CONTRACTS OUTLINEI. Scope

a. Geographici. Which state’s law governs the transaction? (Jurisdiction and venue)

b. Subject Matteri. Which law within the state governs the transaction, statutes and codes,

common law, case law, etc. Is the transaction governed by statute or code on the one hand or case law on the other.

ii. Restatement of Contracts is not a statue or code, or the law. As the product of a Kx, it is extremely influential and is frequently cited by courts. Where a restatement provision thus becomes part of a judicial opinion, it becomes part of the case law of that jurisdiction.

II. Kx Formation- Kx or Gift Promise?a. Gift Promise

i. Gift promises are not enforceable by law, unless there is proven reliance. ii. Gratuitous Promises v. Completed Gifts

1. Completed gifts- where something is actually transferred by one party to another is enforceable.2. The economics of enforcing every gift promise, however, is unreasonable.

b. Contract Promisei. Offer & Acceptance

1. Offer- The prevailing theory is the objective theory: whether assurances amount to an offer is a matter of appearances reasonable understood, rather than a matter of the unexpressed, subjectively held motives of the parties.

a. Preliminary Negotiations- become an offer according to restatement §24- “so as to justify another in understanding assent will conclude the bargain.” Whereas to this point out focus has been what are the requisites of an offer, the focus shifts to when is there an offer. b. Owen v. Tunison- Would the reasonable man find the statement an offer or merely negotiations?c. Harvey v. Facey- Restatement §24: would a reasonable person think an acceptance would result in a Kx? No there must be an offer. “Lowest price” or “not less than” are not offers but negotiations.d. Fairmount Glass v. Crunden- Price quotes generally are not offers but invitations to sell, however, because the price quote was in response to a quote request, it qualifies as an offer to sell at the quoted price and not just an offer.e. Lefkowitz v. Great Minneapolis- Ads are generally not offers, however when there is a number/quantity term there is no risk of acceptances beyond the capacity of the seller to meet. If the quantity is named, the recipient of the ad has a reasonable expectation that the ad is an offer to sell the stated quantity and no more.f.Bids- Bids are not offers, even a bid that says. “to the highest bidder” because even the highest bid may not be enough.

2. Acceptance- An acceptance consists of a return promise for the promisee or performance, the price for that return promise or performance, and consideration therefore.

a. Promise: an unequivocal assurance that something will or will not be done.b. Performance: an act or omission, as distinguished from an assurance or assertion something will or will not be done.c. The price for the promisee’s return promise or performance is the promisor’s promise. The price must be consideration for the promisee’s return promise or performance

i. The promisor’s promise must be either beneficial to the promisee or detrimental to the promisor (in some jurisdictions)

ii. The promisor’s promise must have been sought by the promisee (all jurisdictions)

d. Restatement §50(1)- an acceptance is a manifestation of assent to the terms of the offer. e. Change their mind: The offeror is no longer free to change her mind once the acceptance has been made. The offeror is “master of the offer” until it is accepted. The offeror is free to name the method and manner of acceptance and can revoke at any time until acceptance. f.Unilateral- Where performance is the method called for, no Kx is formed until acceptance by full performance.

i. Advantage- Offeror is not bound by his promise until full performance.

ii. Disadvantage- Neither party is bound, which creates risk of finding a better offer.

iii. Restatement §54(1)- No notification acceptance is required where the offer invites acceptance by performance, unless the offeror expressly requires it in the offer.

iv. Restatement §45- a direct assault on the traditional rule that they offeree is not vulnerable to revocation after beginning performance based on reliance.

g. Bilateral- Invited acceptance by return promise in fact, expressed or implied. Far and away most Kx’s are bilateral.

i. Advantage: Offeror gets a commitment in advance of performance. Offeree is responsible to perform.

ii. Disadvantage: Offeror is bound upon the offeree’s making a promise before he gets the performance sought.

iii. White v. Corlies and Tift- In a bilateral Kx, an offer is accepted in the terms set by the promisor, and the contract is not enforceable until the promisor has knowledge of the acceptance. An act may imply a return promise, but it must be unambiguous, a manifestation of assent recognizable as such by reasonable persons and so recognized.

iv. Ever-Tite Roofing Co. v. Green- Where the method of acceptance is return promise and the offer specifies that the manner of

acceptance may be by beginning performance, contract is formed upon the offeree’s commencing performance and the offeror may no long revoke the offer. Offers are revocable until accepted, but the revocation is not effective until communicated to the offeree. The rule is designed to protect the offeror.

v. International Filter Co. v. Conroe Gin, Ice & Light Co.- Re. 2d §56- requires notice to be given promptly and seasonably received by the offeror unless it is waived by the offeror.

vi. Allied Steel v. Ford Motor Co.- In a bilateral Kx, where the offeror specifies the exclusive manner or acceptance, at attempt to accept in another manner is not an acceptance. However, where an offer suggests the manner of acceptance, other manners of acceptance are not precluded. (Beginning performance operates as an implied return promise and acceptance).

vii. Precontractual Liability- §87(2)- if the offer invites a promise to which the offeree can reasonable rely, there is Precontractual liability.

viii. Liability for failed negotiations? Generally no, the court permits parties to bargain without fear of liability absent Kx’s. However, there is always a possibility of restitution in Quasi=Kx.

ix. Hoffman v. Red Owl- the doctrine of estoppel (§90) is freestanding is does not require an offer, just reasonable reliance.

1. Not widely accepted- Courts are reluctant to enforce this because it seems inappropriate to treat failed negotiations as an occasion to asses damages against one party for costs incurred, even if foreseeable.

h. Silence- Re. 2d §69 provides a general rule that silence is not acceptance, except maybe in light of past dealings between the parties, where silence may amount to acceptance.i.Termination- Re. 2d §36, Four ways in which the offeree’s power to accept is terminated:

i. Revocation- effective on receipt. 1. Dickinson v. Dodds- An offer is revocable until accepted. Re. 2d

§42, an offer is revoked when the offeror indicates in some manner an intention to revoke, either by words or an act inconsistent with the intent to enter into Kx.

ii. Reliance- Re. 2d §45- The consideration for the implied promise is such performance has been completed.

1. Drennan v. Star Paving - the option promise implied under §45 is enforceable based on consideration, the basis for enforcing the implied option under §90 is the oferee’s reliance. §45 the proposition is that option promises can be implied from beginning performance. In unilateral Kx, an offeree’s beginning performance in reliance on the offer implied a promise not to revoke.

iii. Death or incapacity of the offeror- Re. 2d §48, the death of the offeror or the offeree, terminates the power of acceptance.

However, the death of either party does not terminate the power of acceptance where there is an enforceable option. §37

iv. Rejection- Terminates the power of acceptance §38. A later attempt to accept will be deemed a new (counter) offer. A counteroffer §39(1) constitutes rejection, §39(2). Effective on receipt.

1. §38(2)- Rejection does not terminate the power to accept if the Offeree manifests an intent to “take under further advisement”2. §39(2)- The offeror or the offeree can prevent termination of the power of acceptance by way of a counteroffer by manifesting a contrary intent. 3. §37- The rejection of an irrevocable offer does not terminate the power to accept. 4. §40- trumps the Mailbox Rule, or “limits the power to accept” such that an acceptance sent after a rejection has been sent is effective only if it is received before the rejection. If not, it’s a counteroffer. (acceptance is sent after rejection).

v. Lapse/expiration-If the offer states no lapse time, the offer lapses after a ‘reasonable time’ depending on the circumstances. (subject matter)

vi. Face to face- offers lapse at the end of the conversation.vii. Telephone-lapse when the parties hang up.

j. Mailbox Rule- Re. 2d §63(a)- acceptance in the form invited by the offer is effective when the manifestation of assent is put out of the offeror’s possession. (Effective on dispatch) BUT an acceptance under an option Kx is effective on receipt by the offeror.

i. Limitations- Offeror expresses differently, (§63), if the offer is silent on the manner/medium for acceptance, then the acceptance is effective on dispatch if made in the manner “invited” by the offer.

1. §66- The MB Rule still applies even though the acceptance was not done in the manner provided for or invited IF the improper manner selected is at least as expeditious as the manner provided for or invited.

ii. Offeree Bound? Offeree is bound by MBR or else the offeree would be given an option Kx they never had to bargain for.

iii. U.S. Life Ins. Co. v. Wilson- Generally the mailbox rule applies to online and electronic communications, although it is not altogether resolved.

k. Option Promises- Offer is a promise not to revoke the offer. i. Mail Box Rule- doesn’t apply to option promises because it

assumes the offeree needs protection that they can proceed on the basis that Kx has been formed, however where the parties have expressly agreed how long the offer will last, there is no need to resort to default rule to protect the offeree.

l. Mirror Image Rule- An acceptance that varies the offer in any particular amounts to a rejection and counter offer.

i. Mitigating Doctrines- Declares the variation “precatory” (non-essential or implied).

1. Absent the applicability of a mitigating docrtrine, an acceptance varying the offer is a counteroffer and rejection under the common law mirror imaging rule.

ii. Battle of the Forms- The varying terms are typically printed and appear on the back and so are unread by the clerk or other functionary who simply completes the forms and files them away.

iii. UCC §2-207- Courts held that accepting the goods was an acceptance to an offer and under the “Last Shot Doctrine” whichever party fired the last shot dictates the varying terms of the Kx. HOWEVER 2-207 dispensed the Mirror Image Rule and says that the result in varying terms is that an acceptance varying an offer still may be an acceptance under the provision.

1. Sub§(1)- Rejects the MIR a definite and seasonable expression of acceptance is effective as an acceptance even if it has terms that are different from or additional to the terms in the offer. UNLESS the acceptance is expressly conditioned upon offeror’s agreeing to those terms. “My terms and my terms only”. 2. Sub§(2)- If both parties are merchants, the additional terms are in unless there is an expressly conditioned statement, the additional term “materially alters” the Kx, or the offeror had already been given notification of the addition and objected it. If only one party is a merchant, the additional terms in the acceptance are merely proposals for their addition or rejection.

m. Conflicting Termsi. Knockout Doctrine (MAJORITY VIEW)- different/conflicting

terms knock each other out. Favors the offeree.ii. Fallout Doctrine (STRONG MINORITY VIEW)- the conflicting

term “falls out” such that the original offer term is in. Favors the offeror.

iii. Treat same as Additional- §2-207(2) (MINORITY VIEW)- between merchants- they are accepted.

iv. §2-207(3)- Applies only if there is no Kx on the writings, if the parties perform such as there is a Kx, then the Kx is established by the conduct of buyer and seller.

n. Dorton v. Collins- When a Kx is formed based on conduct; its terms include those agreed to together with gap filers implied in the Kx by operation of law under Article 2. §2-207(3) o. Materiality- would inclusion of the additional term result in surprise or hardship. p. Bayway Refining v. OMT- If the additional term is specific and not open ended, fails to show unfair surprise or hardship, as well as not materially altering the term, 2-207 does apply.

q. Article 2 (all jurisdictions)- Kx’s for the sale of goods, no consideration is required to make an option promise (firm offer) binding.

ii. Promise & Price1. Unilateral- Refers to a promise given for a performance in return. Restatement §71(1). The price is the performance.2. Bilateral – A contract in which parties exchange promises. The price for the promisor’s promise will be the promisee’s return promise. 3. Defining Promise: An unequivocal assurance that something will, or will not, be done.

iii. Consideration- Promisee’s performance must be consideration for Promisor’s promise. 1. Benefit/Detriment- To be consideration, a performance must either be a benefit to the promisor, OR constitute a detriment to the promisee. Enforced by about a half-dozen jurisdictions.

i. Ex) Forfeiting a legal right. ii. To be a detriment: a promisee must suffer a detriment in forgoing

something the Promisee otherwise has a right to do. b. Hamer v. Sidway- A promisee’s performance is consideration for the Promisor’s promise if it is either beneficial to the promisor or detrimental to the promisee. Forgoing the exercise of a legal right constitutes a detriment to the Promisee.

i. Benefit-Detriment a requirement for Consideration. Benefit must be measureable; detriment is forfeiting a legal right.

c. Restatement §71/§79- A performance or return promise is consideration if bargained for; benefit/detriment abandoned (majority view). Small group of states retains Ben/Det requirement. d. Fiege v. Boehm- Forbearance to asset an invalid claim is consideration provided there is an honest and reasonable belief that the claim is valid. (Re. §44)

i. Forfeiting what proves to be an invalid claim is consideration for a promisor’s promise if Promisee held an honest and good faith belief in the validity of the claim at the time of Kx Formation. I.e., beneficial to Promisor/detrimental to Promisee at the time of Kx Formation.

e. Restatement §44(1)- Failure to assert an invalid claim is consideration if Promisee honestly believed claim was valid. f.Dyer v. National By-Products, Inc.- Failure to assert an invalid claim is consideration for a promise provided the party forbearing has a good faith belief in the validity of the claim.

i. Objective- Reasonable person standardii. Subjective- Person at issues believed

iii. Nondisclosureg. Peppercorn

2. Bargained For

i. Lucy v. Zehmer- Because the price is reasonable and no peppercorn is present, in a subjective standard, the reasonable person would recognize a Kx and the law cannot take into the account one’s mindset in every Kx, therefore regardless the intention, if the Kx on its face seems reasonable, it is enforceable.

b. Action in the Pasti. Feinberg v. Pfeiffer- To be consideration for the promisor’s

promise, the promisee’s performance must be bargained for (Re 2d, §71(1)), the promisor must have made the promise in order to get the promisee’s performance. Action in the past cannot be bargained for.

ii. Restatement §71- To be consideration for the promisor’s promise, the promisee’s performance or return promise must be bargained for- sought by the promisor in exchange for its promise.

c. Moral Obligationi. Mills v. Wyman- If the promise was not bargained for, then there

is not consideration and the contract is not enforceable. ii. Harrington v. Taylor- If the act is not bargained for, the contract

is not enforceable and there is no remedy.iii. Webb v. McGowin- The moral obligation becomes sufficient

consideration when the promisor has received a material benefit from past performance: this works as if the promisor had made an implied promise to induce this performance in the past. MINORITY VIEW.

3. Categories of Kx’sa. Family Contracts- Non-commercial, regularly personal, family relationships, frequently oral and frequently gift promises.b. Settlement Contracts (Forbearance)- If a party gives up a valid claim against another, that certainly constitutes consideration.

4. Promises as Considerationa. Mattei v. Hopper- If a promise, with implied duty of good faith, is capable of being broken such that the promisee would be liable for breach of Kx, then the promise, though illusory on its face, is not illusory when the implied good faith term is included. b. Strong v. Sheffield- Kx Formation requires a Promise plus price, a promise is an unequivocal assertion something will or will not be done. An equivocal promise cannot be broken- and therefore is not an enforceable contract.c. Wood v. Lucy Lady Duff-Gordan- Termination clauses are not illusory if the other contracting party has a mutual right to terminate or if there is some restriction on their use.

i. An illusory promise- one that makes performance of the promise entirely optional is not consideration.

ii. Restatement 2d of Contracts §77- A promise or apparent promise is not consideration if by its terms the promisor or

purported promisor reserves a choice of alternate performances unless:

1. The alternative performances would have been consideration if it alone was bargained for, or2. The alternative performances would be consideration and when promisor exercises his event it eliminates the alternatives there weren’t consideration.

5. Rewardsa. Broadnax v. Ledbetter- The action of assumpsit developed to the point where a Promisee’s return promise could be consideration even without any performance or change of position in reliance on Promisor’s promise by the Promisee.

6. Reliance (§4)a. Kirksey v. Kirksey- The promise was not bargained for. The promisor did not make his promise seeking promisee’s return promise or performance, there was never a contract on which she should have relied.b. Ricketts v. Scotthorn- If the promisee takes an action in reliance to the promisor’s promise, the promisor is estopped to deny there is consideration for his promise. Therefore there is consideration and the promise is enforced as though it were a Kx promise. c. Feinberg v. Pfeiffer- Under §90, the promise to pay a pension was an enforceable NON Kx promise because her actions proved reliance.d. Restatement First §90- the action of definite and substantial character and in so injustice could only be avoided by enforcing the contract. (ESTOPPEL)e. Restatement 2d §90(2)- supplanted the doctrine of estoppel in Kx- MAJORITY VIEW. Under the first restatement they would be estopped from denying consideration and the promisee would get the entire promise even if it was ridiculous. However, under the second restatement the promise would be enforced ‘to the extent necessary to prevent injustice’ but no more. (A promise to pay B $50,000 to drive to Dallas. B does and A backs out- restatement first $50,000- restatement 2nd $30 for gas, $100 lost wages)- awarded expectation interest. The restatement first was either all or nothing, the restatement second is expectation damages.

7. Restitution Quasi Kx)- Restitution is not another basis for enforcing promises, but an alternative cause of action or basis to recover where no action for Kx lies. Restitution allows recovery to avoid “unjust enrichment”.

a. Cotnam v. Wisdom- A promisee can recover on restitution when there is no formal Kx if there is significant proof of unjust enrichment, and therefore should receive expectation damages to the services of a normal person in his situation (professional).b. Callano v. Oakwood Park- Plaintiff must show that the defendant was enriched and that it would be unjust to permit defendant to retain the benefit conferred without paying for it. Enrichment without payment

is unjust where Plaintiff had an expectation of payment from the defendant.c. Pyeatte v. Pyeatte- Where the defendant is unjustly enriched, the plaintiff may recover expectation damages.d. Categories of Estoppel

i. Family Promises- Regardless of the motivation, if the reliance seems sought after, there is consideration. If a promisee’s action in reliance to the promisor’s promise should be expected, there is consideration.

ii. Promises to Convey Land- Where promisee moves onto the land and makes improvements, promisor will be estopped to deny consideration. (IMPROVEMENTS)

iii. Promises made in conjunction with a gratuitous bailment- A freebee for the bailor, forbearing to secure insurance himself is an act in reliance.

iv. Charitable Subscriptions- promise by other subscribers to match donation is consideration for Donor’s promise. That is, consideration comes from a third party.

III. Enforcementa. Indefiniteness- an enforcement matter, it presupposes a Kx is formed. A promise may be unequivocal and susceptible of breach, but if it is impossible to fashion a remedy, the Kx is unenforceable for lack of definiteness.

i. Toys Inc v. Burlington- A term that can be argued and defined and that was a reasonable term to agree toward is enforceable.

b. Statue of Frauds- requires certain contracts to be in writing. i. Evidentiary- The prospect exists for a party to declare falsely that a Kx

was formed when there was none, or when it is agreed to, but one can claim false assertions as to terms.

ii. Cautionary- Parties are more inclined to reflect seriously before reducing a promise to writing. 1. Suretyship- One agrees to pay the debt of another. Needs writing because there is no significant consideration for the surety.

a. Strong v. Sheffieldb. Exception: “Leading Object Rule”- the Surety is promising to satisfy the obligation of another out of self-interest. Corporation officer agrees to surety an employee to keep the corporation afloat.

2. Contracts that can’t be fulfilled within one year of their making.-memories fade, witnesses may “remember” differently.3. Kx’s involving Transfer of an Interest of Land- the importance of ownership of real property.

iii. Ameliorating Rules- Has no application to unilateral contracts or if a Kx has been fully performed by one side, or quasi-Kx/Restitution.1. Estoppel and Reliance- in common law, there was a general disinclination to avoid the statute of frauds based on reliance on a promisor’s promise, but in recent times there have been inroads on the traditional view. §139

a. Reliance Cases- If there is a misrepresentation about the statute of frauds (asks for written agreement and says they don’t need one) then it can apply. Also, a promisor may be estopped to raise the statute of frauds based on the promisee’s reliance on the promise.

iv. Statute of Frauds under UCC §2-2011. Kx of $500 or more- must have writing sufficient to indicate a Kx for the sale of goods signed by the party to be charged.

a. Omits a term or contains incorrect term? The writing will satisfy the requirement, but will not be enforceable beyond the quantity stated in the writing. Says 500 instead of 1000 hoola hoops- only liable for 500.

2. Kx needs signature of party to be charged UNLESS:a. Between merchants: within a reasonable time, writing in confirmation, sufficient against the sender, recipient has reason to know contents, signature requirement satisfied absent written objection within 10 days. (sub§2).

v. UCC and Estoppel- The doctrine of estoppel is also available to enforce an oral Kx where §2-201(1) is not satisfied. §1-103(b)- unless a provision in Article 2 expressly displaces (rules out) common law doctrine and principles, those principles supplement the provisions of article 2.

vi. Policing the Bargain: The bases for non-enforcement are premised on (1) capacity or status, (2) behavior of the parties in the course of bargaining and (3) the substance of the bargain itself.

c. Capacity-denying enforcement of a Kx owing to the status of a party is based on the proposition that some groups need protection from the Kx’s they make. Denying enforcement on that bases is paternalistic and comes at a cost to freedom to Kx.

i. Minority- protect minors from errors in judgment owing to their youth and inexperience. Minors may “disaffirm” Kx’s they make while minors and up to and within a “reasonable time” after they reach majority. Minority is defined by statute, now 18 years of age in most states. A minor may disaffirm a Kx entered into as a minor even after reaching majority, but must do so within a “reasonable time” defined by statute. (OKLA- 1 year)1. Kiefer v. Fred Howe Motors, Inc.- Minors may disaffirm their Kx’s., the rule is to protect minors, however they might appear, not those who know or should know they are minors.

a. Jurisdictions- Some jurisdictions require that, to disaffirm a Kx, the minor must make restitution to avoid unjust enrichment. In many jurisdictions, the minor need only make restitution, not full restitution. The minor need only return the car, whatever the condition. Some jurisdictions would require fill restitution- damage or wear and tear deducted from minor’s recovery. b. Ratification- Kx’s of minors are not void, but voidable at the election of the minor. A minor may ratify a Kx unenforceable based on minority after reaching majority. Upon majority, they may make a new promise to fulfill the unenforceable obligation and remove the bar to enforcement. Re. 2d §85.

c. Misrepresentation of Age- Some states deny protection of the general rule and do not permit minors to disaffirm where they lied about their age, and may be liable for torts, however isn’t that the very immaturity and lack of judgment the law is trying to protect?

ii. Mental Infirmity- As with the Kx’s of minors, the Kx’s of those suffering from mental infirmity are voidable at the instance of the protected party.1. Ortelere v. Teacher’s Retirement Bd.- Under Re.2d §15 (a) if the party

seeking to avoid the Kx passes the Cognitive test, the Kx is voidable. (b) Provides a less stringent test and represents the modern view. If the condition from which the party suffers impedes the ability to make a sound decision, the impairment is sufficient, as long as the other party has reason to know of the condition. This test balances the interest of both parties, that of the party in need of protection owing to incapacity, against that of those who deal with that party.

a. Cognitive Test- party lacks capacity and creates only voidable Kx’s if he lacks the capacity to understand the nature and consequences of the transaction.

2. Cundick v. Broadbent- Court only applies Cognitive test, but there was too much thought to be qualified for mentally incompetent- rewrites and help.

iii. Overreaching- behavior of the parties in the bargaining process. iv. Pressure in Bargaining

1. Physical Compulsion- one agrees under physical compulsion (physical force), if this is the case there is simply no assent and the Kx is void ab initio.

d. Duress- one party improperly threatens another and the threatened party had no reasonable alternative but to assent.

a. Threat-Manifestation of intent to inflict some loss or harm on another by words or conduct. b. Improper- Early on, it was improper if the action threatened was wrongful (physical violence). Today, there may be duress even where the threatened action is not “wrongful”, they may still constitute duress when undertaken in bad faith.

i. Examples- threat to instigate criminal action, threat of civil suit, threat to breach Kx.

c. Induced victim to assent- subjective cause, the victim must have in fact assented to bargain because of the threat. (rarely at issue)d. Gravity- Must be sufficiently grace such that the victim is left with no reasonable alternative other than to assent.

i. Early on- this was the objective standard. The test shifted to a subjective standard, did the threat deprive THIS victim of her free will, taking into account age, experience, bargaining power, access to advice, etc.

ii. Prevailing Standard: The threat must be sufficiently grave such that the victim is left with no reasonable alternative other than to assent to the Kx. Gravity requirement is best understood in the

context of the cases: threat of civil suit- it may not be wrongful but if it’s not brought in good faith it could still qualify, however in many cases such a threat does not amount to duress.

e. Pre-Existing Duty Rule: threats to breach unless the other party agrees to new terms, the Kx would be analyzed as an enforcement matter under the doctrine of duress. PED arises in a specialized set of circumstances- where one party, by threat of breach of an existing Kx, induces another to assent to a modification there of, or a new Kx. f.Alaska Packers’ v. Domenico- A promise to do something you already owe a duty to do can’t be consideration. Performing a Kx duty already owed is not consideration for a promise. No reasonable person would bargain for something they already have. g. Schwartzreich v. Bauman- The Pre-Existing Duty Rule can be avoided by entering into an express Kx of Recession, obviating the party’s rights under the first contract. h. Watkins and Son v. Carrig- Where there is an unforeseen circumstance that changes terms of the original contract, there is an implied rescission, and a new contract is formed disregarding the pre-existing duty rule.

i. Jurisdictions- Some courts have found an implied rescission Kx even in the absence of unforeseen difficulties or changed circumstances. Few courts have abandoned the rule altogether. Another technique is to find that any variation in the promisee’s promise in the new/modified Kx from that in the old renders the PED Rule inapplicable (virtually any additional term will do)

ii. Partial Payment- a promise to pay part of a debt in full satisfaction of the claim is consideration to accept the lesser amount provided the claim is in dispute as to liability. UCC §3-311 “Accord and Satisfaction”

i.Jurisdictions- some legislatures have modified the PED rule, New York and Michigan have legislation providing that signed writing is a substitute for consideration to support a Kx modification. j.Other duties: If the duty is owed from a statute or other requirement, PED can still operate. (An officer cannot seek claim for capturing criminals). k. Third Party: A few courts have gone so far as to apply the PED Rule where the duty is owed not to the promisor, but to a third party. The prevailing view is Re. 2nd §73 (rejects it).

ii. Concealment and Misrepresentation1. Concealment- To what extent must one bargainer disclose facts known to her but not known to the other?

i. Swinton v. Whitinsville Bank- Caveat Emptor (no duty to disclose) there is no duty to disclose facts unknown to the party.

1. Exceptions: fiduciary relationships, or active concealment (misrepresentation). General rule: caveat emptor has been

attenuated by legislation requiring harmful information be known.

ii. Kannanos v. Annino- Having made assertions with reference to the disclosed information, there was a duty to reveal facts unknown to the other where a party makes reference to the matter.

e. Misrepresentation- Re. 2d §159- A misrepresentation is fraudulent where the party making it knows the facts are not as stated. Fraudulent misrepresentation is a tort.

a. Fraud in the Factum- Formation matter, there is simply no Kx formed. (rare) A says sign this receipt B for food but it actually signs away rights to their house. b. Fraud in the Inducement- The defrauded party knows they are entering into a Kx, but was fraudulently induced to agree. It is unenforceable and may be disaffirmed.

i. Misrepresentation must be made: assertion not in accord with the facts- Re. 2nd §159.

ii. Misrepresentation must be of fact: The assertion is of a fact at the time it is made. As assertion of future event is not misrepresentation. Must be made in the form of words or conduct. Active concealment of that sort would constitute an assertion of fact by conduct and would amount to misrepresentation.

iii. Misrepresentation must be Fraudulent or material- Re 2nd §162

1. Fraudulent- misrepresentation is fraudulent when it is both consciously false and intended to mislead.2. Material- a misrepresentation is material if it would have been likely to induce a reasonable person to enter into Kx.

iv. Relied- party seeking to avoid the Kx must have relied on the misrepresentation in agreeing. Need not be the sole basis, but it is enough that it contributed substantially to the decisions entering into the Kx. (reliance must be justified)

c. Vokes v. Arthur Murray- A statement of opinion will amount to misrepresentation where the party making the assertion has special skill or knowledge with respect to the subject of the opinion.

2. Parties’ Obligation- That is the business of the Parol Evidence Rule: to what extent may evidence be introduced that the parties had agreed to terms that did not find their way into the agreement in its final written form?

a. Gianna v. Russell-Parol evidence cannot be introduced to prove a term in addition to those in the writing or a term that conflict with the terms in the writing, where such term was made prior to, or contemporaneously with, the final written agreement. RULE MUST APPLY & KX MUST BE FULLY INTEGRATED

i. Standard: if it would be natural to include it and they didn’t they meant to exclude it.

b. Masterson v. Sine-Parol evidence cannot be introduced to prove a term in addition to those in the writing or a term that conflict with the terms in the writing, where such term was made prior to, or contemporaneously with, the final written agreement. RULE MUST APPLY & KX MUST BE FULLY INTEGRATED

i. Standard: Was the specific subject matter covered and if so, would the parties have naturally included the term in a separate agreement?

c. Two different standards- Gianna v. Mastersond. Merger Clauses- “This writing represents the final agreement of the parties” or something like that- is powerful evidence that the parties intended the writing to be fully integrated. Such clauses are conclusive of the parties’ intent.

3. Ambiguity & Vaguenessa. Patent Ambiguity- the ambiguity is apparent on the face of the writing. (Attorney told client he needs more information. Who?)b. Latent Ambiguity- the ambiguity is not apparent from the face of the writing, but becomes apparent in consideration of information outside the writing. *Parol-evidence is always admissible to prove a term in a written Kx is ambiguous. c. Raffles v. Wichelhaus- The objective theory would assign meaning to the term with reference to what a reasonable person would conclude, matching it to the meaning assigned to the term by one of the parties.

4. Unfairnessa. McKinnon v. Benedict- When deciding to grant performance or injunction, the court will balance the benefits to the party seeking the remedy and the cost to the party against whom the equitable relief will be enforced, all in light of the consideration received. b. Tuckwiller v. Tuckwiller- That a plaintiff will be denied equitable relief where the Kx is unfair- as where the consideration is grossly inadequate and where the costs of granting that relief outweigh the benefits.

5. Adhesion Contracts- Standardized Kx’s are not Kx’s of adhesion, but may be so deployed where one party imposes its will on another in the course of Kx formation.

a. One party enjoys considerably more bargaining power than the otherb. One party has no real power or opportunity to bargain over termsc. One party may lack sophistication to understand the unfamiliar terms stamped in small print on the back of a standardized form.

f.Unconscionability- when a court or legislature protects a class, it protects the entire class, such that all members can disaffirm their Kx’s.

i. Williams v. Walker- A Kx or Kx clause is unconscionable where (1) there is an absence of meaningful choice + (2) Kx term or terms unreasonably favorable to the other party.

g. Public Policy- Where a Kx is unenforceable because it violates public policy, the concern is the public at large, and protecting it against imposition by perhaps, both parties.

i. Illegality- A Kx, which is not illegal, may still violate public policy as determined by a court and so be unenforceable.1. Subject Matter

a. Bovard v. American Horse Enterprises- The subject matter of the Kx violated public policy, although the Kx itself was not illegal.

2. Procurementa. Sirkin- A Kx is unenforceable where, though legal on its face and not illegal as to its subject matter, is procured illegally.

3. Performancea. McConnell- The contract was not illegal in its subject matter nor procured illegaly. It was illegal in its perofmance. The illegality must be major and must be directly connected to the obligation sued upon.

i. Restitution? There would be little disincentive to enter into illegal Kx’s if restitution was granted.

1. Exceptions: If a party to an illegal Kx withdraws within the time for repentance, he may recover in restitution for the other for the value of any benefit conferred..

IV. Performance and Breacha. Conditions- Restatement §224- A condition is an event that must occur before performance of a thing promised is due. It does not mean no Kx is formed- it means there is no duty to perform what was promised unless and until the condition precedent is met.

i. Condition Precedent- a contingency that must occur before there is a duty to perform the thing promised. “duty-creating”

ii. Condition Subsequent-terminates a duty to perform. iii. Condition Concurrent- must happen simultaneously.

b. Breach by defendant-(no breach, compliance) did not perform. Anytime there’s an allegation of breach, the party against whom it is alleged gets to respond. The first response we address is “no breach compliance.”

i. Covenant- must follow Rule of Reason. The covenant cannot work an ‘undue hardship’ which would result in unreasonable scope, duration or geography preventing an employee form working. 1. Hopper v. All Pet Animal Clinic- A covenant not to compete in enforceable to the extent it is reasonable in scope, duration and geographic limits. The covenant must impose only such limitations as are necessary to protext the employer’s legitimate business interest. After that, the covenant will still be unenforceable if it works an undue hardship on the employee or injures the public.

ii. Condition Precedent-1. Luttinger v. Rosen- A condition precedent is a fact or event which the parties intend must exist or take place before there is a right to performance.

iii. Promissory Duty v Promissory Condition- Conditions may be either events outside the control of the parties (I promise to play golf if it reaches 85 degrees before noon), or events within the control of the parties, promissory condition (I promise to play gold with you tomorrow on condition that you buy lunch at the clubhouse first. 1. Promissory Duty- stand independent of each other. I promise to give you $50 if you promise to mow my lawn. Your not mowing my lawn does not excuse my promise to give you $50, I can sue and get damages for your not mowing my lawn. 2. Promissory Condition- depend on each other. I promise to give you $50 on the condition that you mow my lawn. If you do not mow my lawn, I do not have to give you $50. Event within the control of one of the parties.3. Internatio-Rotterdan v. River Brand Rice- In cases of doubt, the court prefers to find duty versus condition to avoid “harsh results”.4. Gubson v. Cranage- Where parties thus deliberately enter into an agreement which violates no rule of public policy, and which is free from all taint of fraud or mistake, there is no hardship whatever in holding them bound by it. If it’s a condition, even if it seems ridiculous, based on satisfaction, it is was plainly stated- you must abide by it.

a. Third Party Satisfaction- to reduce the risk of forfeiture associated with conditioning performance on a contracting party’s satisfaction, performance is frequently premised on the satisfaction of a third, independent party, such as an expert.

iv. Mitigating Doctrines- 1. Prevention: the No breach, compliance owing to an express condition precedent is not available to a party who prevents the event/condition from occurring. 2. Waiver and Estoppel: Contracting parties can waive express conditions in their Kx. The party waiving the contract may retract the waiver provided the time for the condition’s occurrence has not passed. The waiver cannot be retracted, however, if the other party has relied on the retraction (estoppel). Waiver of a condition after the time for its occurrence has passed may not be retracted, whether or not there has been reliance on the retraction. 3. Election: Where the time for the condition to occur has expired, the party whose performance depends on the condition being met may ‘elect’ to disregard the condition and proceed with performance.

a. McKenna v. Vernon- The condition was waived because of failure to abide by the condition throughout the process produced reliance on the contract.b. Hicks v. Bush- Parol evidence is always allowed to prove an express condition, provided the condition does not contradict the terms of the writing. The rule barring supplementary parol evidence when the agreement is fully integrated is subject to an exception in the case of a condition.

c. Constructive Conditions (No breach, Justification)- although I am not performing, my non-performance is justified by your breach. Thus there is an admission of non-performance, though not breach, such that the plaintiff’s breach forecloses the Kx action.

i. Four elements of Justification Response1. Plaintiff was in breach

a. Doctrine of Substantial Performance- Constructive Conditions (implied conditions in every contract) perform ENOUGH to satisfy condition. It doesn’t mean your not in breach. “breach was immaterial”, “mostly performed”. I did breach but they are not justified in noncompliance.

i. Jacob & Young v. Kent- Using Reading Pipe was a promissory duty for the builder’s performance, not an express condition. Full performance is a constructive condition to which the other must pay. Substantial performance is enough to satisfy the constructive condition.

2. Defendant’s duty to perform was dependent on plaintiff’s performance (MUTUALLY DEPENDENT COVENANTS)

a. Concurrent conditions: neither performance is a condition precedent, but issues a constructive condition. Where conditions are concurrent, both parties must at least ‘tender’ (offer, be prepared to offer) performance. In order for breach, there has to be a tender of performance. “I would have performed”.

3. Plaintiff’s performance was a condition precedent to defendant’s performance (DEPENDENT COVENANTS)

a. Kingston v. Preston- Kingston’s breach was justified by Defendant’s breach, not providing security. Each party’s performance is an implied condition that must be met before the other party must perform. b. Stewart v. Newbury- When there is no set timeline for pay, sufficient work must be done prior to a demand to pay.

i. Basic default rule: where one party is to do something, and the other pay, absent language to the contrary, performance by the party to do something is a condition precedent to the other’s having to pay. ALL JURISDICTIONS

4. Plaintiff’s breach was of sufficient magnitude to justify defendant’s withholding its performance (INDEPENDENT?)

ii. Mitigating Doctrines1. Express condition- Where a promissory condition is express, nothing short of strict adherence to the terms of the condition will satisfy it. In short, ‘real close’ won’t do to satisfy an express condition.

a. Failure of a condition, express or constructive, works a forfeiture on one party-the breaching plaintiff.

2. Substantial Performance- with the dependency of promises (one party’s performance is a constructive condition precedent of the other’s duty to perform) firmly entrenched in kx law, the risk of forfeiture is elevated and the potential for harsh results increases. It is one thing to

insist on meticulous satisfaction of an express condition precedent that was the subject of negotiation, it is another to insist on fastidious satisfaction of a constructive condition.

d. Practical Evidence TheoryV. Remedies

a. Cost to Complete- Fix errors and go back and do it how they asked. b. Diminution in value- How much value was diminished.