Upload Able Outline

8/3/2019 Upload Able Outline

1/33

Mutual Assent

Offer

Rule: Under the objective theory of contracts an offer must express commitment to enter into a

bargain in such a way that a reasonable offeree would know he has the power to create a contract

by assenting.

For: focus on words that express commitment; definite terms expressed indicating no need

for further negotiations; other factors in your favor; undermine plausible alternate

interpretations;

Against: focus on lack of commitment; categorize communication as preliminary

negotiations, or invitation to make offer; focus on plausible alternative interpretations;

Factors

Words: generally associated with promise; are they committal?

Terms: Include quantity and price terms? If no quantity, does language/circumstances

make unlimited Q reasonable?

Lots of terms or only a few? Any important terms left to negotiate?

Communication: Selective group? 1: 1? Initial or answer to inquiry? If inquiry, does it

ask for offer like Fairmount?

Is it clear that the party who sends the communication is negotiating withothers about the same subject matter?

Product Type: Is it real property or goods?

Surrounding Circumstances: Usages of the trade, prior practices of the parties,

Relationships of the parties.

Advertisement/Price Quote as Offer

Rule: Under the objective theory of contracts an offer must express commitment to enter into a

bargain in such a way that a reasonable offeree would know he has the power to create a contract

by assenting. An advertisement or price quote is usually an invitation to make offers, and not an

offer itself. However, an advertisement or price quote can be an offer if it expresses a definite

commitment to enter a bargain, is clear and explicit, and leaves nothing open for negotiations.Additional Factors

Quantity: Definite and Limited? Is there a max quantity per person?

Language: express commitment? Does the language limit liability? Is the language "mere

puffery"?

Placement: in a medium with a limited and focused market or is it something anyone can

see?

Category: Is it placed in a category that is already hardened?

Acceptance: Is a definite mode of acceptance stated?

Craft v. Elder & Johnston Co

Not an offer. Ad for "certain all electric sewing machine" as "Thursday Only

Special" in county-wide advertising paper was deemed not an offer. In the

absence of special circumstances an ordinary newspaper ad is not an offer, but

an invitation to negotiate.

Lefkowitz v. Great Minneapolis Surplus Store

Offer. Ad stating: "Saturday 9 AM 1 Black Lapin Stole. Beautiful, worth $139.50.

$1.00 First Come First Served."

Where offer is clear, definite, and explicit, and leaves nothing open for

negotiation, it constitutes an offer.


2/33


3/33

Retrieval: Difficult/Impossible once the message has been

dispatched.

Caution- Most courts will be cautious in extending the mailbox rule to other modes of

communication.

Intent Not to be Bound

Expressed Intent Not to be Bound

Rule: A court will not recognize a contract that expressly denies willingness to be legally

bound in situations where such an intention is not abusive or circumventing the law.

Employee Manual Disclaimers

Leikvold Rule- Contents in an employee manual, depending on the specific language

and circumstance, could amount to promises enforceable in an employee contract

unless employer "clearly and conspicuously" printed the contrary in the manual.

Employment Protection Act- Legislation stating unless manual specifically states it's

contents are contractual promises, they are assumed to be current statements of

policy subject to change.

Implied Intent Not to be Bound

Rule: Under the objective theory of contracts, some kinds of agreements, such as thosebetween friends and family members, are implicitly understood to have only social

implications and not legal ones. However, if a promise in a friendly or family context

manifests an intention to be legally bound, or if the circumstances surrounding the promise

reflect that intention, it can be legally binding.

Hamer v. Sidway

At a family celebration Uncle promised Jr. 5,000 to abstain from drinking, tobacco,

swearing, and gambling until he was 21.

He sent a signed letter to Jr. when he completed performance, indicating the Uncle's

seriousness in making the offer.

Termination of Offer

Revocation (See Also Irrevocable Offers)

Verbal: At any time before an offer has been accepted, offerees power to accept a

revocable offer terminates when he receives a manifestation of an intention not to enter

into the proposed contract. It is not necessary for the offeror to explicitly say in so many

words that the offer is revoked; expressions of doubt or indecision by the offeror are

sufficient to revoke the offer. If revocation is through publication it must be in a medium

equal to or better than the method of publicizing the offer.

Hoover- Offeree, who has not yet accepted offer but it has not yet lapsed,

wants to add terms to contract, says to offeror: "we're ready to go through with

it and I would like to discuss it. Offeror to offeree: "I dont know if we are

ready. We have not decided, we might not want to go through with it.

Implied through Conduct: The offeror may revoke by taking definite action inconsistent

with an intention to enter into the contract if the offeree receives reliable information to

that effect.

Definite Action- Potential buyer finds out about house being sold to someone else

satisfies rule; what if the house was only offered to another party? Uniqueness of real

estate makes it more likely for revocation.


4/33

Reliable Information: Hearing it from third party deemed reliable in D v D; what if 3rd

party known to be joker? Duty to find out about truth?

Lapse and Death

Lapse: An offeree's power of acceptance is terminated at the time specified in the offer. If

no time is specified, it terminates at the end of a reasonable time. If specification is

ambiguous it may nevertheless be helpful in determining what is a reasonable time.

"Reasonable time" factors:

Language used by parties (Prompt); Speculative nature of offer/market stability (or

lack thereof); Manifest purpose of offeror; Whether or not offeree acting in good

faith; Nature of transaction; Mode of offer transmission or requested acceptance;

Speed with which parties have communicated in previous transactions

Even if Stated, language/terms still require interpretation

Days- Business or Total?; Times Zones; Delays in Delivery- If offeree knows or should,

go by date it should have been received; confusing Dates

Death: Power of acceptance is terminated when the offeror dies, even if offeree is not

aware. Unless irrevocable, death terminates unilateral contract as well.

Rejection

Mirror-Image Rule- A common law rule stating that if the offeree responds with apparent

assent, but simultaneously adds, deletes, or changes any of the terms of the offer, then the

offeree's response is interpreted as an implicit rejection, terminating the offer & becoming a

counteroffer.

Clarification: A response might appear to add terms, but it may merely be clarifying a

term implicit from the outset. Different terms expressing the same idea will satisfy the

mirror-image rules are still considered to be assenting to the offer.

Fairmont- Seller denied that it was bound to a contract because buyer included

term "first-quality goods," but court ruled that words conveying the same

meaning were included in seller's letter, and therefore buyer did not add anyterms.

Modification v Suggestion- A response conveying a change in terms may be

interpreted as accepting the terms unconditionally and requesting a modification of

contract. This will largely be based on the language of the acceptance & the terms

added

Ardente- A letter accompanying a purported acceptance along with a check

$20,000 was found not to satisfy this rule because it sought "confirmation" that

certain "difficult to replace items are part of the transaction," which the court

found inconsistent with an "independent, collateral request."

Rejection and Termination Through Variance

Rule: An acceptance on terms varying from those offered is a rejection of the offer

unless the party who made the original offer renews it, or if the party who made the

original offer assents to the modification.

Minneapolis & St. Louis Railway- D offeredto sell 2000-5000 tons of iron rails. P

placed an order for 1200. D rejected. P then tried to order 2000 based on D's

original offer. D did not further communicate with P; denied existence of k; D

won in court.


5/33

Timing

1. Rejections are effective when they have been delivered and are available to therecipient (recipient may or may not have read rejection).

2. Death - Power is terminated when offeror dies even if offeree is not aware.3. Acceptance- Depends on (mailbox)(mode of acceptance)(type of k

acceptance[promise or performance])

Irrevocable Offers (Option Contracts)

Rule: An offer becomes irrevocable if the offeror has promised not to revoke the

offer, and if the facts support a ground for enforcement of the promise to keep the

offer open. Because option contracts protect the offeree in other ways, the Mailbox

Rule does not apply to option contracts in most states.

Grounds for Enforcement - (1) Consideration (2) Promissory Estoppel (3) UCC 2205

Firm Offer

(1) Irrevocable due to Consideration- If a party provided consideration for keeping

the promise open, separate from consideration for the entire promise, then the

promise is irrevocable. A view supported by the second restatement suggests a veryrelaxed standard for finding consideration because that because option contracts

serve a useful function. Under the restatement's view, an offer in (1) writing that is (2)

signed and (3) recites apurportedconsideration is irrevocable.

(2) Irrevocable due to implied promise v Promissory Estoppel?

Unilateral K Rule (3 Forks)

(1)The traditional rule holds that an offer to a unilateral contract is revocable

until the performance has been completed.

(2)The modern majority rule holds that an offer to a unilateral contract becomes

irrevocable when the "offeree begins performance." Under this view, if

performance has been begun, then full enforcement of the promise not torevoke is the only remedy.

(3) A minority view suggests that enforcement should be in-line with the degree

of reliance on the promise and the degree of the injustice created by the

reliance. This simplifies cases because a strict determination between "mere

preparations" and "beginning performance" won't be needed, and it is more

flexible in providing remedies ranging from full enforcement to minor reliance

costs.

(2nd View) Mere Preparations v. Beginning Performance (2nd View)

Factors: The extent to which the offeree's conduct is clearly

referable to the offer; The definite and substantial character of that

conduct; The extent to which it is of actual or prospective benefit to

the offeror rather than the offeree; Terms of the communications

between the parties; Their prior course of dealing, and any relevant

usages of trade.

(3rd View) Flexible Enforcement (3rd View)

Factors: This view looks to see if reliance is substantial (beginning

performance/ substantially performing) or minor (performing very

"minor" preparations) and if the injustice is great (lots of

time/money spent) or minimal, and enforces accordingly.


6/33

Policy: It is difficult to tell what is beginning performance, and what

is a mere preparation. Furthermore, such a dichotomy results in

little flexibility: either full enforcement or no enforcement.

Bilateral K Rule

Rule: It will be a very rare case where an offeree foreseeably relies on an offer

for a bilateral contract before binding the offeror, because he can accept and

create a contract simply by communicating a return promise. However,

reasonable reliance on a promise resulting in a foreseeable, prejudicial change

in position may be a compelling basis for implying a subsidiary promise not to

revoke an offer for a bilateral contract.

A party submitting a master bid must be able to rely on the sub-

contractor bids that come in, because it will be bound to the price it bids

at for the master bid. The main contractor cannot bind all the low bids at

that time because it does not know if it will be getting the main contract.

The question becomes is it reasonable to hold a party to the bid it makes

absent an option contract. On one hand, sub contract is submitting a bid

in order to win the k. Therefore it is reasonable for the main contractor torely on the subcontractors bid based on the subcontractors self-interest.

However, rather than relying on something that is subject to change the

main contract could have expressly made the bids binding by negotiating

an option contract. Whether that is the custom of most contractors when

dealing with sub-contractors is relevant in determining if it is reasonable.

Drennan v. Star Paving Co. (1958)

Facts: D submitted a bid by phone to P. P used the lowest bids

(including D) to prepare master bid on project. P was awarded the

project. Told D. D stated it could not do the work for less than

approximately twice the bid price. In a close decision, court ruled

for P.Thoughts: P had to rely in order to submit master bid; but is it

reasonable to rely on a bid so much lower than the rest? Did asking

D to repeat bid satisfy reasonable doubts it was a mistake?

(3) 2-205 Irrevocable Firm Offer

An offer by a merchant to buy or sell goods in a signed writing which by its

terms gives assurance that it will be held open is not revocable, for lack of

consideration, during the time stated or if no time is stated for a reasonable

time, but in no event may such period of irrevocability exceed three months;

but any such term of assurance on a form supplied by the offeree must be

separately signed by the offeror.

Is the sale for goods?

Is the offer from a merchant?

Who supplied the form?

Is it in writing and signed?

Do the terms assure that it will be held open?

Does it state how long it will be held open?

Has it been more than three months?


7/33

A Contract, But Under Which Terms?- Common Law & UCC in Conflict

Common Law

Mirror-Image Rule- A common law rule stating that if the offeree responds with apparent assent,

but simultaneously adds, deletes, or changes any of the terms of the offer, then the offeree's

response is interpreted as an implicit rejection, terminating the offer.

Last-Shot Doctrine: The purported acceptance denied by the mirror-image rule then becomes a

counter-offer; if the parties begin performance then the counter-offer's terms will govern the

contract.

UCC 47-2207. Additional terms in acceptance or confirmation

A. A definite and seasonable expression of acceptance or a written confirmation which is sent within a

reasonable time operates as an acceptance even though it states terms additional to or different from

those offered or agreed upon, unless acceptance is expressly made conditional on

assent to the additional or different terms.

B. The additional terms are to be construed as proposals for addition to the contract. Between

merchants such terms become part of the contract unless:

1. The offer expressly limits acceptance to the terms of the offer;2. They materially alter it; or

3. Notification of objection to them has already been given or is given within a reasonable time

after notice of them is received.

C. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a

contract for sale although the writings of the parties do not otherwise establish a contract. In such case

the terms of the particular contract consist of those terms on which the writings of the parties agree,

together with any supplementary terms incorporated under any other provisions of this title.

Section 1 of 2207- Is there acceptance, forming a k?

If there is a (1) definite expression of acceptance that is (2) seasonable includes (3)

additional/different terms but is (4) not expressly conditional on their inclusion then there is a K.Not seasonable= not acceptance

Not definite expression of acceptance= not acceptance

Expressly conditional on inclusion of additional or different terms= not acceptance

Section 2 of 2207- If a k is formed under section 1, what becomes of the different/additional

terms?

Analysis (a)

(additional)

(1)Terms do not become part of the k unless both parties are merchants.

(2) The term does not enter the k if it materially alters it.

(3) The term does not enter the k if the offer limits acceptance to its terms

(4)The term does not enter the k if the offeror objects (during negotiations or seasonably

after receiving acceptance)

(different)

Rule: The majority of courts knock out the different terms (even if additional terms would

pass muster) and replace them with UCC standard gap-filler provisions. Some courts will

treat different the same as additional and only do analysis (a).


8/33

Section 3 of 2202- What are the terms where mutual performance, not writings, establish k.

K will be formed using the terms that the parties do agree, along with UCC gap-fillers.

Different & additional terms will be knocked out.

Beyond 2207- Interpretation/Impact of Terms Disclosed After Delivery

Shrink-wrap Agreements

Step-SaverData Systems, Inc. v Wyse Technology

Parties agree to a contract over the phone. There is no indication over the phone that

the contract will be subject to further agreement to a license. The license agreement

disclaimed all warranty. It also provided that the product could be returned if buyer

disagreed with terms. Buyer continued to buy even after seeing license. Court

nevertheless applied 2207 in favor of buyer, stating that licensing terms came after

contract had already been formed and were material alterations that the buyer did

not expressly agree to.

ProCD v ZeidenBerg

2207 not used. Buyer made a purchase of software in store, forming a K. The box

indicated further licensing agreements would be necessary, the terms of which wereexplicated upon using software. B did not adhere to license agreement, because K was

already formed. Court found that K was formed between B and S at purchase, but not

between B and L until B agreed to licensing. B should be bound by those terms.

Defontes vDell

2207 not used. Contract formation occurs when the consumer accepts the full terms

after receiving a reasonable opportunity to refuse them. Seller has burden of

reasonably inviting acceptance by making clear in the terms and conditions agreement

that (1) accepting the product the consumer is accepting the terms and conditions

contained within and (2) consumer can reject the terms and conditions by returning

the product.

ALI- Buyers should only be able to return open software if opening the package is the only way tosee the terms. Otherwise they could open, copy the cd, then return it. Software transferors should

disclose terms on their website prior to a transaction and should give reasonable notice of and

access to the terms upon initiation of the transfer, whether it is over the phone, the internet, or

the store-counter.

Consideration & Substitutes for Consideration

Consideration

Rule: Consideration requires a bargained-for exchange. Each party must exchange a promise or a

performance that either adds a legal obligation or restricts the promisor's freedom to engage in

legal activities. The exchange must meet the requirement of reciprocal inducement, which deals

with the relationship between the promise or performance exchanged. Each party's promise or

performance must be a genuine inducement for the other party's promise or performance. So

long as each party is genuinely induced by the other's promise or performance, there is no

requirement that each party benefits from the other's in any tangible way. There is no

requirement of economic equality between exchanges. Furthermore, consideration doctrine does

not require that the sole inducement of the exchange is the other party's promise or performance,

merely that it is an inducement.


9/33


10/33

the absence of a stated estimate to any normal or otherwise comparable prior output or

requirements may be tendered or demanded.

Implied Obligations = Valid Exchange

Rule: Under the objective theory of contracts If a party intended to make a promise and

manifested that intention to the other party in some way, an obligation can be implied in fact

even if the party failed to clearly express the promise in words.

Merrimac Chemical Co. v. Moore

MLC was past-due on account to MCC. MLC account could not go on without

payment. D, a major stockholder in MLC, would not make a payment, but signed a

guaranty to MCC to pay MLC's debt if MLC failed to do so. No discussion between D

and MCC with regards to MCC suing MLC, or that guaranty was in exchange for

forbearing from filing suit. No legal action was taken for a year after MCC took

guaranty.

Rule: The rational implication from this interaction in these circumstances is that D

signed the guaranty for the purpose of securing MLC immunity for a reasonable time

from legal proceedings by MCC.

Wood v. Lucy, LadyDuff-GordonWood's business was set up to perform the tasks. He had exclusive privilege to market

her designs. He also agreed to take out necessary copyrights and patents. Contract

required him to give half of profits to P. If D made no efforts to sell, P would make no

money. Cardozo inferred that is not what the parties intended.

Rule: Such an agreement contains an implied term that the parties will use reasonable

efforts in performing their obligations.

Pre-existing Duty Rule

**(DOES NOT APPLY TO SALE OF GOODS UCC 2209)**

**(Some states have abandoned it in other contexts [either complete abandonment or where

there is a signed, written modification)****(If K has been rescinded, and a new k formed, then PED does not apply)**

Rule: When modifying an existing contract, both sides must be genuinely induced by new

consideration. A minority view supported by the Second Restatement that allows one-sided

modification if it is fair in light of unforeseen circumstances.

Policy: Protecting party in vulnerable position (Alaska Packers) from coercion; some states allow

3rd party to make agreement w/o consideration. Argument that modification without

consideration, in the absence of coercion or any vulnerability of a party, might be ok.

Consideration & the UCC

Firm Offer

2-205: An offer that is not revocable for lack of consideration

Elements: (1) an offer (2) by a merchant to buy or sell (3) goods (4)in signed writing (5) which by

its terms (6) assures that it will be held open

Time: 3 Months is the absolute max without further consideration, even if a longer term is

stated. Offer will be irrevocable for time stated, or if not time stated a reasonable time. In

either case.

Offeree: If the term of assurance comes on a form supplied by offeree, then it must be

separately signed by the offeror.


11/33

Consideration Substitutes

Past Performance/ Moral Obligation

Rule (Fork): The majority of courts follow the traditional rule that moral obligation is not sufficient

consideration to support a promise with regards to a past performance unless it is to renew an

obligation that once was part of an enforceable bargained-for exchange. A minority view

recommends extending the consideration doctrine to include enforcement of promises induced by

past acts that provided a material and substantial benefit to the person of the promisor, especially

if the promise is given partly in recognition of injuries sustained by the promisee in rendering the

act. The restatement supports the minority view and suggest that such promises should be

enforced to the extent necessary to prevent injustice.

Mills v Wyman- Traditional rule; no enforcement of promise to pay for injured son's

hospitable treatment

Webb v McGowan- Minority view: enforcement of promise to compensate employee for

spur of the moment act that saved promisor's life but resulted in serious injury for

employee.

Harrington v Taylor- Rejects minority view; no enforcement of promise to compensate

neighbor/promissee injured deflecting axe intended for promisor's head.

Promissory Estoppel (See AlsoOption Contracts)

Rule: Even if there is no contract, perhaps due to lack of consideration, a promise may be

enforceable under a theory of promissory estoppel. A promise which a reasonable person would

expect to induce reliance, and does induce such reliance, is enforceable to the extent necessary

to prevent injustice. While traditionally courts have enforced the k to it's full extent promissory

estoppel may be applied flexibly and only compensate for reliance costs.

Necessary Elements to Address:

(1) Unambiguous promise

(2) Reliance on the promise-or would the party have done it anyway?

(3) Is the reliance foreseeable and reasonable?

(4) Is there injustice, is the party damaged by the reliance?(5)(Remedy) Flexible Application v traditional full enforcement!!

Donation To Charitable Event (See also Consideration)

Rule (Fork): Most courts will apply the requirement of consideration to donatory promises but will

usually stretch the doctrine and enforce the promise with a minimal showing (minimal evidence

that recipient will use the money in a certain way; multiple donors making simultaneous promises

mutually induced each other.) When consideration is clearly absent a court may look to

promissory estoppel, and most courts apply the traditional promissory estoppel rule. A minority,

supported by the second restatement, suggests an approach that would make the promise

binding without proof that the promise induced action or forbearance.

Quasi-Contract

Rule: If the parties do not exchange promises, or if the promises are too indefinite for contractual

relief, but one party has performed to the benefit of the other, then a party may recover

restitution under a theory of quasi-contract. P must prove that he (1) unjustly (2) enriched the

other party. Enrichment refers to a measurable benefit transferred to the other party. Enrichment

is unjust if P reasonably expected compensation at the time of transferring the benefit. If P

imposes benefit then he is an officious meddler, and if P does not expect compensation then he is

a volunteer: in both cases, enrichment is just & P will not be compensated.


12/33

Emergency Services (Unjust?): When a party renders emergency services, they are

presumed to be acting voluntarily and without expectation of compensation. This can be

rebutted if P was acting in a professional capacity, performing burdensome or hazardous

services, or if the for some other reason it is clear (rich D likely to compensate)that expected

compensation at the time of performance.

(1) Professional Capacity Is job relevant to service performed?

(2) Burdensome or Hazardous Services Physical demand of task; evidence of physical

or emotional distress; risk to safety; time committed; requiring special knowledge,

skill, or training

(3) Rich D likely to compensate Would P know d was rich? (car, clothes, reputation)

Remedy: Where unjust enrichment is proved, P is entitled to restitution measured by the

reasonable value of the benefit that was transferred to the victim. Where possible, damages

should be measured by the value that the recipient places on the benefit (generally feasible in

cases where D's life is saved; market value of services more reasonable.)

Ch. 7 IndefinitenessRule: A court cannot enforce an agreement unless it has a reasonable basis on which to determine the

rights and duties of the parties and can fashion a remedy. (For a contract to be enforceable, it must be

sufficiently definite that a court will have a reasonable basis for determining each party's expectation

interest.)(This is especially true with indefinite agreements to agree which undermine mutual assent.)

Where the parties are beyond offer and acceptance and have clearly intended to enter a contract, a

court will not lightly let the it fail for definiteness.

Flexibility: If the remedy for a claim is flexible (such as recovery necessary to prevent injustice under

promissory estoppel) then indefiniteness in the expectation interest will not necessarily hinder recovery

under other measures.

Clarifying Indefiniteness

(1) Statements/Actions made by the parties (subject to parol evidence rule);

(2) Custom/trade usage;

(3) External events (wage increases tied to cost of living index);(4) Statute (UCC/Illegality/Public Policy);

(5) Judicial Gap Filling.

Judicial Gap Filling: Common Law

Courts will normally feel comfortable filling gaps in minor terms with a standard of reasonableness, but

will stop short of acting as a contract maker. If a missing term is not otherwise clarified, a court must

determine whether it can fill the gap through (1) interpretation or (2) the application of general default

standards.

Wood v. LadyDuff- Implied obligation of "reasonable efforts" to avoid consideration

indefiniteness.

Pyeatte- Court could not make k definite where agreement did not specify what field she would

study; where she would study; whether she would go full or part time.Agreement to Agree- Common Law & UCC in Conflict

Rule: The omission of a term may indicate either the parties did not consider the term essential or it

may indicate they were deadlocked in negotiations. Where parties omit a critical term (such as_____) it

raises strong suspicions that they reached a deadlock in negotiations on that term, and "agreed to

agree" on the term through negotiations at a later date. Court's following the common law rule will find

the contract unenforceable unless the agreement to agree identifies an objective basis for determining

the final term that the parties obligated themselves to: they will not merely fill these gaps in with what


13/33

is "reasonable." The UCC (2305) on the other hand will enforce a contract where parties failed to agree

on price even if they have no provided no objective basis of determining that price, unless there is

credible evidence that parties did not intend to reach agreement without a price term.

Critical terms: price; quantity; description/quality of subject matter; etc.

UCC Deviation from Common Law

2-305 Supplies a price if parties omit one, and even rescues a failed agreement to agree on price,

providing a reasonable price if "the price is left to be agreed by the parties and they fail to agree."

However, if the (1) absence of a price term is accompanied by (2) credible evidence that the

parties did not intend to reach agreement without a price term, then 2-305 will not save the deal.

Limitations: The UCC will fill almost any gap, but not "gaping holes in a multi-million dollar

contract that no one but the parties themselves could fill."

Ch. 8-9 Mistakes In Formation/Grounds For RescissionIncapacity

Duress

Undue Influence

Misrepresentation

Mutual Mistake of Fact

Illegality

Public Policy

Unconscionability

Severing Clauses to Avoid Rescission

Restitution in Rescinded Contracts

Incapacity

Mental Incompetence: Under the traditional rule, the impaired person will lack contractual capacity at

the time of contracting if he was unable at that time to understand the nature and the consequences of

his actions, regardless of whether he objectively appeared to be fully mentally competent. In a minority

trend, a few states allow for rescission if the party is unable to act in a reasonable manner in relation tothe transaction (i.e. they are just compulsive) and the other party has reason to know of his condition.

Under this trend, a party can avoid a contract even if he understood the terms, if a mental disease

rendered him unable to resist.

Minors: Bright-line. If contract made while party is under (18 - 1 day), then minor can void the

contract.

Rescission- Cancel contract and grant restitution to the parties

Necessities- Minor will keep the necessity, but be bound to pay restitution of the reasonable value

of the necessity

Ratification- Once minor turns 18, she can ratify expressly or by making payments or accepting

performance, or by disaffirming within a reasonable time.

Intoxication Rule: If a person is impaired by intoxication rather than mental illness or injury, then thecontract is not voidable at that person's option unless the other party had reason to know that the

intoxication was sufficient to rob the person of his mental capacity.

Duress (**Is PED Implicated as well**)


14/33

Rule: Physical duress exists when apparent assent is compelled by a credible threat of imminent physical

harm. A contract can also be rescinded on grounds of economic duress if a party makes an improper

threat that overcomes the other party's free will, leaving that party with no reasonable alternative

except to agree to the modification and later sue for rescission.

(1) Improper Threat

Threat to breach an existing valid contract? (Improper)

Blackmail? (Improper)

Threat to not contract at all/not contract in the future? (Proper hard bargaining.)

(2) Overcoming free will

Economic duress is not found lightly

Can party withstand the effects of breach/improper threat, including waiting out the judicial

process?

Is permanent damage threatened? (to reputation/business relationships/etc.)

Will threatened party be forced to breach on their own obligations?

-Could they get an alternate supply of the necessary good?

Undue Influence

Rule(FORK): If a superior party in a confidential, fiduciary, relationship applies inappropriate pressure, ortakes advantage of an infirmity or weakness, during bargaining may create grounds for rescission on the

basis of undue influence. Minority View: In some states if a party seeking rescission establishes a

confidential relationship the burden of proof shifts to the other party to establish that the transaction

was fair & not the result of exploitation.

Note: Not every close relationship is a confidential relationship in terms of undue influence.

(Seems to hinge on dependency; Re Scott's Estate brother & sister not deemed in confidential

relationship because sister (who had physical limitations) was capable & not dependent.

Misrepresentation

Checklist

Relationship between parties create duty to disclose?Affirmative Falsehood?

Half-truth?

Active Concealment?

Material Fact?

Reliance?

Jusitifiable?

Rule: A party may rescind the contract by showing that the other party made a false or otherwise

misleading statement of material fact upon which adversely effected party justifiably relied. (Discuss

elements that are easily satisfied with one/two sentence dismissals).

Equitable: Rescission is an equitable remedy, and it does no more than return the parties to their

pre-contractual status quo, so courts will sometimes adopt the flexible approach of assessing the

elements of the claim as a whole. Sometimes special circumstances justifying relaxing the

standard for one or more elements. (Ex- if misrepresentation is egregious, court may be satisfied

w/ relatively weak showing of justifiable reliance.)


15/33

(1) Misrepresentation of Material Fact

(a) Facts that necessitate disclosure

Rule: Non-disclosure is generally not misrepresentation unless the parties fall into one of the excepted

categories. [Relevant exceptional categories.] If no exception applies, a party must still avoid making

false or otherwise misleading statements of material fact

Exceptions: Sales of real estate; parties in a fiduciary relationship; if the other party would place an

unusual degree of trust (because of a personal or professional relationship: such relationships will not

be at arm's length); when a party becomes aware that the other is "operating under a mistaken

perception of a material fact" then it has a duty to disclose if it has made "a partial or ambiguous

statement "requiring additional disclosure to avoid misleading; or if it possesses superior knowledge,

not readily available to the other."

Types of Misrepresentation

Affirmative Falsehood: An affirmative statement that turns out to be false, even if the speaker

believes it to be true. (Ex. Stadium w. 13,000 seats v 10,000)

Half-truth: Addresses a topic, but provides less than all of the important information known by

the speaker relating to that object.

Kannavos- After telling buyer how profitable rental units are, neglects to tell the buyer that

the rental units are in violation of zoning ordinances.Active Concealment: Preventing the other party from discovering important information about a

transaction.

Ex- Seller uses a pretext to divert prospective car buyer away from hill during test drive to

prevent buyers discovery that car operates poorly uphill.

(b) Materiality of fact

Rule: A fact is material if it is important to the bargaining and might influence a partys decision to enter

the k or would otherwise effect the outcome in a non-trivial way. Furthermore, it must be a fact, and not

an opinion, although the opinion of a superior party in a fiduciary relationship may be considered fact.

(i) Materiality-

Ex-A death in the house you are trying to sell: material fact? AZ Statute says no. In statesthat do not have statute, you have to see if (1) influence the other party's decision to enter

the contract or (2) alter the bargaining in a non-trivial way. It probably would.

(ii) Opinion-

Sales puffing: boasting during a sales pitch, reasonably interpreted as a statement of

opinion, which buyer ought to take w/ a grain of salt.

Vokes- Dance Instructor's lavish praise for student who can't even hear beat results in

$31k in dance lessons, but court rescinds k because instructor's statement of opinion

construed as fact to a novice, justifying reliance. Fiduciary relationship existed as well.

Value: Misrepresentations as to value (ambiguously saying that quality & value of cattle is

high; would be misrepresentation if lied about age, health, or condition of cattle) cannot

ordinarily constitute fraud because they are generally to be regarded as mere expressions of

opinion involving a matter of judgment and estimation as to which men may differ. The

hearer should investigate and judge for himself.

(2) Justifiable Reliance

(a) Reliance

Rule(Fork): Once a party begins an investigation with regard to the other party's representations, he

cannot assert that he relied on those representations if he is allowed a full and fair opportunity to

investigate.


16/33

Sorrells buyer was unhappy about amount of cattle purchased saying seller misled; but because buyer

was an experienced cattleman, and because he did not appear to believe the statement because he did

his own research in determining how many cattle there were not the misrepresentation.

(b) Justifiable

Rule: Relying on obviously misleading facts, or misrepresentations of facts that could easily be

discovered, is not justifiable.

Isaacs- K not rescinded because Bishop contributed by not reading promissory note that was

handed to him by someone who he knew to be Isaacs lawyer.

Kannavos- would have had to go to an office to find out zoning ordinance.

Mutual Mistake of Fact

Rule: A claim for mutual mistake requires proof that both parties were mistaken at the time of

contracting about a fact that went to the essence of the contract. The adversely affected party may then

rescind the contract unless he bears the risk of the mistake.

(1) Both parties mistaken

Did both parties share an assumption? (does one think it is fine art for sure, while the other

thinks it's decorative art for sure, or are they both certain it's decorative?) Assumption neednot be expressed in k; if parties later express shock at developments, they probably were

mistaken

(2) Fact going to essence of k

Must be more than a mistake of value; parties would not have contracted (Renner) or

animal is essentially different (beef cow v breeding cow)

Advance argument if it would make performance more difficult (operate at a loss); not

necessarily a winner though.

(3) Allocation of Risk

Rule: A party bears the risk of a mistake when:

(a) the risk is allocated to him by agreement of the parties

-Is the subject matter under dispute addressed?-Does the k specifically allocate risk, or only inferentially (Ex.- D must excavate all dirt,

rock, and other material)

(b) he is aware that he has only limited knowledge with respect to the facts to which the

mistake relates but treats his limited knowledge as sufficient

-Had a chance before contracting to perform tests/find truth but did not

(c) One party in a unique and exclusive position to gauge the risks before contracting

-Ex Diamond appraiser

Illegality/Public Policy

Checklist

(1) Is statute being Violated

(2) Is policy underlying being violated

(a) Court should/Shouldn't defer to legislature

(b) K law should/shouldn't defer to other field

(3) Is there reason to enforce even if violated

(a) Competing Policies

(b) Unequal violation

(c) Substantial Forfeiture

(i) rewarding unscrupulous party?


17/33

(4) Is Illegality Severable?

(a) Severability clause?

(b) Illegality essential to contract's consideration?

(c) Clause discrete/readily severable, or lots of illegality throughout k?

Illegality/Public Policy

Rule: Contracts that call for an illegal performance are generally unenforceable, and courts usually won't

even grant restitution to the victim of breach. Courts will apply the same rule even where the terms of a

contract are not in violation of the law if they find the terms to violate the public policy underlying the

statute. If the party seeking relief is less culpable in the illegality, was simply less willing to take

advantage of the other party, or would suffer a substantial forfeiture, then the court may grant

restitution or even fully enforce the contract.

Arguments

(1) Is public policy actually being violated? Why/why not?

(a) Court should/Should not defer to legislature

(2) Equal fault in violation?

(3)Would one party suffer a substantial forfeiture?

(a) Would non-enforcement reward the more cunning, deceitful party?(4) Competing policies? (If non-compete clause, go to that section)

(5) Possible to sever illegal provisions & enforce rest of k? **Addressed Below**Most Common**

Contracts Commonly Violating Public Policy

(I) Non-Compete Clauses

Rule: Contracts that call for an illegal performance are usually unenforceable and courts won't even

grant restitution to the victim of breach; the same rule is generally applied if the term is not strictly

illegal but nevertheless violates the public policy underlying the law. However, where competing public

policies are in conflict with regards to a contract term, such as with employee non-compete agreements,

a court may enforce the contract. Generally, an employment non-compete clause that restricts the

former employee with regards to (1) time period, (2) geographic area, and (3) scope of activities nomore than is necessary to protect the employer's legitimate interests will be considered reasonable and

enforceable.

Policies to Consider: An employee non-compete clause may protect the legitimate interests of the

employer in restricting competition from a former employee, but on the other hand it restricts an

employees ability to sustain a livable income, & potentially denies the public of goods and services.

(1)Time Period

-How long will employee's competitive advantage last?

-Court's will generally find that employer's interests are protected adequately by 1 year of non-

compete

(2)Geographic Area

-How narrowly can court construe term to avoid policy violations; what is natural meaning (argue

both)

-Where is Employee's business based/where is it poised to expand (Reasonable on first/arguable

on second)

(3) Scope of Activities

-Remember the good being provided; remember that lawyer's are excepted (due to client needs)

-Can it be narrowly construed to avoid public policy violations? What is natural meaning? (argue

both)

-What activities did employee perform & what training did employee receive?


18/33

-Exposure to customers, suppliers, or trade secrets? (might give employee advantage with respect

to all aspects)

-Does employee have education/experience in another field allowing them to transition? (more

useful for employee to argue if he/she doesn't)

**New Business** Did employee learn & benefit from employer, or vice versa?

Saving Unreasonable Clauses

Rule: Under the traditional rule, courts finding that a non-compete clause violating public policy by

being unreasonably broad would strike the entire contract clause out as unenforceable. Many courts

have found this overly harsh, as employers do have a legitimate interest to protect. These courts will

modify the clause so it is no longer unreasonable, and then enforce it, but will normally only do so if

there is some evidence that the parties intended to allow such modification. A minority will simply re-

write the terms. Most courts will use the "blue pencil rule" to make an unreasonably broad non-

competition clause reasonable by striking out unreasonable provisions.

(1) No enforcement of the clause (Traditional)

(2) Modification of the clause (Modern)

(a) Is there a severability clause, or other indication parties intended to allow modification?

(b) Flexible revision- (criticism)Allows employer to draft unreasonably without fear; forces

court to "write" rather than enforce bargain.(c) Apply blue pencil (majority) Allows court to avoid "writing" k; whether it forces

employers to draft reasonably depends on step down clauses

(3) Blue Pencil and Step Down Clauses -Analysis

Rule: A court may cross out an unreasonable covenant if

(1) there is a narrow range(this may not be completely necessary if other factors met;

Good-faith argument)

(2) the alternatives presented are definite,

(3) the alternatives are consistent with the underlying provision, and

(4) the alternatives are easily severable

Reasoning: The parties contemplated the several options when drafting; it's not a significant

modification.

(II) Agreement to Share Earning



illegal but nevertheless violates the public policy underlying the law. However, if the party seeking relief

is less culpable in the illegality, or would suffer substantial forfeiture (for being less willing to take

advantage of the other party?),restitution or even fully enforce the contract may be granted.

Policies/Statutes Implicated

(A) Community Property Law? (B) Prostitution? (C) Cohabitation? (D) Gay Marriage?

(A) Community Property- Is statute designed to cover this relationship, or only marriages/straight

marriages?

(B) Prostitution- To the extent that the contract proposes exchanging money for sexual intimacy,

it is in violation of statutes prohibiting prostitution or at least in violation of the policy underlying

the statute.

Is the provision to exchange sexual intimacy essential to k?

-If prostitution not strongly implicated, why should the fact that parties are co-

habiting effect their ability to form a contract to share earnings?

Is the provision easily severable?

Valid consideration outside of the sexual intimacy?


19/33

-Cook held that an agreement to share income is sufficient

-Is one party the sole income earner, trading that income for some booty?

-Carroll ruled that homemaking services would suffice.

-In CA it was enough that actress put her own career on hold and served as

companion/homemaker

(C) Cohabitation (Still on books?)- Would violation of a statute that has fallen into disuse be

enough cause to avoid enforcement?

(D) Gay Marriage- If state has made a policy decision that marriage is between a man and a

woman, then does a contract that essentially does the same thing violate that policy? (allows

evasion of the statute; still, if gay relations not banned then contract doesn't strictly violate

statute; if constitutional then arguably doesn't violate policy)

(III) Surrogacy Contracts



illegal but nevertheless violates the public policy underlying the law. However, if the party seeking relief

is less culpable in the illegality, or would suffer substantial forfeiture (for being less willing to take

advantage of the other party?),restitution or even fully enforce the contract may be granted. (There aremany states where statutes make the selling of babies illegal; a contract for surrogacy may be similarly

illegal, and if not it still may offend the public policy underlying the statute.)(Family law statutes are

often designed to both protect the best interests of the children involved, and to keep them with their

biological relations in custody battles; surrogacy contracts may offend the policies underlying these

statutes.)

Policies/Statutes Implicated

Adoption/Family/Custody Law- Bans selling babies; surrogacy similarly illegal? Violation of policy

underlying? Are important state policies, like the child's best interest, put at risk?

(a)placing children based on money rather than their best interests

(i) creating a market for trafficking eggs?

(ii) will process of obtaining custody through legal remedy in and of itself be damaging tochild? (should be weighed against whatever state has in place)

(b) protection of surrogate mother

(c)protection of economically needy

(i) Biology factors

(i) partial surrogate (biologically related)

(ii) complete surrogate (not biologically related)

Contract Law- Freedom to contract;

(a) allows people who would not be able to have biological children to do so

(b) specific enforcement is already a exceptional remedy; is it appropriate here?

(i) If not, how are damages calculated?

Exculpatory Clause-

Unconscionability

Umbrella Rule: The test for procedural unconscionability looks for unfairness in the bargaining process.

Courts will look at the parties relative bargaining power, whether one of the parties engaged in sharp

practices likely catch the other by surprise, and if they entered into a contract of adhesion where one

party had to "take it or leave it." The test for substantive unconscionability examines the fairness of the

terms, looking for one-sidedness, oppressive terms that work solely to the disadvantage of one party,

and for an imbalance in the obligations and rights of parties. Most courts will require elements of both

procedural and substantive unconscionability, though many will allow for a strong showing of one to


20/33

make up for a weak showing of the other. Arizona has adopted a minority view that will allow recovery

for a showing of only substantive elements.

**Arbitration Only** When testing for unconscionability in arbitration clauses, one must be wary of the

Supreme Court's holding in ATT, which held that the Federal Arbitration Act precludes claims of

unconscionability in arbitration cases; however, this arguably only applies to a particular CA class action

waiver that had particularly generous terms for the plaintiff, and does not hold that that there can be no

successful claim that an arbitration clause is unconscionable.

(A) Look for and discuss these elements of procedural unconscionability

(1)Bargaining Power

(P)Discuss parties relative sophistication, & was it exploited

(argue both ways if it was not fully exploited, but existed)(consider business acumen;

age; education; intelligence)

(S) Were there alternative sources of supply for the good in question?

(2)Sharp Practices (unfair surprise/lack of objective conveyance undermines mutual assent)

Was clause hidden (fine print; complexity of k)

Language barrier; not explaining/disclosing/misrepresenting terms;

(3)Contract of Adhesion

Take it or leave it; no negotiations(B) Look for and discuss these elements of substantive unconscionability

(1) one-sidedness

(2) oppressive terms working solely to the disadvantage of weaker party

(3) an imbalance in the obligations and rights of parties (significant price-cost disparity)

(4) Do combination of factors weigh against weak party?

Unconscionability & Other Doctrines

Mandatory Arbitration Clauses: Mandatory arbitration clauses are frequently challenged on grounds of

unconscionability or violation of public policy if they restrict important remedies or place greaterburdens on employee than employer.

(1) Neutral Arbitrators?

(2) Limitations on Discovery?

(3) Transparency of Process? (Written award, etc.)

(4) Arbitration Will Provide All Types of Relief Available in Court

(5) Require employees to pay unreasonable costs? (Arbitrators fees, etc.)

Mutual Assent If terms are hidden, too small to be readable(movie ticket), or not understandable by

other party (say employee does not speak English but signs English K) issues of mutual assent are raised

as well as unconscionability.

Accord and Satisfaction: cashing check w/ small print saying that if it is cashed it is full payment.

Public Policy Via Exculpatory: Raises issues of public policy as well as unconscionability. Public policy will

look to degree of culpability sought to excuse(negligence v intentional), as well as the necessity of the

activity. Unconscionability may push a close public policy issue that does not succeed over the top if it

can be considered harsh provision (close q's of public policy probably are: intentional tort &

recklessness = unconscionable, gross negligence = probably unconscionable, and simple negligence =

probably not) that was hidden in fine print n the middle of numerous terms.


21/33

Severing Provisions**See Also; Blue Pencil Rule**

Illegality/Violation of Public Policy/Unconscionable

Rule: In determining severability, the court will give effect to the manifested intent of the contracting

parties. Where the illegal clause is discrete and readily severable, and the parties have included a

severability clause, a court feel comfortable severing the clause and enforcing the contract. However, if

the illegal provision is essential to the contract's consideration, or if the contract is pervasively infected

with illegality the court probably won't be able to sever the provision and enforce the contract.

(1) Severability clause?

(2) Illegality essential to contract's consideration?

(3) Clause discrete/readily severable, or lots of illegality throughout k?

Policy- Severing clauses and enforcing the rest incentivizes drafter's (typically employers or large

corp.'s) to draft broadly, since most people will abide without challenge and those that do will

simply have a more reasonable clause. However, if illegality pervades the k, then it will not be

severable and drafter will be punished.

Restitution for Rescinded Contract

When a party rescinds a contract on the ground of mutual mistake he is entitled to restitution for any

benefit that he has conferred on the other party by way of part performance or relianceRespondents are entitled to their down payment, plus the amount by which their efforts increased the

value of the petitioner's property, minus an amount which represents the fair rental value of the land

during their occupancy

Reformation for Fraud or Clerical Error

Occurs when someone translates the final agreement to another medium and then - either through

fraud or clerical error - changes the terms of the actual agreement in the new medium

Ch. 10 Interpreting the ContractParol Evidence Rule

Implied ObligationsInterpretations

(A) Parol Evidence Rule **UCC 2202**

Umbrella Rule: The (alleged)(written/oral) agreement to ____ is not found in the express terms of the

written agreement. That the parties signed to the terms of a written agreement suggests they intended

to combine at least some, but not necessarily all, of their prior agreements into a final integration. If the

agreement is a (1) full integration, then the parties can only introduce parol evidence with regards to a

(2) separate collateral agreement, or evidence to (3) interpret a term in the agreement. If the agreement

is only partially integrated, then the parties can also introduce parole evidence that is consistent and

supplemental to the terms of the agreement.

ExceptionsFraud: Misrepresentation, duress, mistake, and potentially other mistakes in formation

(unconscionability?)

Conditions: Some courts will even allow parol evidence of a condition (k contingent on x) if

it does not contradict written agreement.

(1) Complete or Partial Integration?

Focused Rule Traditional rule looks only at the written terms of the document; if they appear

sufficiently formal and complete, then there is a full integration even in the absence of a merger


22/33

clause. The majority view allows the court to consider all relevant evidence, including the parol

evidence, to determine whether the parties intended a complete or partial integration.

(a) If there is a merger clause, then agreement is full integration w/ regards to subject

matter.

(b) If not, traditional consider formality, level of detail for duties, etc.; Modern considers

much more.

(2) Separate, Collateral Agreement?

Focused Rule: If the agreement is a complete integration, then it will supersede consistent,

additional terms with regards to the subject matter of the complete integration.

Same Subject Matter? Construed broadly? Construed narrowly?

New Consideration?: If there is no consideration for the oral agreement outside of that

offered in the integrated writing, then strong argument it relates to same subject matter.

Subsequent Agreements? Agreements after the integrated writing are not barred by the

parol evidence rule.

(3) Parol Evidence to Interpret

Rule: Parol evidence may be admitted to help interpret a term even in a completely integrated

writing. Under the modern rule, the fact-finder will be allowed to consider parol evidence to

determine if the written term is ambiguous and susceptible to the interpretation posited by (theparty), but under the traditional rule parol evidence may not be considered and the plain meaning

of the ambiguous term must be susceptible to such interpretation. Under the strictest application

of the traditional rule, even dictionary definitions and trade usage of the term will not be

considered in determining ambiguity.

UCC 2202: Does not require an ambiguity before parol evidence is admissible

(B) Implied Obligation

Implied obligations will be added to the parties agreement, such as the duty of good faith and implied

warranties.

Good-Faith

Fork- UCC and Restatement require objective duty and subjective reasonableness; [(1) subjectivehonesty in fact & (2)objective reasonableness/fair dealing]. AZ UCC enactment requires only the

subjective (1) honesty in fact.

Performing v Formation: Good-faith applies more robustly in an established contractual

relationship than it does in contract formation because neither party expects the other to be

particularly forthcoming, and therefore there is no deception when one is not. Afterwards the

situation is different.

Opportunistic Behavior

Rule: A party that tries to deliberately take advantage of contracting partner's mistake during

performance is a breach of good-faith duty not engage in opportunistic behavior.

Frustration of Benefits

Rule: The good faith duty to avoid frustrating the other party's ability to realize the benefits of the

contract may be violated when a party exercises discretion that is expressly afforded by the

contract's terms if the discretion goes beyond the risks assumed by the other party.

Test: Is the frustration being caused by a risk that the victim would have assumed at the

time of formation?

La Paz(non-business motives)-Party exercises its discretion to terminate a contract

because other party did not provide bond on time. Party had to wait for approval to

post bond; terminating party waited until last minute for approval. Evidence showed


23/33

that terminating party simply did not k to go forward for political, not business,

reasons.

Suicide(spite/ill-will)- Committing suicide to spite a wife receiving monthly payments

while you're alive violates good-faith; it's not a risk she would have assumed at time of

contracting.

Termination- Close Question if employee signs employment contract where (1)

termination at will and (2) after 10 years you gain severance pay when fired. Should

employee have assumed that provision (2) makes it more likely he will be fired as 10

years approaches? Does it depend on how close to the 10 years he is?

(C) Contract Interpretation

Rule: Interpret the parties' agreement by determining the intended meaning, first by looking at intrinsic

evidence (the written terms of the agreement) and then extrinsic evidence. Extrinsic evidence should be

considered in the order of (1) Course of performance (2) Statements made in negotiations [**keep parol

evidence rule in mind**], (3) Course of dealing and (4) Trade usage. If this does not resolve the dispute,

the court may use rules of construction to determine the meaning. Two principles of construction may

especially aid the court: (1) contra proferentum, which construes ambiguity against the drafter, and (2)

the policy of courts tending to prefer an interpretation giving "reasonable, lawful and effective meaningto all the terms" over one that "leaves a part unreasonable, unlawful, or of no effect."

i. Interpretation- Exploring the facts to determine the parties actual or apparent intentionsSubjugating Parol Evidence Rule- Parol evidence rule does not apply to intrinsic evidence

(it's part of k) or course of performance (happened after agreement signed) but may be

triggered by extrinsic prior to signing; whether such evidence is allowed may depend on

what rule is used (strict traditional or more modern.)

Priority should be given to intrinsic evidence (the express terms of the k)

-The term in dispute should be analyzed in the context of all the terms of the

agreement

-How the word or phrase is used elsewhere in the kCompeting Meanings: Subjective/Objective Intent of Word

Rule(FORK): Traditional courts will apply the objective meaning of a word, even if both

parties subjectively intended a different meaning, unless the whole of the contract renders

the meaning ambiguous. The modern rule followed by the Restatement is more flexible; if

both parties subjectively intended an unusual meaning of a term, then that meaning applies.

If there is disagreement, then the court should perform a fault analysis.

Fault Analysis: If one party attaches an unusual meaning to a word, and the other

party does not know of this unusual meaning, then the unusual meaning does not

attach. If the other party does have reason to know of the unusual meaning, they

have a duty to clear up the ambiguity or risk being at fault. (RARITY) If no fault,

objective meanings, or basis for choosing, courts may find that no k was formed.

Rule: (Chicken Case)The party that advocates a special meaning for a contractual term

has the burden of proving that the special meaning was the one intended by both

parties.

Imprecise drafting (Chicken) v

intentionally misleading ambiguity (Toy Yoda) v

No objective meaning (Peerless) (probably only applies to proper noun)

One party w/ more knowledge (Capital)

Extrinsic evidence may also be considered in a dispute, especially:


24/33

-Course of performance(parties reaction to any actions taken in performance of

current k)

-Statements made in negotiations **Subject To Parol Evidence Rule**

-Course of dealing (patterns established in prior k's) **Subject to PER**

-Trade Usage(how term is used in parties' industry if parties are knowledgeable about

industry) **Subject to PER**

ii. Construction (Last Resort)- Goes beyond parties' intentions to create contract terms based onlegal policies

Contra Proferentum- If the sole drafter insists on a term that is reasonably susceptible to

two different meanings, that drafting party assumes the risk that a court will give effect to

the meaning advanced by the other party.

Should only be used if contract interpretation fails

Policy of Construction- Courts will prefer an interpretation that gives a reasonable, lawful

and effective meaning to all the terms over one that leaves a part unreasonable, unlawful,

or of no effect.

Ch. 11 Duties, Conditions, Performance, and BreachConstructive Conditions

(A) Common Law Substantial Performance/Material Breach

Quick Rule: If (party) materially breached, then he did not substantially perform the contract, and did

not satisfy the constructive conditions that would obligate (other party) to perform (by paying).

Umbrella Rule: A party that does not substantially perform by committing a material breach will not be

entitled to counter-performance; if breach is only minor party will receive counter-performance, but will

be liable for damages from breach. (The materiality of a breach depends on whether a substantial part

of the expected benefit was transferred, whether the breaching party will suffer a substantial forfeiture,

whether the victim of breach will be compensated for the breach, the culpability of the breaching party,

and if the breaching party will cure the failure.) Though material breach allows the victim to cancel thecontract, if the breach can reasonably be corrected the victim must provide the breaching party an

opportunity to cure even a material breach before cancelling.

Risk of Guessing: If you guess other party's breach is material & stop performance, if you are wrong you

will be liable for a material breach.

Material Breach v Minor Breach- These are not at all meant as hard and fast rules-

(1) Will victim of breach still receive the substantial benefit of his bargain?

Is it possible to calculate the percentage of work complete? Is it a substantial percentage?

Does the breach create damages that would constitute a high percentage of the benefit

received?

(a) Consider diminution, market value, and subjective value

(b) Ex. Mining Co. won't restore land as it contracted to; MC paid 250k in expectation;

costs 50k to restore (1/5th), but only 10k diminution in market value(1/25th);subjective value is 15k (~1/15);

(2) Will victim of breach be compensated in damages for the shortcoming of complete

performance?

(3) Will the breaching party suffer forfeiture?

Have the prepared for performance or partly performed?

How much of a hardship will it be on the breaching party?

(4) Is the breaching party acting in good faith (culpability; willful/negligent/innocent)?


25/33

(5) Will breaching party cure his failure to perform, considering all the circumstances?

Material Breach & Quasi-k

Rule: Party must prove they unjustly enriched the other party. For enrichment to be unjust, party

must prove that they reasonably expected compensation at the time of transferring the benefit. It

may not have been reasonable to expect compensation for work that was conditioned on

performance if that performance is not completed.

(B) UCC- Perfect Tender

Rule: The buyer of goods can reject delivery for minor, even trivial, defects (2601 Buyer's rights on

improper delivery.) The rejection is subject to implied duty of good-faith, so buyer cannot reject as a

pre-text; however, this may be hard for seller to prove if he does. The harshness of the perfect tender

rule is softened by (limitations).

Limitations

(1) Is it an installment contract 2612? Must substantially impair value of installment or k

(2) Did buyer accept initial deliver and discover defect later 2608? Buyer can only reject the

goods in certain circumstances & if defect substantially impairs its value to him.

(3) Merchant 2103- Rejection must be in good faith, including a duty to act in acommercially reasonable manner.

(4) Breach prior to lapse 2508- seller has opportunity to cure breach

Express Condition- Strict Satisfaction

Rule: An express condition qualifies a contractual duty. A party that fails to strictly satisfy an express

condition will lose rights to counter performance, which can be a substantial forfeiture especially for

construction contractors. The harshness of this rule leads courts to interpret contract language as a

statement of mutual duties unless it is unambiguously an express condition. A minority of courts will

even find that the substantial (not strict) satisfaction of an express condition is enough to grant the

counter performance if otherwise the breaching party would suffer a substantial forfeiture. Quasi-K

relief not usually granted because it is probably not reasonable to expect compensation for work subjectto an express condition if that condition is not satisfied.

(1) Construed Towards Mutual Duties

(2) Strict Satisfaction

Conditions of Satisfaction

Common Law: One party's obligation may be expressly conditioned on the other party's

satisfactory performance. The parties may expressly define satisfactory. Absent specific direction

in the contract a condition of satisfaction will normally be interpreted as requiring satisfactory

performance under an objective standard, but special circumstances may allow the court to infer a

subjective standard even if it is not specified in the contract. If a breach can reasonably be

corrected, the victim of breach must provide the breaching party with an opportunity to "cure"

the breach, even a material breach, before cancelling the k.

(1) Special Circumstances to Infer a Subjective Standard: K between restaurant famous for

only using best ingredients, and supplier who knows of reputation, agree to clause produce

acceptable "if and only if up to (famous chef's)standards."

(2) UCC- Probably apply to common law as well

(a) 2508- Seller has (limited) rights to attempt to cure defect for non-conforming

performance

(b) 2605- Buyer must state particular defect if seller could have cured it before lapse;

between merchants seller may request full written statement of defects.


26/33

Divisibility

**Be Sure to Include Argument for Whole K Before Doing Divisibility; Quasi-k After**

Rule: If K can be divided into (1) discrete phases that each has a separate consideration and (2)buyer

receives full value for one or more phase, it is divisible and material breach may be to only a certain

phase of the k. The breaching party will be able to claim the contract fee for substantial performance of

any divisible part, while remaining liable for offsetting damages for the breach.

(1) Discrete Phases

Separate Consideration for each phase?

Does the k explicitly state that if you complete task (a) you get $(b)?

Can it be deduced? 100 estimated hrs. for project; 5 even tasks; $40 an hour?

(2) Full value

(a)Is phase complete?

Will other party have to review what is already done?

(b) Does buyer need full completion in order for full value?

Heavily advertised grand opening

Avoiding Brush Fire

Not having to split up case between attorneys

Anticipatory Breach

Checklist

(1) Did party repudiate? Does it appear party won't be able to perform?

(i) If so, minor or material breach?

(2) If not actual repudiation, did it make party "Reasonably Insecure" it will perform?

(3) If party other party has materially breached, what options for victim?

(i) Cancel k & enforce breach

(I)Specific enforcement

(II) Money Damages

(a) Mitigate own losses; hire substitute; recover damages(ii) Negotiate Settlement

(I) Efficient Breach Will Allow For Negotiating

(iii)Waiver; Keep All Options Open

(I) Waive breach; Insist on Performance

(II) Ensure it has replacement

(a) Conditioned on first contracting party not performing

(b) Will probably require (minor) fee not subject to condition & premium fee for

performance

(III) Repudiating party may rescind repudiation (and perform) until breach becomes final

Final when:

(a) Victim Cancels K

(b) Time for performance passes

Anticipatory Breach and Demands of Assurance of Performance


27/33

Anticipatory breach may be minor or material. If minor, you may not cancel the contract but will retain a

claim for damages. If material you may cancel the contract then file suit for any resulting damages or

waive the right to cancel the contract, subject to a duty to mitigate damages.

Anticipatory breach may be by:

(1) Statement of repudiation

(2) Prospective inability to perform

Did Party Repudiate

Rule: A party anticipatorily breaches a contract by repudiation when he or she provides a "positive and

unequivocal manifestation" that the party will not perform when his duty to perform arises. A court will

not lightly interpret a statement to be a repudiation; if it could reasonably be interpreted as grumbling

or an inquiry to mutual modification or rescission, that interpretation will usually be favored. Therefore

the party receiving ambiguous, possible repudiation should clarify with other party before it acts on that

repudiation, or it will risk being the repudiating party.

Minor or Material

Rule: (Same analysis as above)

Reasonable Insecurity- Demand for Assurance Common Law Borrowing From UCC 2609

Rule: A statement that falls short of repudiation may nevertheless cause reasonable insecurity with

regards to their performance; the insecure party should seek clarification. Under the traditional rule,

requesting clarification does not obligate the potentially repudiating party to do so. The modern

common law trend is to follow UCC 2609 in some form, and generally states that the insecure party may

make a demand of reassurance that the other party will perform. If such reassurance is not provided

within a reasonable time the insecure party can treat the failure as repudiation and assert its rights.

Insecure party can discontinue performance until it hears back. (Exception- if the insecure party still

owes based on previous performance it can't suspend.)

UCC 2609- Reasonable time means less than 30 days

Policy - Allows an insecure party to mitigate damages and provides them with a means todemonstrate that the other party will perform of be deemed to have anticipatorily repudiated.

(1) Quiets the doubt of a party fearing repudiation

(2) Mitigating the dilemma caused by such doubt

(3) Offering the non-breaching party the opportunity to interpose timely action to deal with the

unusual problem.

Grounds for Insecurity

(1) Statement indicating motive/intent to not perform

(2) Other party's failure to fully perform in transaction other than the current contract in question.

(3) A buyer requiring precise parts may become reasonably insecure if he finds his seller is making

defective deliveries of such parts to other buyers with similar needs.

Adequacy of Assurance

May depend on that party's reputation and its relationship with the insecure party.

(1) Long-term partner might satisfy it's burden by providing a credible explanation & assuring it

will not affect performance

(2) A buyer without an established track record that fails to pay several sellers may have to

provide more concrete proof; such as notice from a bank of a loan recently received or a recent

infusion of assets from accounts receivable.

If Party Anticipatorily Repudiated


28/33

Waiver of Anticipatory Repudiation (UCC 2610)

Rule: A recipient of an unambiguous anticipatory repudiation may waive the right to cancel obligations

and insist that both parties perform; if this position is maintained breach will be determined on the date

of performance. If this would be foolish and likely to increase damage from the breach, the victim

should mitigate damages by canceling the contract and making substitute arrangements.

Retraction of Anticipatory Repudiation (UCC 2611)

Rule- To be effective, a retraction of a repudiation of a land sale contract must be clear, definite,

absolute, and unequivocal in evincing the repudiator's intention to honor his or her obligations under

the contract.

Policy: Allowing a less than clear statement to serve as a retraction of repudiation could yield harsh

results for repudiators and injured parties. Anticipatory repudiators who express remorse for their

prospective breaches could find themselves unwittingly re-bound to a contract under which they are

incapable of performing and surprised by substantial damages from a party who did not act to mitigate

losses. Similarly, injured parties who understand an ambiguous retraction to be a mere expression of

remorse could find themselves in breach when they make arrangements to cover the repudiator's

breach.

Common Law: The repudiating party may retract its repudiation if it does so before other eventsmake its repudiation final.

Events making repudiation final

(1) Passing the date for performance

(2) Recipient of the repudiation canceling the contract

(3) The recipient relying on the repudiation

Responding to Breach; Cancellation of K; Waiving Rights

Rule: If a party materially breaches, the victim of breach may (a) cancel the contract or (b) waive the

right to cancel the contract, subject to a duty to mitigate damages. The waiver of the right to cancel can

be explicit (paint the house anyway with inferior paint) or implicit (not addressing the breach in an

installment contract when B delivers late the first three months.)A party who waives a material breachmay retract the waiver by reasonably notifying the breaching party that strict performance will be

required of any term waived prior, unless the retraction would be unjust in view of a material change of

position in reliance on the waiver.

Waiving the right to cancel the contract will mean that the victim of breach will still have to pay for the

performance if it is completed, but he will retain a claim for damages due to the breach.

UCC 2209(E)**Substantially Same as Common Law**

Excusing or Waiving Non-Satisfaction of Condition

Rule: The non-satisfaction of conditions(express or constructive) can be excused if the party benefited

by the condition either waives the non-satisfaction, or if that party wrongfully prevented the condition

from being satisfied.

Cooperation & Non-Hindrance

Hindering Performance

Rule: A duty to avoid hindering or preventing performance arises out of the universally implied duty of

good faith. If that duty is breached, the parties failure to perform the constructive conditions of the

contract are excused, triggering the duty to pay (with an offset for expenses saved by not having to

complete performance.)


29/33

Barron v Cain- Where caretaker is scared off of caretaken's property by a gun, performance was

prevented and caretaker could recover damages.

Cooperation- Failing to facilitate performance

Rule: If one party breaches a duty to cooperate, making it impossible for the other party to perform, the

parties failure to satisfy the constructive conditions of the contract are excused triggering the non-

cooperative party's duty to pay (with an offset for the expenses saved by not having to complete the

performance.)

Ex- Party A's refusal to sit for a reasonable amount of time for Party B to paint a portrait.

UCC 2311- Where cooperation is needed but not forthcoming, victimized party excused from any

resulting delay in performance and may proceed to perform if reasonable or treat failure as breach.

Ch. 12 RemediesSpecific Performance

Money Damages

Limitations on Money Damages

Punitive Damages

Specific Performance

Rule: Specific performance is an extraordinary and discretionary form of relief. It will be an appropriate

remedy only where monetary damages are inadequate; this will normally require the a singular or

unique quality to the goods/services exchanged, or where suitable substitutes are unobtainable or

unreasonably difficult to procure. Even if the monetary damages are inadequate, a judge may choose

not to grant specific performance if he feels it is inequitable, or if practical limitations make it

impossible.

(A) Adequacy of Money Damages

(1) Eligible for SP

Plots of land (if not wanted solely for purposes of economic investment)

Unique Services (famous or uniquely talented artist)

Unique Goods (Original work of art; uniquely trained horse)

(2) Ineligible

Commercial Services are not unique & therefore generally ineligible for specific

enforcement

Sokoloff- Exception to rule where architect won't hand over designs for house

that party seeking SP provided personal input.

(B) Judiciary Discretion Influenced By


30/33

(1) Pseudo Unconscionability

Engaging in unfair or unseemly practices in the formation, performance, or

enforcement of the k. (but not meeting test for unconscionability)

Substantive unfairness in the exchange (but not meeting test for unconscionability)

McKinnon- denied specific enforcement of k because it was unfair, and because

party seeking enforcement did not seek monetary relief they got nothing

(2) Violates public policy

(3) Compelling personal services

Constitutional Problems- A court will almost certainly never force SP for personal

services. It would raise 13th Amendment concerns about indentured servitude, and

might raise problems of determining if the party actually complied (Did a band forced

to specifically perform put enough effort into their show? Etc.)

Negative Injunction A court may secure a negative injunction; this will prevent the

breaching party from performing a competing event during the time of the original

event that they breached.

Negative Injunction (Policy)

(1)Inducing Performance?

(a) Might pressure breaching party to honor initial obligation however, itcertainly might not (band might not be in mood to perform, etc.)

(2)Bad Economics

(a) Opposite of efficient breach if breaching party doesnt perform

(breaching party worse off; victim no better)

(b) Community at large will not benefit from larger K that breaching party

(presumably) arranged.

(C) Practical Limitations

Documents

Upload Able Outline