Outline Contracts II-Wolinsky

 

OUTLINE Jessica Wolinsky-Section II Contracts-Stone, Spring 2017 Intent to K

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Requires bargain with a manifestation of mutual assent  Restateme  Restatement, nt, Second, Second, Contracts Contracts § 17   o  “Meeting of the minds” between the parties; “mutual assent”     Mutual assent=each party makes a promise/begins performance  Restateme  Restatement nt Contracts Contracts § 18   Mode of assent O + A  Restateme  Restatement, nt, Second, Second, Contracts Contracts § 22  Factors to consider: (Can U Find Diana As Cool Nuns Sing Pretty New But Wild Dumb Barney Songs Riotously)  Riotously)  o

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Completeness and formality of the writing K is of the class usually in writing  Nature requires formal writing writing for full expression Few or many details (essential terms) Amount involved is large or small Common or unusual K Whether the negotiations indicate a written draft is contemplated as conclusion of negotiations Explicit statement to be bound ONLY with a signed, written agreement Partial performance and if it has been accepted by the party disclaiming the K  Nothing left to negotiate negotiate/settle…all that remained was to sign what had been agreed to Agreement concerns complex/substantial business business matters where K in writing is the norm Written correspondence indicating intent to K Prior course of dealing

  Behavior after the preliminary agreement   Subsequent behavior Party’s acquiescence in the other’s reliance on the preliminary agreement o  o

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Two Options: (1) Subjective-what the parties, in their own mind (inner mindset), think or believe o     Not typically usedif both parties had same understanding it will determine their rights o  (2) Objective-reasonable person standard; look at the words, actions, and conduct of the parties   Mental assent NOT required   Form (words) v. Substance (actions/hold people to substance)   Two-part test for conduct as manifestation of assent:  Restatemen  Restatement, t, Second, Contracts § 19    (a) Party intends to engage in the conduct.   (b) Party knows/has reason to know other party may infer from conduct he/she assents. Intention to be legally bound individual intend/understand intend/understand the legal consequences of of his/her actions o   No requirement that individual Intent NOT to be bound, honored by the court if other party knows/has reason to know  Restateme o   Restatement, nt, Second, Contracts § 21 (i.e. a gentlemen’s agreement”)  Intent is inferred from a totality of conduct NOT just spoken words o    Expressions later in time are controlling over inconsistent earlier expressions    Homan v. Earle Earle- false marriage (implied); Embry v. Hargadine, McKittric McKittric Dry Good Goodss Co.-reemploy past deadline (implied); Tolmie v. UPS, Inc.- only fired for good/just cause; (not implied) .- Intent is objective. Parties who make agreement “subject to” later    Easterbrook v. Ball-Co Mfg .agreement=intent not to be bound. Agreements leaving terms for later agreement (based on future events) Traditional premise: agreement to be finally settled must comprise ALL terms parties intend to have o  Second premise (possible): “contract with open terms”; parties understand if they they fail to reach agreement o  there will be a K with missing terms supplied as a matter of law   UCC § 2-305: Open Price Term. the price is a reasonable price at the time for delivery if (a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standard. Intention NOT to be bound until a later writing 

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  Court: must determine when parties intended to be bound ( currentlysigned as mere memorialization or

laternot effective until signed) Letters of intent-no one is bound to the terms even though they may be detailed o  -   Notes Decision is left to trier of fact o  Joking is NOT intent=unenforceable intent=unenforceable Lucy v. o  v. Zehmer  Zehmer   Incapacity (alcohol, mental insanity, etc.) is NOT intent to K [ Restateme o   Restatement, nt, Second, Second, Contracts Contracts § 15] o  Promise (expression of commitment to do something) v. Prediction (expression of opinion)    Anderson v. v. Backlund  Backlund - no promise because he had no control over weather -surge protector) -  Misunderstanding Restatement, Second, Contracts § 20  ( Konic  Konic Int’l Int’l v. S   pokane Computer  Computer -surge parties attach materially differen differentt meanings AND (1) NEITHER NEITHER party knows/has o   NO mutual assent if parties reason to know the meaning attached by the other OR (2) BOTH know/have reason to know meaning o  Follow the misunderstanding IF: (1) Party A does NOT know of any different meaning and B knows the meaning attached by A OR (2) B has NO reason to know of different meaning attached by A and A has reason to know of meaning attached by B   Place burden on lowest cost provider (i.e. who has lowest TC) o  PEERLESS RULE: Party is NOT bound by meaning unless that party either knows/has reason to know of it. Even though parties manifest assent to same language, misunderstanding may prevent formation of a K  Raffles v. v. Whichelhaus Whichelhaus (different ship)   Principles: (1) doctrine applies ONLY when the parties have different understandings of their expression of agreement; (2) doctrine does NOT apply when one party’s understanding, because of the party’s fault, is less reasonable than the other party’s understanding If attribute a peculiar meaning to words used in K, that meaning prevails, ONLY if express o  statement Hotchkiss v. National  National City City Bank   .- agreed on terms, but not what they meant o   London County County Council Council v. Henry Boot & Sons Ltd . Restatement, nt, Second, Second, Contracts Contracts § 26 -  Agreements to agree/preliminary negotiations Restateme Intent to K not negated by additional intent to adopt by written memorial UNLESS circumstances show o  only preliminary negotiations Restateme  Restatement, nt, Second, Second, Contrac Contracts ts § 27: E xist xi ste ence of K Whe Wherr e Wr Wrii tte tten  Mem  Me mori al I s Con Conttemplat lated..   Texaco, Inc. v. Pennzoil Co.- “Memorandum of Agreement,” drafted to reflect earlier terms; expect a writing, but evidence written agreement was just to memorialize earlier agreement. o   Delicate  Delicatessen ssen v. Schwachen Schwachen  o  City Stores Co. v. Ammerman- Issue: Will equity grant specific performance when substantial terms have  been left open for future negotiation? negotiation? Court did not not grant specific performance. o

 

Interpretation of K

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General Notes:  Interpretation: court determines meaning parties attached Restateme o   Restatement, nt, Second, Second, Contracts Contracts § 200   Competes with Construction: court determines meaning of language in K to give it legal effect    Implied-in-fact term: implied by conduct of the parties or by circumstances    Implied-in-law term: imposed by court without regard to intention (i.e. construction)  o  Agreement: bargain of parties in fact found in language/inferred from circumstances [ UCC § 1-201(3)]  (1) Interpretation begins with meanings attached attached by each party at time K was made (i.e. subjective intent). If cannot be ascertained or differs between parties, (2) use objective standard  o  Regardless court must apply a standard of reasonableness in interpreting K language  One party-B- knows/has reason to know the other party-S- has a different meaning of K term(s), court o  concludes K made on seller’s terms Restatemen  Restatement, t, Second, Second, Contracts Contracts § 201: Whose Meaning Prevails. 

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Factors court looks at to interpret: Ripe Watermelon Offer Cops Perfect Eating Comfort  Comfort   o  Relevant circumstances surrounding the transaction o  Writings Oral statements o 

 

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Other conduct by which parties manifested their assent Prior negotiations- parol  parol evidence evidence rule permits permits this IF language language is “ambiguous” “ambiguous” or or “vague” “vague”  Entire agreement, including all writings, read together considering the circumstances Course of performance, course of dealing, or usage of trade (in order of precedence) Stancroff v. Brown    Ambiguity NOT required, but will ONLY be used to show “consistent” with express terms     Must prove other party knew/had reason to know of usage   Course of performance-how the parties have been performing this K [ UCC § 2-208(1)]   Course of dealing-how parties have performed prior Ks between them [ UCC § 1-205(1);  Restatement,  Restatemen t, Second, Contracts § 223]   Usage of trade- (i.e. custom) how others in trade/community do it [ UCC § 1-205(2)] Hierarchy in Interpreting a K (burden on party with most to lose/gain):  Restate  Restatement, ment, Second, Second, Contracts Contracts § 203: Standards of Preference Preference  (1) Terms of the agreement (clear  terms as defined in K)  o  (2) General meaning of the words (if not expressly stated)  o  o  (3) [EXCEPTION] IF parties assign a special/narrow meaning meaning to the word (look at facts of case)   If not expressed in K and one party wants to use special meaning, party must prove intended  to  to use it otherwise use general meaning (found in words, conduct, or prior dealing)     Frigaliment Importing Co. V. B.N.S. Int’l Sales Corp. Corp.-chicken case (4) Custom of the industry or prior course of dealing  (know/should’ve known)  o    U.S. Naval Institute v. Charter Communications -trade usage prevails. Fundamental principles of interpretation Court must apply standard of reasonableness in interpreting K language. o  Look at the entire agreement (includes writings) should be read together considering the circumstances. o  Dictionary Definitions- may be helpful in showing general use of words, but are NOT dispositive. o  Judicial emphasis is placed on the “purpose of the parties” parties ” interpretation  o  Recitals-court may find a helpful statement of the purpose set forth in the form of recitals. o    3 rules: (1) If clear and operative part is ambiguous, recitals govern construction; (2) If ambiguous and operative part is clear, operative must prevail; (3) If both are clear, but are inconsistent, operative part is preferred o  Language imposes limit on how far court will go in interpretation. Rules in aid of interpretation Restatemen  Restatement, t, Second, Second, Contracts Contracts § 202  Courts assume parties used the language in the way reasonable persons do and to avoid absurdity. o    Expression of one thing is the exclusion of another   Court may read a K to not include things that are similar to specific things listed Assume parties intend every part of the agreement to mean something o  o

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  Words repeated have same meaning throughout the K Specific provision control a general one and may operate as exception to it. o  Separately negotiated terms greater than standardized terms….handwritten terms greater than o  o

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typewritten/printed….typewritten greater than printed Rules of construction (legal effect of the K) Assume the bargaining process results in fair bargain (interpret with preference to fair bargain) o  Language reasonably has two interpretations, go against drafter  Restatemen o   Restatement, t, Second, Contracts § 206   o  “Adhesion K”-drafted by one party, usually reduced to form presented to other party with no realistic opportunity to negotiate Restatemen  Restatement, t, Second, Contracts § 211    Goal to interpret to enforce only provisions a reasonable person signing could anticipate o  Ambiguities are sometimes resolved against a party because represented by lawyer during drafting process. Reasonably has two interpretations, one favors public interest, follow public interest Restateme o   Restatement, nt, Second, Contracts § 207

 Restatement, Second, Contracts § 205: G ood F ai th a and nd F ai r D ealiling. ng.   --    Restatement, Gap Filling: courts can provide minor terms routinely; need to find a hook/key where it can fill in UCC §2-204(3)- Even if 1+ terms are left open a K for sale o  sale does not not fail for indefiniteness indefiniteness if parties parties have intended to make a K and there is a reasonably certain basis for giving an appropriate remedy.  

 

 Supp plying lying Om Omitt itte ed E sse ssenti nti al Te Term rm…reasonable in circumstances     Restatement, Second, Contracts § 204: Sup o  A valid K must be sufficiently definite ( Action  Action Ads, Ads, Inc. v. v. Judes) If court has basis in facts/circumstances, court may fill the gaps (Oglebay Norton Co. v. Armco, Inc.) o    UCC § 2-305(1)- Supp  Supplying lying a Pr ice Term. Term. o  Can fix term of duration based on parties’ intent and circumstances Haines v. City of New New York o

Offer

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Manifestation of willingness to enter bargain, made to justify another person in understanding his assent is invited and will conclude it Restateme  Restatement, nt, Second, Second, Contrac Contracts ts § 24 (no formalities required) Detail suggests offer/omission of many terms suggests not.  Elements= intent [§ 24, § 26] + certainty of terms [§ 33, § 34] + proper communication [§ 50, § 52]  (1) Manifestation of intent to be legally bound o    Words of offer must be final intent to offer   Debate OFFER or PRELIMINARY NEGOTIATIONS Restatemen  Restatement, t, Second, Second, Contracts Contracts § 26     If recipient is aware it’s addressed to others and cannot be performed to more than one, communications is NOT offer UNLESS recipient had NO reason to know of parties/letter, then  justified in believing it’s an offe offer  r     Whether parties intended to be currently bound before writing OR no unless/until writing signed.   Analyze circumstances and communications   “subject to approval of attorney”: (1) subject to attorney’s approval (likely) or (2) condition is fundamental and manifests intent to obtain advice/counsel first   Advertisements/Mass Mailings/Price Quotes=NOT offers   UNLESS language: “subjec “subjectt to prior sale,” “first come first served,” “while they last.” 

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be express, court will not read it in.    Must If restricts maker’s potential liability to reasonable number of people=offer If only a limited number can meet condition =offer (i.e. reward cases) o  o

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Seed Co. v. Harsh; Lefkowitz v. Great Minneapolis Minneapolis Surplus Store, Store, Inc     Nebraska Seed   Exception Test: (1) some performance promised in positive terms exchange for

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something requested (clear/definite) and (2) legal intention of parties and circumstances   Reward Offers (Law of Rewards)   Offer IF restricts maker’s potential liability to reasonable number of people OR only limited number can meet condition 

  If specific time limit, court will honor it [ Newman v. Shiff  -(Tax  -(Tax Nut)]

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  Offer of reward made publicly, acceptance must be performance, NO promise Offeree must have been aware of reward; induced the action (person ( person without o 

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knowledge is not induced)   EXCEPTION: Government Reward   Offer lapses after a reasonable time.   Give revocation equal publicity to offer, if no better means available.   Acceptance MUST be the performance of the act or acts required. If perform part before learn, accept by rendering rest of act  § 51  o  Public official under legal duty to act NO reward for performance of that act o  Achieved goal of reward but in different way than requested, may recover o  o  (2) Proper communication to offeree (to whom it invites acceptance)    Restatemen  Restatement, t, Second, Contracts § 50; Restatement, Restatement, Second, Second, Contracts Contracts § 52    Offer does not need to be communicated directly by the offeror or the offeree   Offeror is master of his offer and may specify how/when assent must be communicated person rson is responsible for for having made/sent    NO intent to be bound by communication UNLESS pe 

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the communication message NOT offer unlessfor communicated in manner intended by offeror)  Use of word offer or(i.e. if sent in response to request offer is deserving of weight, but NOT controlling. ( Moulton  Moulton v. v. Kershaw; Fairmount Glass Works Works v. Crunden-Marti Crunden-Martin n Woodenware Woodenware Co.)    NO K unless offeree exercises power power of acceptance by selecting.  

 

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Effective when received UNLESS otherwise indicated by the parties in the K o  (3) Certainty of Terms: sufficiently definite OR empower other to specify terms  Restatemen  Restatementt § 33   Reasonably certain=provide basis determine existence of breach AND giving appropriate remedy    May be reasonably certain even if empowers selection of term in course of performance   Leaving terms open or uncertain may show intention is NOT an offer or acceptance.   Agreement must contain “essential” terms: parties, price, subject matter and time for performance   Part performance may remove uncertainty and establish enforceable K  Restatem  Restatement ent § 34     Moulton v. v. Karshaw; Fair Glass Works Works v. Grunden-Mart Grunden-Martin in Woodenware Woodenware Co.   FAIRMOUNT TWO PART RULE: (1) Offer must be reasonably definite/certain and (2) Intent may be found form correspondence as a whole   Unspecified terms found in course of performance, prior course of dealings, and usage of trade or industryUCC § 2-208   Clause reserving to its maker the power to close deal indicates it’s likely NOT  an offer   Failure to limit quantity for performance risk disappears if proposal specifies range/upper limit and gives recipient the power to select within it.   Failure to limit recipientsrisk does not exist if offer is conditioned “subject to prior sale”  t ransactions that contemplated an enforceable K but   Some courts allow reliance damages in transactions where negotiations were terminated by D under circumstances violating good faith negotiations   Entertainment of Bids:    General Rule: When auctioneer puts property for sale to highest bidder, he is, in absence of contrary understanding/usage, interested in entertaining offers via bids Although only one bidder can claim the property, even highest bid might be too o  

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and it would not be reasonable to assume an intention to sell in that ccase. ase. Each bid is an offer that the auctioneer may accept or reject.   low,

  UCC: NO K until accepted by “the fall fall of the hammer or or in other customary customary manner.” manner.”

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(Auction with Reserve-default rule) o  Well v. Schoeneweis; Specialty Maintenance & Construction, Inc . v. Rosen Systems, Inc    Auction w/o Reserve-putting up item for bid amounts to commitment, irrevocable for reasonable time, to sell item to the highest bidder. -  Partial Performanceif partially performed before hearing of offer (i.e. w/o knowledge), may accept by completing Restateme j ustifiable reliance (unilateral K Restatement, nt, Second, Second, Contracts Contracts § 51 AND no revocation if justifiable  Drennan v. Star Paving Co)  -  Irrevocability of Offers (i.e. Protecting the Offeree)  o  General rule: ALL offers are revocable 

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  Option K     Irrevocable offer; NO duty on offeree (complete discretion to act or not)     Irrevocable ONLY if for “short term” and the exchange is on “fair terms”  (IF for term 

long enough to create substantial risk of speculation=usually speculation=usually invalid)    Created when:    Offeree gives consideration for offeror’s promise not to revoke r evoke OR  Restatement, ent, Second, Second, Contracts Contracts § 45   Begins performance and is contingent Restatem Mere preparation NOT enough Restatemen o   Restatement, t, Second, Contracts § 87(2) Requires completion of performance by offeree as condition of right to recover   o    Power of acceptance in option K NOT terminated by rejection, counteroffer, or death/insanity 

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  Firm Offer UCC § 2-205    Offer “in a signed writing which by its terms gives assurance that it will be held open.”    

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time orreasonable time if not stated ts ( may on Offer thatduring Invitesstated Performance   RelianceIrrevocable  Restatement,  Restateme nt, Second, Second , Contracts Contrac § 45 NOT exceed 3 mon).   Courts avoid acceptance having to be FULL performance:   Interpreting offer to invite promise instead of performance 

 

  Interpretation of offer as divisible, leading to series of unilateral Ks

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  Reliance on offer that invites promise     Express/implied promise NOT to revoke offer will be enforced if offeror could foresee offeree would rely on promise not to revoke, r evoke, to his detriment, and offeree does rely

  Courts are reluctant to protect offeree that relied before making invited promise.

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Subcontractors’ bids: 

   J  Ja ames B ai rd v. G im imb bel B r os. – Judge Judge Learned Hand/Traditional K Doctrine;

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could revoke despite reliance by general contractor.   D r ena nan n v. v. Sta S tarr P aving C o.-Traynor View; implied promise to keep offer open o  Drenan’s reliance made it binding and made the offer irrevocable.     Put in a clause that bid is revocable   General contractor NOT liable to subcontractors despite reasoning in  Drenan 

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  Statute    Under UCC § 2-205, when merchant offers to buy/sell goods in a signed writing which expressly

states it will be held open, offer is irrevocable for stated period or a reasonable time if not stated    Limits period of irrevocability to max of 3 months, but time is usually less Unilateral K o    Once offeree has begun to perform, offeror may not revoke but must give amount of time stated in offer, or, if no time stated, reasonable time to complete requested performance    Three theories:    (1) beginning of performance = acceptance and K is formed with offeror’s duty of 

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 performance being conditional conditional upon offeree completing completing requested act/forbearance within within appropriate time [UCC § 2-206 ]    (2) offer for unilateral K has implied promise not to revoke if offeree  begins Restatemen  Restatement, t, Second, Second, Contracts Contracts § 45   (3) begin performance=offeree promises to finish and K is bilateral Restatemen  Restatementt § 62.   If offeree has prepared to perform, may revoke UNLESS prep is substantial Restatem  Restatement ent § 87   Unilateral v. Bilateral (Traynor v. Hand)     Offer may invite acceptance by a promise (bilateral) or performance (unilateral)  (objective standard)   Basic Rule: Offer for unilateral K accepted ONLY by act ( Petterson v. Pattberg  Pattberg ) o   Empire Machinery Machinery v. Litton-if offeree takes steps in furtherance of contractual obligations which would lead the reasonable businessman to believe the contract has been accepted, such conduct may, under the circumstances, constitute acceptance of the offer   

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Acceptance

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Offer intended ONLY for person communicated to by offeror, NOT assignable/transferable Restatem  Restatement, ent, M ay Accep Accept  t   Second, Contracts Contracts § 52: Who May o  Exception=offer that is part of an option K  Accep ptanc nce e of Offe Offerr Define Defined d; Acc A cce eptanc nce e by Perf Perfo orm rma anc nce e; UCC 2-206   -   Restatemen  Restatement, t, Second, Contracts § 50: Acce offer.   -  Offeree’s promise, embodied in acceptance, must be identical with offeror’s promise, embodied in the offer. -  Acceptance by Performance (rare) If invite acceptance by performance, NOT able to accept by promising the performance (rare) o     Petterson v. Pattberg Pattberg (above)   If offer invites acceptance by performance, offeree can, by indication, render it w/o accepting.  

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Beginning performance as acceptance requires completion  Restatement § 62  o   Notice   RULE: If offeree has reason to know offeror is uncertain whether offer will be accepted and that offeror is not likely to learn of acceptance, notice is required Restatemen  Restatementt § 54    Enough if offeree uses reasonable care, even if offeror never knows ( Bishop v. Eaton)

 

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Offeror may choose to waive notice o   Brackenbu  Brackenbury ry: accepted by beginning performance so continued performance permitted; valid unilateral K o  Sunshine v. Manos-use of time/effort sufficient C for unilateral K to be binding and irrevocable. o   Davis v. Jacoby- Court found bilateral K. Choosing promise v. performance Restatemen o   Restatement, t, Second, Second, Contracts Contracts § 32 Acceptance by Promise Undisclosed intent is irrelevant if conduct gives offeror reason to believe offeree intends to accept o  o  To be effective, acceptance must occur within specified time (statute/rule/ (statute/rule/in in option K)  o  3 Requirements for Acceptance:   (1) express commitment-mere acknowledgment of receipt or expression of interest NOT enough   (2) unconditional-NOT conditional on any further act by either party; unequivocal and unconditional   Offeree’s promise to accept later (promise to make a promise) is NOT acceptance Exception: promise taking effect automatically at later time if stated event has NOT occurred is effective at time event e vent did not occur (either may withdraw before)  -(traditionally)) commitment must be on terms proposed by   (3) must NOT vary terms of offer-(traditionally offer; offeree’s promise (i.e. acceptance) must be identical with offeror’s promise (i.e. offer)     Offeror, as master of the offer, may impose additional requirements   Promise inferred from silence or exercise of dominion Restateme o   Restatement, nt, Second, Second, Contracts Contracts § 69    Promise will NOT be inferred from offeree’s inaction ( Indiana  Indiana Mfg. Co. v. Hayes)    EXCEPTIONS (i.e. where reason to believe from silence that offeree assents):  Reliance by offeror (significant but not sufficient on its own)   o  

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Prior dealings or does usagenot of trade make it reasonable for offeree to notify offeror if offeree intendthat to accept    Hobbs v. Massasoit Whip Whip Co.; Ammons v. Wilson & Co.  Solicitation of offer by representative of offeree   o  Failure by offeree to return property or something symbolic of agreement  o  Subsequent conduct of the parties o  Minor modification of existing K   o  Failure to Respond    3 Part Test for Silence= (1) Silence + (2) Duty to Respond + (3) Failure   Off eree’s eree’s exercise of dominion: ( Ransom  Ransom v. Penn Mutual Life Ins. Co.)   Offeree exercises dominion over goods by acting inconsistently with offeror’s ownership=acceptance + pay price for goods Offeree that takes benefit of services offered is bound by terms of offer if offeree had   reasonable opportunity to reject (required to speak up in protest)  

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 Restatement, nt, Second, Second, Contracts Contracts § 56    Restateme    Notice   Offeree must take appropriate steps to let the offeror know of acceptance.   Promise in words- communication of those words to offeror necessary for acceptance and 

no further requirement of notice.   Promise implied from conduct- offeree is expected to give notice of acceptance if it would not otherwise come promptly to the offeror’s attention.     EXCEPTIONS:   Performance or preparation for performance   Offeror chances to learn of acceptance as promptly as if notice had been given   Offeror may choose to waive notice   To be effective acceptance must be unequivocal (Culton v. Gilchrist )    Equivocal (ambiguous)=not bound Restatemen  Restatement, t, Second, Second, Contracts Contracts § 57   Termination of the Power of Acceptance   o   If terminated by revocation, lapse, or rejection it can be revived   (1) revocation=clear manifestation of unwillingness to enter bargain Restateme o   Restatement nt § 42 

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Express OR Indirect (when offeror acts inconsistent with intent to K  Restatement § 43 

 

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Revocation Test: (1) Offeror takes definite action inconsistent with intent to K; (2) offeree acquires reliable information to that effect (must receive before acceptance) If divisible, any part not accepted is revocable Restateme  Restatement, nt, Second, Second, Contracts Contracts § 47 May put down deposit, but offer still revocable and deposit may be forfeited  Restateme  Restatement nt § 44 Actions constituting revocation:  Subsequent offer, inconsistent with original offer     Action w/o words if inconsistent with intent to K     Indirect communication may be sufficient if offeree received reliable info that offeror   took definite action inconsistent with intent to K  Restateme  Restatement, nt, Second, Second, Contracts Contracts § 43 o

 

Dodds   equal publicity of revocation is sufficient Restateme offers (i.e. v. public ad)   General Dickinson  Restatement, nt,

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Second, Contracts Contracts § 46 (Izadi v. Machado (Gus) Ford, Inc.)   Revocation is NOT effective UNTIL received by offeree    Offers are revocable by offeror prior to acceptance    Exceptions:  Option K = NOT terminated Restatemen o   Restatement, t, Second, Second, Contracts Contracts § 37    Humble Oil & Refining Co. v. Westside Westside Investment Investment Cor Corp. p.  o  Detrimental reliance by offeree on promise not to revoke or reliance on offer o  Offer for unilateral K, when offeree has begun to perform the requested act  Statute precludes revocation   o  (2) death or incapacity of offeror (NOT in option K) Restatemen o   Restatement, t, Second, Contracts § 48 (3) lapse of the offer  Restatemen o   Restatement, t, Second, Contracts Contracts § 41 

Time is at discretion of offeror   If no time specified, lapses after a “reasonable time (RT)”    RT Test: time satisfactory to offeror by RP in position of offeree (circumstances)  o  Balance interests of offeree (time to make informed decision) v. offeror’s interest (avoid risks of change during that time)   If K is for f or sale of something speculative, time will be short/something that does o  not change rapidly, time will be relatively r elatively long  easonable le titime me;; Seasonab easonablene leness. ss.   o  UCC § 1-205: R easonab   Effect of means of transmission:  Oral offer=terminates at end of conversation c onversation  o  If transmitted expeditiously, sense of urgency may be suggested   o    Direct negotiations-usually does not extend beyond termination of communication    Speculative transactions- purchase/sale something fluctuates, reasonable time short    Where offeree uses time made available for communication to take advantage of price movements favorable to him, there may be lack of good faith that permits offeror to refuse to complete the transaction    Delay in transit does NOT extend time for acceptance if offeree knew/has reason to know of the delay BUT if delay is due to fault of offeror or means of transmission of offeror and offeree neither knows/doesn’t have reason to know, time is extended  extended     Acceptance after lapse of time may be treated by offeror as counteroffer and may be accepted     Offeror cannot waive delay by choosing to ignore it   (4) rejection of the offer by offeree Restatemen  Restatement, t, Second, Second, Contracts Contracts § 38   Rejection=when offeror is justified in inferring the offeree does not intend to accept the offer   Majority-rejection NOT effective until received by offeror     Offeror may rely on rejection by (1) action or (2) inaction or (3) failing to revoke offer     Rejection terminates offer if before acceptance ( Restateme  Restatement nt § 40)   If offer has been rejected with effect of terminating power of acceptance, and offeror then states will disregard rejection, offeror has made a new offer on same terms.  a n acceptance BUT adds qualifications/conditions qualifications/conditions is counteroffer   Communication intended to be an and a rejection NOT acceptance  Restateme  Restatement, nt, Second, Second, Contracts Contracts § 59     

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  Invalidated IF acceptance depends on assent to changed/added terms  Restatement,

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Second, Contracts Contracts § 61   

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Communication that suggest the offer be modified or that inquires whether different terms might be acceptable may not terminate the power of acceptance.

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Counter-Offer  Restateme  Restatement, nt, Second, Contracts Contracts § 39 Battle of the Forms ( Itoh v. Jordan Jordan) Restatemen  Restatement, t, Second, Second, Contracts Contracts § 58 and § 59 Mirror image rule: offeree’s commitment must be on the terms proposed by offer with NO variation.  o    3 possible approaches for UCC 2-207 ( Diatom, Inc. Inc. v. Penwalt; Penwalt; Roto-Lith Roto-Lith):   (1) Treat different terms as included under 2-207(2). But different terms would never 

 become part of the K, because they materially materially alter the K.

  (2) offeror’s terms control…not additional terms, but attempt to change term in K   (3) “knock-out rule”. conflicting terms cancel each other out; offeree’s form is treated as

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acceptance of the terms in the offeror’s form which did not conflict.   Mailbox Rule: communication effective when “put in the mail” Restatement, Second, Contracts § 63 (1) If acceptance is not as invited, rule does NOT apply and acceptance is ineffective  o  instantaneous means of communication communication     NOT applicable to instantaneous (2) Revocation by mail is not effective until receipt  o  (3) Once offeree dispatched acceptance= too late to reconsider and reject or withdraw acceptance  o  (4) mailbox rule allocates the risk of transmission of the acceptance  o  o  Does NOT apply to option Ks   Messages Delivered by an Agent of the Sender- no K until acceptance is received by offeror o 

Precontractual Liability

-  Rule: party to negotiations may stop w/o liability at any a ny time, for any reason or no reason. Only cost is

loss of that party’s investment in negotiations (time, effort, expense) o  If negotiations succeed resulting in K, party that misbehaved can be deprived of bargain, BUT if fail because of similar behavior, courts reluctant to impose liability. exten d to negotiations o  Duty of fair dealing does NOT extend -  Rare Exceptions: o  Public Utilities- under a duty to serve w/o discrimination and on proper terms to anyone o  Improper Motivation- purpose of refusal to negotiate is improper (restrain trade/monopoly) o  Improper Discrimination- purpose of refusal is improper discrimination o  Collective Bargaining- businesses and labor u nions must bargain in “good faith.” yer P r oduct uctss-gov. obligation to honestly consider bid/not wantonly wantonl y disregard o  Gov. Bids- H eyer

for precontractual liability -  4 grounds du ring negotiation o  (1) unjust enrichment: duty to make restitution of benefits received during

  (2) misrepresentation: NO fraudulently misrepresenting intention to come to terms.    Markov v. ABC Transfer and Storage Case o  (3) specific promise: promise made to interest other party in negotiations and other party relied o  (4) agreements to negotiate: some courts will enforce liability where parties agree to negotiate. o

-  Reliance o  Rule: One may have duty to bargain in good faith, the breach may result in liability for damages, at least to extent of compensating detrimental reliance of injured party.  Hoffman v. Red Owl Stores- “Babe in the woods”  o  3 elements:   (1) promise was one promisor should reasonably expect to induce action/forbearance of definite and substantial character? (2) promise did induce such action or forbearance.   (3) Injustice can be avoided only by enforcement of the promise.  

 

Policing the Bargain: Big 8 Common Law Policemen

1.  MISTAKE a.  Mistake=belief NOT in accord with facts (includes law)  Restatement, Second, Contracts § 151153   b.  Mistake IF it destroys the meeting of the minds ( Sherwood v. Walker ) M i sta stak e of B oth Parties Par ties M Ma ake a C ontract V oi da dab ble. c.   Restatement, Second, Contracts § 152: When Mi i.  (1) Basic assumption: mistake goes to a basic assumption on which K was made; ii.  (2) Material effect: mistake has a material effect on agreed exchange of performances (resulting imbalance is so severe one party cannot be fairly held to carry it out); and

 

iii. (3) Must NOTbears bear risk risk:of mistake is when: not one of which the party bears the risk.§  154 1.  Party mistake  Restatement, Second, Contracts a.  Risk allocated by agreement (express/implied) AND take risk by ignorance   d.  RARELY void K based on unilateral mistake UNLESS  Restatement, Second, Contracts § 153 i.  Mistake caused by or related to impossibility of performance ii.  Mistake caused by positive fraud iii.  Mistake caused by innocent misrepresentation iv.  Mistake tied to an implied warranty for fitness for a particular purpose v.   Non-disclosure vi.  Active fraud relating to silence leading to an error of information. vii.   First Baptist Church Case- (mistaken bids) e.  Mutual bilateral mistake of material fact affecting substance of consideration is basis for rescission

 

f. Where partiesknow uniqueCase) purpose for K, there is mistake when purpose does not occur (Griffithboth v. Brymer  Coronation g.  Parties NOT bound if each is honestly mistaken regarding identity of K subject-matter ( Smith v.  Zimbalist ) h.   NO general duty to disclose even if party knows info to to the exclusion of others ( Laidlaw  Laidlaw v. Organ) i.  Allocating risk of “search/information costs”   1.  3 Rules: Emphasis is on ability to discover, NOT on who has the info. a.  If it’s equally difficult to discover, no duty dut y to disclose.  b.  If seller ex ante can more efficiently discover at lower cost, he has duty c.  Buyer ex ante can more efficiently discover, at lower cost, he must disclose 2.  If spent ton of money finding out, then shouldn’t have to disclose; ii.   NO imposing misinformation on the other party 2.  IMPOSSIBILITY, IMPRACTICABILITY, FRUSTRATION a.  Impossibility Restatement, Second, Contracts § 265 and § 266 (Taylor v. Caldwell ) i.  3 Scenarios: 1.  K for personal services where death or illness intervenes. 2.  K where intervening legislation makes performance unlawful. 3.  If existence of a thing is necessary for  party’s performance, party is excused if destruction/deterioration of that thing prevents performance. ii.  TEST: if parties do NOT know from beginning and there is NO fault, then excuse when implied term/condition never occurs OR ceases to exist  b.  Impracticability Restatement, Second, Contracts § 261 (Wolftrap) i.  Death/incapacity person necessary for performance  Restatement § 262 ii.  Destruction, deterioration or failure to come into existence of “thing” Restatement § 263 iii.  Prevention by gov. regulation/order  Restatement, Second, Contracts § 264 iv.  UCC § 2-615 1.  Excuses S from timely delivery if commercially impracticable because of unforeseen supervening circumstances NOT within contemplation at time of K  

 

2.  Inc. cost alone does NOT excuse performance UNLESS due to unforeseen contingency altering essential nature of performance (severe shortage of raw materials/supplies due to contingency — war, war, embargo, crop failure)  3.  Requirements:  a.  Performance became impracticable.  b.   Non-occurrence of event was “a basic assumption on which K was made.” c.   Not fault of promisor d.  Party did not assume a greater obligation, otherwise would be bound c.  Frustration Restatement, Second Contracts § 265 (court is reluctant to grant relief ) 

 

i. Requirements: 1.  Substantially frustrated party’s principal purpose (not their fault)  2.  Basic Assumption.  3.  Frustration resulted without fault of party seeking to be excused.   4.  Party must not have assumed a greater obligation. d.  Existing impracticability/frustration=NO duty perform Restatement, Second, Contracts § 266   3.  MISREPRESENTATION  a.  Assertion that is NOT in accord with facts Restatement, Second, Contracts § 159-§ 165; § 167   i.  If action known/intended to prevent another from learning of fact=assertion Restatement, Second, Contracts § 160  ii.   Non-disclosure of known fact is assertion fact does NOT exist in these these cases ONLY if know disclosure will Restatement, Second, Contracts § 161  1.  Prevent previous assertion form being a misrepresentation/fraudulent/material.

 b.  c. 

d.  e.  f. 

2.  Correct mistake of other party as to a basic assumption on which K was made and if non-disclosure amounts to a failure to act in good faith and fair dealing. 3.  Correct mistake of other party as to contents/effect of a writing 4.  Other entitled to know fact because of relation of trust/confidence between them. Prevents K if induces conduct that appears to be manifestation of assent Restatement, Second, Contracts § 163  Makes K voidable Restatement, Second, Contracts § 164  i.  (1) If manifestation manifestation of assent is induced induced by fraudulent or material misrepresentation misrepresentation by other party upon which recipient is justified in relying ii.  (2) If party’s manifestation of assent is induced by either a fraudulent or material material misrepresentation by one who is NOT a party pa rty to transaction upon which recipient is  justified in relying, K is voidable by recipient, UNLESS other party to the transaction in good faith and without reason to know k now of the misrepresentation gives value or relies materially on the transaction. Can cure UNLESS harmed Restatement, Second, Contracts § 165  Misrepresentation is an inducing cause if substantially contributes to decision to manifest ma nifest assent Restatement, Second, Contracts § 167   Fraudulent Misrepresentation (i.e. FRAUD)  i.  Elements of Fraud (Tort of Deceit: Restatement, Second, Contracts §162  1.  Representation is made + it’s false + D knew it was false + D intended intend ed to defraud/mislead + P relied and suffered damages   ii.  Club Med.-fails test  iii.  Types:  1.  Fraud in execution-where it goes to the very character of the proposed K a.  Ex: one party induces other to sign doc do c by falsely stating it has no legal effectif other party neither knows/has reason to know k now of character, effect of misrepresentation is no K=VOID  2.  Fraud in inducement- fraudulent misrepresentation goes ONLY to inducement=VOIDABLE  iv.  Requirements: 

 

 

1.  Must be an assertion that is NOT in accord with the facts  a.  Made by words, concealment (affirmative act intended/known to keep other from learning fact), or non-disclosure  2.  Assertion must be either fraudulent OR material  a.  Fraudulent-both consciously false and intend to mislead    b.  Material-show the misrepresentation would likely induce reasonable recipient to K   3.  Assertion must have been relied on in manifesting assent   4.  Reliance (detrimental) must be justified 

g. Misrepresentation made intent to mislead is either (1) Negligent Misrepresentation or (2) without Innocentdeliberate Misrepresentation   h.  Effect of misrepresentation  i.  Fraud in execution=NO K/ Fraud in inducement makes K VOIDABLE if insist   ii.  Process:  1.  Disaffirm the K   2.  Either: (a) raise it as defense to action brought to enforce K OR (b) bring action ac tion  based on avoidance (action for rescission)  iii.   NO avoidance if already ratified  iv.  Restitution —   party seeking avoidance required to make restitution of what he received. 4.  DURESS  a.  Unlawful or coercive pressure on a contracting party  Restatement, Second, Contracts § 174176    b.  K is voidable IF assent induced by b y an improper threat leaving victim no reasonable alternative AND if induced by 3P, UNLESS other party in good faith and w/o reason to know of duress gives value OR relies materially Restatement, Second, Contracts § 175 c.  Threat is improper: Restatement, Second, Contracts § 176   i.  Threat is improper if   1.  Threaten crime/tort, or threat would be crime/tort if resulted in obtaining property, prop erty,  2.  Threaten criminal prosecution, 3.  Threaten use of civil process and threat is made in bad faith, or   4.  Threat is breach of duty of good faith and fair dealing under K ii.  Threat is improper if resulting exchange is not on fair terms, and 1.  Threat would harm recipient and not significantly benefit party making threat 2.  Effectiveness of threat in inducing manifestation of assent is significantly increased  by prior unfair dealing by party making the threat, or 3.  What is threatened is otherwise a use of power for illegitimate ends. d.  Physical compulsion OR threat Restatement, Second, Contracts § 174 i.  Physical compulsion=“mere mechanical instrument” and conduct is NOT effective to manifest assent (NO K because NO consent)   e.  Elements of Duress:  i.  Must be a threat (manifestation of intent to inflict loss/harmexpress/implied)  ii.  Threat must be improper   1.   Not all threats are improper threaten something have legal right to, not improper iii.  Threat must induce victim’s manifestation of assent.  assent.  iv.  Threat must have been sufficiently grave to justify victim’s assent  (leave victim “no reasonable alternative”)  alternative”)  f.  Effect of duress  i.  K is VOIDABLE  ii.  If, the assent of the ‘victim’ is obtained by duress of o f a 3rd person rather than of other  party to K, victim can avoid the K unless other party to the K in good faith and without reason to know of the duress du ress either gives value or relies materially on the K. iii.  Restitution-on disaffirmance the victim is entitled to restitution.

 

5.  UNDUE INFLUENCE a.  ‘Gentle persuasion’ “kill them with kindness”   b.   Restatement, Second, Contracts § 177: Wh Whe en Un Undue due I nf nfluence luence M ake akess a C ont ontrr ac actt Voi Voida dable ble.. i.  If party’s manifestation of assent is induced by one who iiss not a party to the transaction, K is voidable by victim unless the other party to transaction in good faith and without reason to know of undue influence gives value or relies materially on the transaction. c.  STONE: we need the extreme vulnerability of one party & an abuse of a close relationship of trust. 6.  INCAPACITY a.  General Rule: One is generally assumed to have hav e full power to bind oneself contractually Restatement, Second, Contracts § 12  i.  STONE TEST Party must be incapable of comprehending the business at hand  b.   NO capacity: i.  Under guardianship ii.  Infant Restatement, Second, Contracts § 14  1.  Exercise of power of avoidance is known as disaffirmance; minor may disaffirm either before or after reaching the age of majority.  a.  Lost through ratification   b.  Exception=  i.   Necessities-if provide minor the necessities necessities of life, they are bound (strict)  ii.  Misrepresentation- may be liable for fraudulent misrepresentation in tort if you can find some justifiable reliance  iii.  Mentally ill/defective Restatement, Second, Contracts § 15  1.  Cognitive test= unable to understand in a reasonable manner nature and consequences of transaction OR unable to act in a reasonable manner in relation to the transaction AND other party has reason to know 2.  Volitional test=no knowledge of impairment, power of avoidance terminates to extent K has been performed 3.  Must be such that you cannot comprehend nature and consequences of the transaction. More than just being mentally ill! iv.  Intoxicated Restatement, Second, Contracts § 16   1.  Unable to understand in a reasonable manner the nature and consequences of the transaction OR unable to act in a reasonable manner in relation to the transaction. 2.  STONE TEST So drunk that one can’t comprehend the business at hand  hand   3.  ONLY makes K voidable when other party knows/has reason to know of iitt c.  Effects of mental incompetency/intoxication-disaffirmance and ratification work the same, but in some states, K is void, because no meeting of o f the minds (but this is a minority view).   7.  ILLEGALITY (unenforceable bc public policy) Restatement, Second, K § 178 (Owens v. Owens)  a.  Unenforceable on grounds of public policy if legislation provides it is unenforceable or interest in its enforcement is clearly outweighed by a public policy  b.  In weighing interest in the enforcement of a term, account accoun t is taken of i.  Parties’ justified expectations, ii.  Any forfeiture that would result if the enforcement were denied, and an d iii.  Any special public interest in the enforcement of the term. c.  In weighing a public policy against enforcement of a term, account is taken of   Restatement, Second, Contracts § 179 i.  Strength of that policy as manifested by legislation or judicial decisions, ii.  Likelihood a refusal to enforce the term will further that policy, polic y, iii.  Seriousness of any misconduct involved and the extent to which it will deliberate, and iv.  Directness of the connection between that misconduct and the term. d.  Policies: Restatement, Second, Contracts §192-196; § 181

 

i.  Policy Against impairment of family relationships  (especially marriage)  ii.  Policy Against Gambling iii.  Policy Against the Restraint of Trade (sale of business/end of employment)  1.  Rule: If not ancillary to another protected promise it is unreasonable. 2.  Rule: If ancillary, then may be reasonable restraint on trade if limited as to scope 3.  To be valid: it must be (1) ancillary…and (2) it must mu st protect a legitimate interest of the promisee, (3) It must be reasonable in scope (activity, geography, and time) and (4) the legitimate interest of the promisee must outweigh the hardship to the  promisor and the injury to the public. iv.  Term exempting consequences of misrep.  Restatement, Second, Contracts § 196   v.  Policy Against Restraints on Alienation of Property vi.  Policies Against Encouraging Litigation vii.  Promise interfering with K of another  Restatement, Second, Contracts § 194  viii.  Policy Against Interfering with the Judicial Process ix.  Policy Against Improperly Influencing Legislators and other Government Officials x.  Policy Against Inducement of Torts/Similar Wrongs Restatement, Second, Contracts  § 192 (East River)  xi.  Policy Against Inducing Breach of Fiduciary Duty  Restatement, Second, Contracts § 193  xii.  Policy Against Limitation of Liability Restatement, Second, Contracts § 195 19 5 (Yellow  Pages Case) xiii.  Violation of regulation realm Restatement, Second, Contracts § 181  UNCONSCIONABILITY -  Absence of meaningful choice on part of one of the parties together with K terms which are unreasonably favorable to the other party Restatement, Second, Contracts § 208/UCC 2-302 ( Williams Williams v. Walker)  -  Unconscionable=no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other -   Need to find BOTH procedural and substantive unconscionability to find K unenforceable procedu ral unconscionability) o  (1) Absence of meaningful choice (i.e. procedural   Problem/imbalance in the bargaining process   Look for oppression=no real negotiation OR an absence of meaningful choice   Surprise   Includes sharp bargaining practices, fine print, convoluted language, lack of understanding, and inequality in bargaining power (insufficient alone) o  (2) Unreasonably favorable terms (substantive unconscionability)   Commercially unreasonable (unfair price term is insufficient alone) -  UCC § 2-302: Unconscionable Contract or Clause. o f unconscionable clause o  May refuse to enforce K, enforce remainder w/o clause, limit application of o  May have reasonable opportunity to present evidence to aid determination -  Scope: determination whether it’s unconscionable is made considering setting, purpose, and an d effect   o  Factorsweakness in K process, fraud, and other invalidating causes -  Inadequate consideration insufficient alone, but gross disparity may be important imp ortant factor -  Gross inequality of bargaining power + terms unreasonably favorable to the stronger party=may indicate 

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the transaction elements of deception/compulsion, choice, no real involved alternative, or did not assent/appear to assentor may show weaker party had no meaningful o  Factors that may contribute to a finding of unconscionability in the bargaining process:   Belief by stronger party there is no reasonable prob. prob . weaker party will fully perform K

 

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Knowledge of stronger party that weaker party will be unable to receive substantial benefits   Knowledge of stronger party that weaker party is unable reasonably to protect his interest  because of physical/mental infirmities, ignorance, illiteracy or inability inability to understand, etc. -  Specific terms may be unconscionable whether or not K as a whole is unconscionable. THIRD PARTY BENEFICIARIES -  Performance of a K usually benefits persons other than parties, but 3P NO enforcement abilities ab ilities -  Intended and Incidental Beneficiaries (modern rule)  Restatement, Second, Contracts § 302  o  Intended Beneficiaries-3P who does acquire rights under a K  

Requirements:   (1) show recognition of right to performance in beneficiary is appropriate to effectuate intent of parties   (2) show either (a) performance of promise p romise will satisfy obligation of promise to pa pay y money to beneficiary OR (b) circumstances indicate promisee intends to give  beneficiary benefit of promised performance  Restatement, Second, o  Incidental Beneficiaries-one who does NOT acquire rights under a K  Contracts § 315  Creditor Beneficiaries-promisee seeks promisor pay a debt to a 3 rd party Lawrence v. Fox  o  MUST be an actual duty to pay $ Donee Beneficiaries-3P is person whom promisee sought to make a gift to Seaver v. Ransom  o  Show it is appropriate to effectuate intent of parties AND circumstances indicate promisee intended to give beneficiary benefit of promised performance Interpretation o  If parties specify, court gives effect, BUT often unclear o  Intention of promiseerequires indication promisee would have been willing to pay fair value for  promisor’s undertaking a duty to beneficiary  o  Disclaimer by beneficiary  beneficiary of gift promise that hasn’t already assented to a K for its  benefit may render any duty to itself inoperative from beginning, by disclaiming within reasonable time after learning of the K  Restatement, Second, Contracts § 306   o  Reliance-if beneficiary would be reasonable in relying on promise as manifesting an intention to confer a right, he is an intended beneficiary Restatement, Second, Contracts § 90  Recurring situations o  Construction K   Horizontal Claim- 2 contractors (A and C) contracted directly with owner (B). C makes a claim against A, alleging the other’s delay in performing p erforming its K with the owner hindered the complaining contractor.   Traditional Rule: C cannot bring a claim against A on the K between A and B   Recent trend: SOME allow C to recover as intended beneficiary   Vertical Claim- Owner C has contracted with general contractor (B) who has contracted with a subcontractor (A). The owner makes m akes a claim vertically against the subcon subcontractor tractor for damages due to the subcontractors delay or defective performance.   Traditional Rule: C cannot bring a claim against A on a contract between A and B.   Recent trend: SOME allow owner to recover as creditor beneficiary despite fact subcontractor’s performance is NOT performance of general contractor’s  duty to 

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owner

  Gov. K  Restatement, Second, Contracts § 313    K perform public services   Ks often benefit individual members of public, but courts

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reluctant to accord rights as beneficiaries to individuals UNLESS K makes it clear

 

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Risk of 3P beneficiaries with gov. K:   Possibility of excessive financial burden   Risk of multitude of claims   Likelihood of impairment of services   Difficulty in determining intent of gov.    Moch v. Rensselaer Water Co.    Rejected claims by injured drivers against persons K ’d with gov. to repair/maintain hwys.   Scope of risk/potential liability-concerned about potential unlimited/extreme liability   K involving gov. duty-IF K is one to perform duty gov. owes to members of public, courts generally allow recovery by individual members on theory they are creditor beneficiaries   Provisions in the K-gov. K sometimes by terms indicate intent beneficiaries have right of enforcement and courts give effect to terms -  Rights of parties  Restatement, Second, o  Beneficiary v. Promisor-intended beneficiary has rights against promisor  Contracts § 304  o  Beneficiary v. Promisee-beneficiary retains any right beneficiary had against promisee before K  between promisor and promisee (2 duties owed to beneficiary and can get judgment against BOTH) o  Promisee v. Promisor-promisee as well as beneficiary has right against promisor   Enforceable by action for damages or SP 

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Promisee may have claim against promisor for restitution Right to SP and damages depend on whether K was gift promise (nominal damages b because ecause no econ. loss) or promise to pay promisee’s debt (easy to prove $ damages so no SP)  Restatement, Second, Contracts § 311  o  Vulnerability of beneficiary to discharge/modification   If beneficiary C consents, promisor A and promisee B free to make subsequent agreement to discharge/modify promisor’s duty to beneficiary    There is a time after which a beneficiary that does not consent is no longer vulnerable to such an agreement. This is the moment mom ent in which the  beneficiary’s rights vest.   3 views on when the rights vest: v est: o  As soon as K is made (even though may not learn of K till later) ben eficiary assents to it. o  Having learned of the K, beneficiary o f K, beneficiary relies on it. o  Right does not vest until, having learned of 

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Default rule: vesting rule may be varied by terms of the K

-  Defenses o  Beneficiaries rights under a K rise NO higher than right of promisee p romisee o  Lack of consideration o  Unenforceability on grounds of public policy o  Failure to satisfy SOF o  Vulnerable to defenses of promisor that arise under K terms during performance (i.e. nonoccurrence of a condition and failure of performance) o  Estoppel ASSIGNMENT AND DELGATION -  Deals with the transfer of K rights and duties.

transfer of K right Restatement, Second, Contracts § 317   -  Assignment: o   NO assignment if:   It would materially change obligor’s duty     Materially increase burden of risk imposed by K

 

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o

Materially impair chance of obtaining return performance   Materially reduces value   Forbidden by statute   Public policy  Necessary for effective assignment:   Manifest intent to make present transfer of right w/o further action by owner/obligor own er/obligor   Manifest directly OR to 3P/No words of art necessary Transfer extinguishes assignor’s right to performance by obligor and gives assignee right   Assignment w/ limited effect Restatement, Second, Contracts § 331  Partial assignment Restatement, Second, Contracts § 326    NO writing necessary for SOF Limitations (i.e. exceptions to rule K rights are freely assignable):   Against public policy   Adverse effect on obligor UCC § 2-210    Restriction for benefit of obligor   Material change in obligor’s duty    Material increase in burden or risk   Material impairment as to return performance   Terms prohibiting assignment (construed narrowly) Waiver-of defense clause- a clause under which one agrees should an assignment occur, the 

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consumer would not setSecond, up any Contracts defenses against waivers Restatement, § 336   the assignee. Court have generally upheld these o  Revocability of gratuitous assignment   Even if effective, may be revocable when assignor revokes assignment, becomes incapacitated or dies   Assignor may revoke by notifying either obligor or assignee, by getting performance from obligor or by assigning same right to another assignee      NOT gratuitous if assignee gives value for assignment (taking in exchange for something that would be consideration or security for/or in total/partial satisfaction of preexisting obligation)   Assignor may lose power to terminate gratuitous assignment because of assignee’s subsequent acts by performance from obligor OR estoppel claims of ownership   Competing   An assignee that is a good faith purchaser takes free of latent equities, but assignee that

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takes in bad faith, with notice, or w/o giving value would be subject to latent equities   Priority:    New York Rule-1st  assignee prevails and may recover from 2nd  assignee that obtained performance   English Rule-1st  assignee prevails UNLESS 2nd  assignee notified obligor of assignment before 1st assignee notified obligor   Massachusetts Rule-1st  assignee prevails unless 2nd  assignee has done one of following: o  Received payment OR satisfaction of obligation o  Obtained judgment against obligor o   Made new K with obligor by novation o  Obtained possession of symbolic writing -  Delegation: empowers another to perform obligor’s duty; does not relieve original (no special language) o  Party can escape right by assignment but cannot escape duty merely by delegating 

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To be relieved of duty party MUST:   (1) consent of obligor is necessary OR (2) performance by b y the delegate o  Effective delegation=oblige MUST accept performance by delegate as performance of duty owed  by delegating party o   Non-delegable performance:   Grounds of public policy   Clear K term prohibition delegation   Choice of the person   TEST: a performance is nondelegable to the extent the oblige has a “substantial interest” in having the original promisor perform or at least control con trol performance o  Mere delegation imposes NO duty on delegate dele gate to perform   Assumption-occurs when delegate expressly promises to perform party’s duties     Delegate is liable to oblige, but does NOT free delegating party of its obligation to oblige (both are liable to obligee) o  Suretyship relationship   Implied assumption-may infer assumption from delegate’s conduct      Novation-discharge by consent (may be novation even if duty is nondelegable)   Consent is insufficient MUST have actual assent to a novation 

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CONDITIONS -  Event, uncertain to occur, which must occur, unless non-occurrence is excused before performance due Restatement, Second, Contracts § 224-230  -  Effects of non-occurrence Restatement, Second, Contracts § 225  o  Performance is not due UNLESS condition occurs OR non-occurrence is excused o  Unless excused, non-occurrence discharges duty when condition can no longer occur o   Non-occurrence is NOT breach UNLESS under duty that the condition occur -  Becomes condition by agreement OR term supplied by the court Restatement, Second, Contracts § 226   -  Standards of preference in resolving whether event is a condition of obligor’s duty  Restatement, Second, Contracts § 227   o  Prefer interpretation that reduces obligee’s risk of forfeiture UNLESS event is within obligee’s control or circumstances indicate he assumed risk o  Interpretation under which event is condition of obligor’s duty preferred over interpretation under

which is ground for discharge of duty  Restatement, Second, Contracts § 228  -  Satisfaction ofnon-occurrence obligor as a condition -  If non-occurrence would cause disproportionate forfeiture, court MAY excuse it UNLESSS occurrence was a material part of agreed exchange exchan ge Restatement, Second, Contracts § 229  -  Event that terminates a duty Restatement, Second, Contracts § 230  o  If event is to terminate obligor’s duty of immediate perform ance OR pay damages for breach is result of breach by obligor of duty of good fai faith th and o   NOT discharged if occurrence of the event is fair dealing OR couldn’t have been prevented because of impracticabi lity and continuance of duty does NOT subject obligor to a material increased burden o  Obligor’s duty not discharged if, before event occurs, obligor promises to perform duty even if event occurs and does NOT revoke promise before obligee materially changes position in reliance -  Classification of Conditions: ( In  In re Carter’s Claim; Hudson v. Wakefield; Haymore v. Levinson) time:   As to   Condition precedent: precedes actual performance of K (P has burden)    Nonoccurrence of a condition of an obligor’s duty may have two effects:

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  (1) obligor is entitled to suspend performance because performance is not

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due if the condition has not occurred. o  (2) if time comes when it is too late for condition to occur, obligor is entitled to treat duty as discharged and K as terminated. o  Possible to excuse condition by waiver, breach, or court avoiding forfeiture.   Condition subsequent: defeating mechanism (D has burden)   Concurrent condition: need a couple of things to happen Types: Express (written, oral, (words) you set it out in the K)/ Implied (court may supply a term that makes an event a conditionStewart v. Newberry; Poke Construction Co. )  NOT conditions: Pre-contractual events (offer, acceptance)/ Events certain to occur (i.e. passage of time) Interpreting conditions o  2 Questions: (1) Was party’s duty conditional or not? (2) If duty was conditional, what is event on which it was conditioned? o  Same process as K interpretation (look to purpose, maxims, prior negotiations, usage of trade, course of dealing, and course of performance). pe rformance). 2 preferences: o  Preference for interpretation that imposes duty to see that an event occurs, rather than one that makes the other party’s duty conditional on occurrence oc currence of the event. o  Preference for interpretation that will reduce obligee’s risk of forfeiture if event does NOT occur Excuse of condition

 

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By waiver: after was made,obligor to perform despite nonoccurrence of condition despite delay in Koccurrence  Burgerpromised King Corp. v. Family Dining; Clark v. West; LardasOR v. Underwriters Insurance Co. (NO waiver)   Only waive condition for your benefit   If concurrent condition, BOTH parties must waive   Requires assent (express or implied)   To waive, the condition MUST be minor … NOT a major condition…but procedural and technical conditions are easily waived. o  Breach: obligor may excuse condition of duty by committing a breach that causes nonoccurrence of the condition. When the condition is excused, the obligor ’s ’s duty becomes absolute.    Breach by prevention –can’t act to keep the condition from occurring.   Breach by inaction – if if must act under K to ensure condition occurs, inaction can be breach. to Avoid Forfeiture:   Excuse   Impracticability of condition that would result in forfeiture   Disproportionate forfeiture would result if didn’t excuse condition

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WARRANTIES -  Warranty = a risk allocation devise -  UCC § 2-313: Expressed Warranty (basis of the bargain)   -  UCC § 2-314: Implied Warranty (merchantability/usage of trade/fitness)  o  UCC § 2-315: Fitness   -  UCC § 2-714: Accepted Goods  -  Warranty Damages: (1) must be basis of the bargain and an d (2) basis relied on as inducement to purchase -  Alternative Product Rule: (1) effective alternative available and (2) would have bought if had not relied -  UCC 2-312: Warranty of Title Against Infringement; Buyer’s Obligation Against Infringement

xclusio on o off M odi fi cations cations of W Wa ar r antie ntiess  -  UCC 2-3-16: E xclusi umulat ulatii on and C onf nflilict ct of Wa W ar r anties E xpr xpre ess or or I mplie li ed   -  UCC 2-317: C um o  Warranties construed as consistent with each other and as cumulative UNLESS unreasonable, then intention of parties determines which is dominant

 

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Exact/tech specifications displace inconsistent sample/model/general language of description   Sample from existing bulk displaces inconsistent general language   Express warranties displace inconsistent implied warranties other than those of fitness -  UCC 2-318: 3P Bene Benefificia ciari ri es of Wa Warr ran ranttie ies. s. Seller’s warranty, whether express/implied extends to any natural person….  o  In family/household of his buyer or who is a guest in his home if reasonable to expect person may use, consume, or be affected by the goods and is injured in person by breach of warranty. o  Reasonably expected to use, consume or be affected by the goods and is injured by breach of warranty.