (Note thePE rule only applies to precedent evidence not to subsequent)

3. Integration Tests: to determine if K holds ambiguous language – thus the testultimately determines whether extrinsic evidence may be allowed

a. 4-Corners Test: The Document is integrated if: when viewed by a reasonable person, it appears on its face to be complete – and thus not ambiguous on its face by looking at the document only.

b. Relevant Evidence Test: All relevant evidence is admissible to determine whether these particular parties actually intended the document to be integration

c. Naturally/Certainly Contained Test:UCC Test - §2-202: Extrinsic Evidence to prove a term is barred only if the term, if it existed, would naturally have been put in the document – in other words, the evidence is inadmissible unless it would have naturally/certainly beenincluded in the K; if the prior agreement, by its very nature, would have clearly been included in

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the final K – evidence will be allowed

y. Exceptions to the Parol Evidence Rule:i. When the subject matter of the alleged prior agreement was omitted in the final document due to

1. Fraud, Misrepresentation, Duress, Undue Influence, Mutual Mistake

2. Ambiguous Language3. Parol Evidence Rule requires CLEAR and

CONVINCING evidence4. Parol Evidence includes not only the

writings and oral showings, but can alsobe conduct/behaviors, etc

5. Parol Evidence Rule does NOT apply to subsequent oral evidence; but subsequentmodifications must be based upon a validating device to be enforceable (i.e. detrimental reliance or bargained consideration)

6. Non-occurrence of a condition precedent (explained infra)

z. Contract Interpretation: When Parties have different subjective intents; courts will interpret the contract terms to give a result based on customary standards and the overall totality of fact

i. Under a permissive parol evidence rule formulation, like the ‘any relevant evidence’test, the inquiry seems really to be no different from ordinary contract interpretation.

1. The meaning/understanding of language isa matter of fact

2. When the language of the K is clear and un-ambiguous on its face; no extrinsic evidence shall be allowed! – the only time it is allowed is for clarification purposes (can I say that enough?!)

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ii. Prior parol evidence is and will be allowed for mere clarification purposes; but will not be allowed for alteration purposes

iii. Mistakes as to meanings of language – Restatements §201 (There cannot be a contractunless one party should have known of the other’s meaning)

1. If both the parties intended the same meaning; but that meaning is not consistent with the K language – the K will be enforceable by the intended result; even if it is unreasonable (Ex: A sells B a horse for $100 – but both parties unreasonably believe the word ‘horse’ actually is cow; since both parties intended the sale of a cow – it is enforceable as such.

2. Where each party attaches a different meaning; the K is enforceable by one party when

a. The Party DID NOT know of other’s meaning and the other KNEW of the first party’s meaning

i. Ex: using above example, A knows that a horse is a horse; but B believes a horse to be a cow – A may enforce the sale only if he is unawareB’s understanding of the word horse AND B does know of A’s different meaning (nor has anyreason to be aware)

ii. Basic Rule = Unilateral Mistake is not sufficient to render a K unenforceable unless other was aware of the mistake – watch out for fraudulent misrepresentation

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issues = no general duty to disclose

iii. Mistake of fact v. Judgment – a mistake of judgment will never render a Kvoidable; but a mistake of fact will render a K voidable (Ex: judgment – believes old chair to be worth $200; fact –believes chair is a word for aLarge Sofa)

b. Also applies when the party did notknow of the other’s meaning and other party HAD REASON to KNOW of the first party’s meaning

3. When Test #1 nor Test #2 are applicable – neither party is bound by the meaning the other attached via mutual mistake

iv. Failed Interpretation: After the courts have looked at the face of the document and considered extrinsic evidence in determining the intents of the parties and the K is stillambiguous - Courts will add terms when it is necessary – they can and will expand the K and bind the parties beyond what they ever intended or even thought about because the parties cannot predict all the possible problems

1. When the Contract appears unambiguous onits face, evidence may be allowed to show the subjective intentions of the party that show that language was indeedambiguous – does not alter PE rule (Ex: peerless ship case – contract states thedelivery of item via peerless ship; thisalone shows no ambiguity; but in reality, two ships called peerless exist– thus evidence was allowed to prove that contract was ambiguous)

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v. Good Faith Obligations: Courts will require an implied duty of good faith and fair dealing – once a K has been entered intoeach party has to (1) act in good faith in not preventing the other from performing (2) act in good faith in completing his own performance (Ex: A and B enter into a building K; A stands on property w/ shotgun telling B if he steps on the land he will shoot him – B cannot perform and A will be held in breach of the implied good faith obligation)

1. In reading in good faith obligations courts will consider

a. Common Industry Practicesb. Transactions Termsc. Past Practices of Partiesd. Any available evidence

2. Business Transactions – oft deal w/ goodfaith; must exercise good faith duty to protect other party from being adverselyeffected economically – Duty to avoid ‘Sharp Practices’ – i.e. benefiting selfat adverse party’s expense

a. There is no duty to warn of possible negative effects; but a party cannot intentionally set a pit fall type situation; knowing that the other party will be adversely effected

b. Good Faith Read-Ins are based upon the reasonable expectations of the parties

3. Good Faith Read-Ins will be imposed whennecessary, no matter what the K expressly states

4. Good Faith Duty requires giving the adverse party an INITIAL CHANCE

aa. Quick Overall Outline of Extrinsic Evidence

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i. Extrinsic Evidence is allowed when the Kis ambiguous

1. K is shown to be ambiguousa. Four Corners (i.e. ambiguous on its

face)b. There are 2(+) reasonable meanings

to the languagec. Both parties have the same

subjective intentiond. Each Party has a different

subjective intention and the adverse party knows or should have known about the other’s meaning

2. When the K can be shown to be ambiguous through any of these four steps; extrinsic evidence will be allowed to show the subjective intentions of the parties

a. In evaluating which subjective intent dominates courts will consider

i. Outside Agreementsii. Customary Standards

3. Courts will then read in any good faith obligations

Chapter VII – Performance and BreachIX. Conditions – will be a big part on exam: a condition

is an event or circumstance that a party’s duty to perform is contingent upon – conditions determine at what point a breach occurs (Conditions are Promise Modifiers) – In every situation a condition will existbb. Generally: Restatements §224

i. Condition Precedent: will trigger a party’s duty to perform – the condition has to happen for the party’s duty to exist; it must occur before the party is required to perform (Oft times is indicated by language like “Upon the condition that”…etc – but no

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language is necessary for a condition precedent to exist – must look at facts)

1. Ex: A promises to paint B’s fence for $50; A must completely finish painting the fence before B owes $50; thus painting the fence is a condition precedent to the duty to pay

2. A condition cannot be certain to occur; there must be a chance that it will not occur; that is why the mere passing of time will not suffice as a condition

3. *The P must prove that a condition was precedent

4. Pure Conditions: a Pure condition is onethat the parties have no control over (Ex: A promises to pay B $10 for B to mow his lawn if Bush is re-elected; because neither party has any control over whether Bush is re-elected, this isa Pure Condition Precedent – because Bush’s being re-elected will trigger theduty to pay and the duty to mow the lawn– this is not a good example)

a. Pure Conditions are outside the parties’ control and thus damages will not be available – nonoccurrence only results in excusing the dependant duties

5. Promissory Conditions: conditions that the parties do have control over (Ex: using the painting fence example – because A has complete control over whether or not the fence gets painted – this is a promissory condition precedent)

a. When a promissory condition precedent is not performed (i.e. any condition that is w/in the party’s control of completing) –

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this excuses the other party’s dependent duties but also this will constitute a breach and thereby making the breaching party liable for damages

6. Dependent: the duty that does NOT exist and is triggered by the condition is a dependant duty – because it is dependanton the occurrence of other events

7. Independent: the duty to perform that exists where completion triggers the dependent duty – this is independent because no prior events must occur for the duty to be triggered

a. When a duty is not contingent on a condition is it an absolute duty

8. Express Conditions: A condition that theparties specifically spelled in the contract

a. Substantial Performance does not apply (explained infra)

9. Implied Conditions: implied conditions are not the same as constructive conditions – implied conditions are agreed to by the parties; based on theirbehavior and conduct – constructive conditions are conditions that were not agreed to – but will be read in by the courts

a. Prime Example is the Financing Clause – where the contract states that B’s duty to pay will not existuntil he obtains a mortgage or other loan (i.e. financing) – courts will imply a good faith condition on B that he obtains the financing – He cannot simply sit back and do nothing; he must make agood faith effort

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10. Constructive Conditions: Courts will read-in implied conditions that must occur before the dependant duty is triggered – courts will require good faith conditions

a. Ex: A promises to build a house forB for $20,000; B will have a constructive condition not to interfere with A’s performance – IfB stands on his property with a shotgun preventing A from entering onto the land in order to build – A’s duty to build will not be triggered because B’s constructive condition did not occur: note – A’sbuilding is a promissory condition precedent to B’s paying – but B’s not interfering is a constructive condition precedent to A’s building

b. Basic Rule = the party whose performance will take longer, must perform first

c. Constructive conditions do two things – show which party must perform first and if failure to perform is actionable

d. Time for Performance:i. Restatements §234:

1. Parties may set a deadline express in the contract; unless time is of the essence, a reasonable amount of timefor performance past thatdeadline will be allowed

a. Time is of the essence: either expressly stated or implied from the

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surrounding circumstances

2. Performance of a condition must be complete before the otherduty will be triggered – unless there is a contrary provision in theK

ii. Condition Subsequent: Will extinguish a party’s duty to perform that had already existed (very rare): pursuant to the agreement of the parties, it will discharge aduty to perform that was otherwise absolute (This will be indicated by language like “TheK is void if…)

1. *D has the burden to prove a condition subsequent

iii. Concurrent Conditions: must be performedat the same time as the duty – provides that the parties must exchange performance simultaneously; each party’s duty to perform is dependant on the other’s

1. Only applies when the performance is capable of being exchanged simultaneously; this most typically occurs in the sale of goods (rather thenservices) – when it not possible it cannot be a concurrent condition situation

2. Example: A promises to sell B a book for$5; B must tender the $5 and A must tender the book at the same time; for either party’s duty to become effective (Tender will explained in more detail infra)

3. Tender: Duties of parties will not existuntil the adverse party gives tender – i.e. presents an unequivocal intention

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to perform – Tender is a legal fiction where the parties show their intent and ability to perform, this is done becauseit is impossible for both parties to perform at the exact same time – thus tender is required as a showing of good faith before the other party has a duty to perform

iv. Court Interpretation1. Conditions v. Promises – when the

condition does occur – the K becomes void and you cannot sue – you are only excused from performing; when a promise does not occur – the K is still enforceable and non-breaching party is thus entitled to damages

2. Courts will allow extrinsic evidence to determine effectiveness of a condition or promise only subject to the Parol Evidence Rule (see supra)

3. Restatements §260: If the contractual provision purports to be the words of the party of whom performance is required, the provision is a promise; ifit’s supposed to be the words of the other party, it’s a condition. The criteria courts look at includes not only the language of the parties, but also the situations of the parties and the subject matter of the contract. In ambiguous situations, courts will preferpromises over conditions. The result that most reduces risk of forfeiture is preferred: i.e. courts want to make a contract enforceable.

4. Courts will look to specific language ofK and surrounding circumstances to determine if it was a condition or a promise

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a. Example: Rice-Mills case; where A promises to deliver X amount of rice to B, upon the condition that B gives A specific delivery instructions by December 17th – B does not give the instructions by December 17th – normally time is not of the essence unless otherwisespecified; and thus this would be only a promise – but in this situation the rice crop was directly dependant on being delivered on time or it would spoiland be ruined – thus the based on this specific information, the courts held that the delivery date was a condition rather then a mere promise!

b. Example: A promises to give B $50 dollars, IF B gives him a book; B’sgiving up the book is an express – promissory condition precedent – where if he doesn’t give up the book, A has no duty to pay because B did not break a promise but simply did not perform a condition

5. Subcontractors do NOT bear the risk of the buyer’s failure to pay – meaning: O hires a K, a contractor to build a pool,K hires S, a subcontractor to dig – S’s performance is complete; and K’s duty topay him is triggered – regardless of if O has paid K or not – because O’s duty to pay would not be triggered until the entire pool was finished

6. Personal Satisfaction Clauses can be conditions precedent when they are materially significant – when a K expressly states that a party’s duty to

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pay is contingent on his personal satisfaction of other’s service – this is enforceable at the court’s discretion

a. Rule is that these are enforceable when the K is one for a personal taste situation – if it is not a personal taste situation, a reasonable person’s satisfaction will be imposed – Objective Standard Except when personal taste/3 rd party satisfactions

b. Example: A promises to pay B $5,000for B’s painting of A – here the satisfaction clause will be enforced; unless there is an attendant circumstance like that the painting will not be used by A;but it will instead be hung in the white house, in this case A’s satisfaction is immaterial – A portrait would satisfy the personaltaste situation; a barn would not –look to facts

c. 3rd Party Satisfaction – oft times a K will provide that performance is conditioned upon a 3rd party’s satisfaction – when this party is an expert/professional – the reasonable person standard will notbe imposed

i. Most Common Example is inbuilding contracts – require an architect’s personal satisfaction for complete performance

d. Good Faith Duty will be imposed on personal satisfaction conditions and the party not satisfied must

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make an evidentiary showing as to why the satisfaction was not met

cc. Mitigating Doctrines: situations that will excuse or mitigate the overly harsh effects of non-performance of a condition precedent

i. Prevention or Wrongful Interference: Remember a good faith duty exists to do nothing that prevents the occurrence of a condition – if this obligation is not met; the moving party will have prevented the occurrence and he will be barred from recovery

1. The Non-Occurrence of the Condition willbe excused resulting in

a. The party that interfered will still have to perform regardless ofnon-occurrence

b. That party may not recover damages for breach (if it was a promissory condition precedent) because the condition is excused – the breach is said to have not actually occurred

2. A prevented party may recover full expectation interest damages

ii. Waiver, Estoppel, and Election: 1. Restatements §84:

a. The parties may mutually agree thatthe non-occurrence of a condition is not effective as a K breaker

b. Party may promise to fulfill the obligation EVEN if the condition does not occur

i. This can be done through words OR conduct

c. After an effective waiver via (a) or (b) – the party can reinstate the requirement of the condition ifand only if:

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i. Time for occurrence of condition has not run &

ii. Adverse party has not detrimentally relied upon the waiver

2. Contracts will often include anti-waiverprovisions making any waiver ineffective

3. Retractions of a waiver will require some form of notice

a. Example for (c): P allows D to not met condition immediately – A LL permits a TN to pay the rent late every month; is this a constructivewaiver of the condition? – Only when the time for the occurrence ofthat condition is still available and the adverse party has not relied on the constructive waiver –if he has detrimentally relied – hecan prevent the action via Promissory Estoppel

iii. Interpretation: remember courts like to enforce contracts – thus they can interpret acondition to be satisfied or to be a promise and not a condition at all in order to mitigate

iv. Substantial Performance: where performance is not entirely or perfectly complete – substantial performance of a condition may be sufficient to trigger dependent duties

1. Breach: substantial performance only excuses the condition – it will still constitute a breach and thus a party canrecover damages, but that party will still be required to perform his own duties!

2. Material v. Immaterial Breach: remember substantial performance is not complete

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performance thus by its very definition it is a breach! – In order for the dependant duties to be triggered, the breach must be immaterial – if the breach is of a material substance; it will not trigger the duties

a. A substantial performance situationis mostly often used in contracts for buildings

b. *Must determine who materially breached first – if a party does breach but it is not material; the other party’s duty is still triggered – if he mistakenly believes the breach to be material and he does not perform his duty onthat basis – his failure to performis actually the first material breach; thus the other party has a better chance of recover*

3. What constitutes enough to be substantial? – Depends entirely on the facts – the question you must ask is: Did the performance fulfill its purpose?

a. Ex: O promises to pay B if B buildshim a house using X companies copper piping – B uses Y company; although there is a breach – the final overall purpose of the condition was achieved

b. If the breach materially alters theessential benefit the party sought to attain, the doctrine will not apply

i. Example: House by ocean –windows facing wrong way

4. Remedies – in a substantial performance situation, the non-breaching party can sue for damages equivalent to either (1)

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the out-of-pocket expenses need to fix the breach or (2) the difference in the value of what was expected and what was performed, depending on which is more economically efficient

5. UCC: Sale of GOODS: in a K for the saleof goods – substantial performance will never satisfy – perfect tender is required (ex: if you order 5X and only get 4X = duty to pay not triggered!)

v. Divisibility: Where a K has independent parts and consideration for each part can be determined – the K may be separated into distinct sections BUT

1. Where consideration for the K is one single and is to be paid at one time andcannot be separated the K is not divisible

2. Example: A orders 50X at a $10 price per5X, but B only delivered 15X, A may be required to pay $30 for receiving the goods

3. Main Purpose: if the main purpose of theK is defeated when it is divided – it will not be divisible, the paying party must be able to use the items received –in a situation where anything less then 100% of the items received is worthless,it will not trigger the duty to pay in adivisible situation

4. 2 Prong Test to determine if K is divisible:

a. Each section can be divided and thepartial performance can be clearly separated into sections

b. Partial Performance sought to be divided MUST fulfill the original purpose intended by the purchaser

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i. Example: House Building K– builder only builds foundation = partial performance is not even close to satisfying the buyer’s purpose – builder will have torecover on a restitutionary basis

5. When a K is Divisible – it is treated asseparate and distinct Ks

a. Thus if the seller breaches one delivery – the buyer is excused from paying for that delivery ONLY!

b. Assurance: when a party has a reasonable belief that the opposingparty is not going to perform, thatparty may request assurance of performance from the other party *Normally a party does not have theright to request assurance* - only when 1 of 3

i. Changed Circumstancesii. Partial Breach in divisibility

iii. Anticipatory Repudiation (explained supra)

iv. Foreseeable Risks will not allow a party to seek assurance

v. Once assurance is sought;failure to satisfy the requestwill result in voidability by party who requested

vi. Restitution: Unjust Enrichment!1. Same elements apply:

a. Expected Benefitb. Under Color of Right (i.e. not an

officious intermeddler)c. Gain/benefit given to other party

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2. Damages are capped by the Contracta. *A party cannot recover more

benefit then he could have, had he completed the K*

b. Will allow a breaching party to recover for he partial performance so long as there is an actual benefit conveyed

c. The modern rule gives no regard if breaching party was innocent or in bad faith – either situation he canrecover via restitution – common situation is where a party cannot complete performance because he ranout of funds

d. If the non-breaching party’s damages are higher or equal to his benefit conveyed – they will offsetand the breaching party has no restitutionary recover

dd. Anticipatory Repudiation: announcement of an intention not to perform either expressed by wordsor conduct

i. It must occur BEFORE the time for performance

ii. AR is not a breach – once a K is breached it cannot be repaired

iii. For AR to be valid 1. It must be clear and unequivocal (i.e.

must be at an almost certainty that repudiator will not perform – it is always safer to seek assurance)

2. Must be of a material fact3. Can only be for performance other then

mere paymentiv. Four Questions are involved with AR:

1. Is the recipient free to make other arrangements outside to become satisfied?

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a. Once a recipient has received a valid AR; he may make other arrangements; doing so will be detrimental reliance thus preventing a retraction of the repudiation

2. Can the recipient immediately sue or does he have to wait until the time for actual performance?

a. Recipient can sue immediately for damages after he has received a valid repudiation – even if the time for performance has not arrived

i. The recipient can validate the AR by seeking assurance – if he does not getassurance this is a valid AR

ii. Exception: payments: whenthe only performance that is repudiated is future payments that are not due until a specific date; the recipient MAY NOT sue until that deadline has passed (Ex: A, a car salesman, sells a car to Bwith no money due for 1 year; even if B tells A – “I ain’t paying”, A cannot sue until the due date for performance

3. Can the recipient urge a retraction of the repudiation?

a. A recipient may seek assurance of performance once he has reason to believe the adverse party will not perform

4. Can the repudiator retract or withdraw his repudiation?

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a. A repudiator can generally retract a repudiation EXCEPT

i. The recipient has detrimentally relied upon the repudiation

ii. The recipient has broughtsuit

iii. The recipient has accepted the repudiation

Chapter XIII – Basic Assumptions: Mistake, Impracticability and FrustrationX. Mistakes, Impossibility, Frustration

ee. Impracticability/Impossibility: Excuses failures to perform

i. Unexpected Events and Intervening Events– will only excuse duty to perform when it isunforeseeable

1. Death of a party2. Severe illness of a party3. Incapacity of party

ii. K made for Illegal Purpose1. When the K was made pending an enactment

– will not excuse performance – Laws areusually not retrospective

ff. Mistake: A mistake will only be an excuse if it is a mistake of a MATERIAL FACT; mistakes of judgment will never be an excuse

i. Unilateral Mistake is not an excuse – UNLESS the adverse party knew or should have known of the other’s mistake

ii. Bilateral Mistake will excuse performance

1. Either party may rescind the K at will2. The mistake must upset the very nature

of the K – i.e. be of a material factgg. Frustration of Purpose: where the clear

purpose of a party has been frustrated that party may rescind

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i. Note: every mitigating situation is based on the rule that when the party’s purpose is not satisfied he is excused (see supra)

Chapter XIV – Third Party Beneficiaries (WILL NOT BE ON EXAM)XI. Third Parties to a K

hh. Third Party Beneficiaries – When a 3rd party benefits from a K, of which, he is not involved

i. Intentional Beneficiaries: When the 3rd party is specifically intended to be a beneficiary in the K; that party has the rights as if he were a party to the K – meaning he can sue to enforce the K; however he cannot rescind the K w/o the others’ permission

ii. Incidental Beneficiaries: When a 3rd party is benefited by a K totally by chance –and the parties in the K did not intend for him to benefit; he has no rights to that K, nor can he enforce the K

ii. Assignment of Rights: a party can assign the rights he was to receive from a K to another partyfor consideration

i. Consideration is required as the assignment is a K in and of itself

ii. Generally all rights in a K are assignable

jj. Delegation of Duties: a party can delegate his duties to another for consideration

i. Delegation is more strict then assignment

ii. The reasonable expectations of the opposing party must still be satisfied

1. Thus cannot delegate in situations whereprimary party’s expertise is involved

2. Customary Standards will be considereda. Example: A pays Picasso for a

portrait, Picasso cannot delegate

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to Joe Schmoe artist as this would frustrate the opposing party’s purpose

iii. A party that does accept a valid delegation completely assumes all liability for that original party

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