contracts ii outline fall 2009

8/14/2019 Contracts II Outline Fall 2009

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Contracts II OutlinePOLICING THE BARGAIN

Capacity Mental = cognitive able to understand nature & consequences only, if not then

void if its as a matter of law, if as a matter of fact could be void or voidable.Restmt says voidable

Compulsory unable to act in a reasonable manner and the other party hadreason to know of lack of capacity then voidable

Minors general rule all contracts are voidable minor only has to return whathe has; minority rule has to pay for the extent of the benefit received. If youre

not a good faith purchaser though it might matter.

Necessaries minors must pay for the reasonable price of goods to the extent theitems are necessaries.

Undue influence undue susceptibility of the vulnerable person, excessivepressure by the dominant person.

Duress = wrongful threat & inadequate supply/inavailabilty of other remedy/noother choice. Lack of alternatives must in part be created by defendants

misconduct.

Illegal contracts are void. Contracts against public policy are void.

Discharge of Contractual Obligations Impracticability/unforeseen circumstances

By agreement of the parties: i.e. mutual rescission (each parties rescindedobligations operate as legal consideration), modification (Will always occur after theparties have formed it but before full performance. no consideration needed always

an original contract, when contract is executory (i.e. before it has been fullyperformed by either party, the parties may agree to change at least one of the

original k duties the old duty is discharged & replaced in the contract by the newduty whether there is consideration is frequently an issue since its mostly one-

sided), substituted contract (contract is partially executed, one of theparties has fully performed. Creates creditor/debtor relationship ifcreditor accepts debtors promise to pay something less than the full

amount in exchange for the discharge there is a substituted contract ),accord ( contract is partially executed, one of the parties has fully performed.

Creates creditor/debtor relationship; if creditor accepts the debtors PERFORMANCE inexchange for the discharge then there is an accord. The performance is called the

satisfaction. ).

In defense of enforcing a modification it is often argued that there is no

consideration for the higher price or the alteration. Thats where the pre-existingduty/legal duty rule comes in. if a party merely promises to do what a party isbound to do then this promise cannot be consideration for a return promise.Problem can be solved by providing consideration, something additional or

different. Another alternative is to rescind the old contract and enter into a new one.

Restatement provides that a modification is binding if it is fair & equitable, in view ofunforeseen circumstances, to the extent provided by statute or as justice requires in

reliance on the promise. Under the UCC a modification needs no consideration to be bindingwhen the sale of goods is involved. UCC also imposes a requirement of good faith. Must

observe standards of fair dealing in trade, and may require objectively demonstrable reasonfor seeking modification. When a modification or attempt doesnt satisfy requirements under


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unconscionable clause as to avoid any unconscionable result. (2) When it isclaimed or appears to the court that the contract or any clause thereof maybe unconscionable the parties shall be afforded a reasonable opportunity topresent evidence as to its commercial setting, purpose, and effect to aid thecourt in making the determination.

1. Competency & Other Limits

A. Minors & Disaffirmancea) Until a person reaches majority any contract he or she enters intois voidable at their option. A minors right to avoid is sometimeseffective against third persons. But, under the UCC the infantsdisaffirmance cannot disturb a third persons right (see UCC 2-403 article 2 protects good faith purchasers). Courts generally protectthe infant the FIRST time, if it was done repeatedly it might not beenforced because the infant is no longer in a position to be takenadvantage of.

b) Halbman v. Lemke minority rule: pay for k to the extent of thebenefit received / restore status quo regardless of means, even ifyou have to restore proceeds or other value. Majority rule:Restitution in specie/in kind only, this is the Restatement view

(Section 14 Restmt 2d Contracts). Unless willful destruction ormisrepresentation in tort you cant make a minor pay the entireamount back.

c) Webster Street Partnership v. Sheridan In a rental situation,Minor who tries to disaffirm a contract involving necessaries isliable only for the value of necessaries under the contract. Thedefinition of necessaries varies not just things required for baresubsistence, depends on social situation, wealth & position, andparents wealth and position. If parents are willing to supply goodsor property they are not necessaries. In this case, both minorsvoluntarily left home but didnt NEED the property as they couldreturn home.

i) The reason necessaries must be returned is because

they have use value to the minor and thus, returningthem is necessary to prevent unjust enrichment.Minor is not liable for necessaries furnished on someoneelses credit. You have to prove they entered into thecontract for goods/services. The policy reason is to preventadults from taking advantage of minors. Even if youre not aminor, you still have a reasonable amount of time todisaffirm if the deal was made when you were a minor.

A. Mental Competence Mental incompentence of one party previouslymade a contract entirely void. Some states still call for total nullitybecause of the meeting of the minds, others just view the contract asvoidable. Under the voidable theory if a contract is favorable to thementally incompetent person it can be enforced.

a) Faber v. Sweet Style Mfg. Corp. Law was once concerned onlywith ability to understand; manic depression affects motivation, somanic depressives were often excluded but now the law recognizesother stages of mental incompetence, i.e. delusions can invalidatea contract if there is a link between the delusions and the makingof the contract. Understanding of the consequences is notnecessarily enough for enforcement if a person is legally insane.

b) Restatement 2nd of Contracts Section 15 MentalIllness/Defect A person incurs only voidable contractual duties by


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entering into a transaction if by reason of mental illness or defect:1.) he is unable to understand in reasonable manner the nature &consequences of the transaction OR 2.) he is unable to act inreasonable manner in relation to transaction & other party hasreason to know of the condition. If contract is made on fair termsand without knowledge by other party of defect/illness, power of

avoidance terminates to extent contract has been performed inwhole or in part, or if circumstances have changed to makeavoidance unjust. Court can grant relief as justice requires.

c) Ortelere v.Teachers Retirement Board Traditional test ofcompetency = cognitive test (high standard, lucid intervals arevalid). Ct decided the standard needed to be lowered and addedthe compulsion test, similar to Farber/Rstmt. Board knew of Gracespsychosis or should have known. Ct here examined the adequacyof the consideration as part of the reason for their choice.

d) Farnum v.Silvano Contractual capacity requires more thanlucid intervals of understanding needed for testamentary capacity.

You have to be able to understand what is going on (competency)& understand the nature of the transaction & its significance. A

person can know their selling their house but fail to appreciate theunreasonableness of that sale, hence the need for a more liberalstandard.

A. Undue Influence -a) Odorizzi v.Bloomfield School Dist. Undue influence consists

of persuasion that overcomes the will without convincing thejudgment. High pressure. Two elements: 1.) undue susceptibility ofthe vulnerable person, and 2.) excessive pressure by the dominantperson. Age, sensibility, sickness, exhaustion, emotional turmoil areall factors that lessen capacity to contract. Other factors include:discussion of the contract at an inappropriate time or place, morepersuaders than persuaded people, absence of an attorney or theencouragement not to seek one out, etc.

b) Von Hake v.Thomas Undue influence/constructive fraudrequires more than an unfulfilled promise/lie. Among the factors toconsider: 1.) one person cant substitute his will for anothers, 2.)long-established relationship of trust, 3.) traditional fiduciaryrelationship imposed (i.e. attorney/client), OR if elderly 4.) anindication of feebleness or lacking full possession of faculties. Somecontracts are never enforceable despite capacity.

A. Violations of Public Policy

a) In Re Baby M A surrogacy contract was illegal for violations ofpublic policy because it contracted around a statute prohibiting theexchange of money for a child-bearing agreement. Its criminal topay $ to induce an adoption. Coercion of contract is a violation.Contracting for illegal things is a violation. Consent makes no

difference in illegal contracts.1. DURESS & COERCIVE RENEGOTIATION

A. Adequacy of Consideration -

a) Batsakis v. Demotsis Just because consideration may seeminadequate at the time, thats not enough to void the contract aslong as theres an exchange. Even seemingly unconscionablecontracts can have consideration because its based off of what theother person thought the promise was worth. Somebenefit/detriment exchange is what matters. Doctrine of


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to an undesirable purchaser for the purely malicious motive ofdamaging the sellers business

f) The object of relief for duress is to cancel out advantages securedby superior bargaining power. Preserving the individual will is a lessimportant, but still valid, concern. Just because you have a legalright to do something doesnt necessarily excuse you from duress.

Historically duress of goods = rescission/restitution,g) Duress is to be distinguished from undue influence (power ofanother who is in a position of weakness, and extreme economicpressure. Solution for undue influence = rescission with restitutionof an unjust gains. Undue influence combined with the abuse ofconfidential relations with the securing of unfair advantages fromone party by another often leads to constructive fraud.

h) Brian Constr. & Dev. Co. v. Brighenti If you already have anobligation to do something, you cant modify it. You have to rescindthat contract and create a new one or create a new and separatecontract i.e. offering to do something more than in the originalcontract for more money that is a valid modification/new contract.Ct also adopts/mentions three rules that lead to the same result:

Connecticut/Blakeslee rule when its fair to recontract due tounexpected conditions, then there is valid consideration in a payincrease even if the same duties appear to be technicallyinvolved. Unforeseen circumstances often validate subsequent oralcontracts MD rule; CA unanticipated, burdensomecircumstances were enough to validate an oral contracti. General rule two party cases you cant modify a

contract using an existing legal duty or legalprohibition as consideration. The same is true inconstruction cases except for the exception ofunforeseen/unanticipated circumstances. This is theRESTATEMENT POSITION AND CURRENT MAJORITYRULE.

ii. Restatement section 89 Unanticipated Circumstancesallow for modifications of Contract THAT IS THEMAJORITY RULE A promise modifying a duty under acontract not fully performed by either side is binding: a.) ifthe modification is fair and equitable in view ofcircumstances not anticipated by the parties when thecontract was made; or b.) to the extent provided by statute;or c.) to the extent that justice requires enforcement in viewof material change in position in reliance on the promise.

iii. UCC 2-209(1) goes one step further thanrestatement and completely abolishes the need forconsideration in modification when the sale of goodsis involved. No consideration needed in modifcation, but

code does require subjective honesty & justification for thedecision to seek modification.

iv. In construction cases generally, the legal duty ruledoes not apply and courts now view exchange of newpromises independent of original contract because ofchanged/unforeseen circumstances or theassumption of slightly different/new duties which areperceived as a sufficient detriment. One ct arguesthe normal consideration rule (benefit & detriment)should apply to construction cases because: 1.)


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promisor gets exact consideration for which hebargained for, one to which he previously had noright & 2.) theres no policy reason not to.

A. Contractual Duty Owed to a Third Person a) Courts generally waive the legal duty rule and hold that the

promise constitutes consideration this reflects an underlying

policy to protect innocent third persons in transactions.b) McDevitt v. Stokes In situations that border onillegality/gambling, courts take a less liberal approach to theconsideration requirement/legal duty rule. Additionally, eventhough there was an innocent third party here, the employer, thecourt refused to construe the consideration requirement liberallybased upon the nature of the contract.

c) Universal Builders, Inc.v. Moon Motor Lodge, Inc. Underthe Restatement oral modifications are permissable where themodification is fair and equitable in cases ofunforeseen/unanticipated circumstances. See section 224 ofRestatement where promisee materially changes his position inreliance on the agreement. Contract conditions are waived when

they, if enforced, would approach fraud.i. UCC 2-209(4) Oral contracts dont satisfy the statute offrauds, but where they are modifications or rescission, theycan operate as a waiver. (5) A party who has made a waiveraffecting an executory portion of the contract may retractthe waiver by reasonable notification received by the otherparty that strict performance will be required of any termwaived, unless the retraction would be unjust in view ofmaterial change of position in reliance on the waiver. UCCleads to Restmt position that oral agreements can waivewritten ones.

ii. WAIVER promisor can sometimes waive his conditionalduty w/o consideration. Conditional duty can be eliminated

by mere voluntary expression if performance isnt materialand doesnt affect the value received by the promisor. Onecannot waive himself into a duty to make a gift of themoney. You have to know what is being waived and themode by which such waiver is being attempted.

a) Nassau Trust Co. v. Montrose Concrete Prod. Corp. oralmodifications vs. oral waiver Modification = requiresconsideration except when a writing and considered dispensed bystatute. Binding when consideration. Can only be withdrawn byagreement. Fair and equitable generally required to eliminatenecessity of consideration. Waiver = no consideration necessary;voluntary, intentional abandonment of a known right which wasotherwise legally enforceable. Cannot be expunged or recalled, but

can be withdrawn provided that the party whose performance iswaived is given notice of withdrawal and a reasonable time afternotice within which to perform. Per Cole, waiver doesnt requirewriting, consideration, reliance, judicial screening, or higherstandard of proof. Can be implied as well as express by inconsistentwords or actions. Estoppel No consideration needed. Requires apromise that is false or misleading, relied upon to the plaintiffsdetriment. It prevents the person who made the statement fromdenying the promise. Can be equitable or promissory.


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b) Cole v.Truck Ins. Exch. Some courts require reliance in waiversituations which actually makes it estoppel.

c) Quigley v.Wilson Waiver = 1.) Existence of a right and actualor constructive knowledge of that right, and 2.) an intention to giveit up. No consideration/prejudice is required/necessary. This is morethan a seller abandoning a contractual right this is a modification

because the contracting parties have acquired different duties &obligations from those in original contract (because contract wastransferred to someone else, then transferred back and alteredprice). Here the modification doesnt require consideration(although they usually do) because the modification was fair andequitable.

A. FINALIZING CONTRACT DISPUTES

a) Hackley v. Headley One party accepts anothers offer ofsettlement because he didnt have the resources at the time to sueand he needed the money. He later sued for the remainder, torescind the settlement, under the grounds of duress. Duressrequires free will deprived of either person or goods.Duress of goods: 1.) compelled to submit to an illegal

exaction in order to obtain the goods from one whopossesses them but refuses to surrender them unless anexaction is submitted to. When a party only threatens thingswhich he has a legal right to perform (i.e. in the case of a creditor)and the other party complies out of fear or out of a condition notcaused by the threatening party, there is no duress because thefree will is not impinged upon. Here debtors refusd to pay a debtalready due, but the harm only resulted because P was already infinancial straits. Debtors didnt cause the financial straits. It was acoincidental result. It would be too unfair to let one partysnecessities control here when the other party didnt cause thosenecessities. Court ended up rescinding the transaction for lack ofconsideration on grounds of bad faith because defendant knew of

Ps debt.b) Capps v.Georgia Pacific Co. Although previously one partytaking advantage of anothers financial circumstances was notenough, the better rule is one which allows the statement of aduress cause of action or defense to be tried on the merits.Concurring opinion says this would be bad social policy to allow onepartys financial straits alone to serve as the basis for duress. Itsbetter to say lack of consideration here.Withholding of aperformance shouldnt be grounds for duress simply because theother party is in need and is known to be in need of theperformance.

A. ACCORD & SATISFACTION - Marton Remodeling v.Jensen Accord is an agreement to discharge a contractual obligation,

satisfaction is the legal consideration which binds the parties to theagreement. Here where work was done, a specific amount billed, and alesser amount offered, despite several refusals & the filing of amechanics lien, the ultimate cashing of the check with the words notfull payment constituted accord & satisfaction. Restmt position is thatwhen a creditors actions are inconsistent with his words, i.e. wherenot full payment is written but the money is still accepted it is still anassent to the discharge of the debt. ;the court chooses to followapproach in former UCC 1-207 which is also the common lawapproach/restmt view A party who assents to performance in a


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manner demanded or offered by the other party does not therebyprejudice the rights reserved; words such as without prejudiceunder protest and the like are sufficent to retain the legal right.Doesnt apply to an accord & satisfaction.

a) See current UCC 3-311 Accord and Satisfaction by use ofInstrument. if an instrument was tendered in good faith as full

satisfaction of the claim, the amount of the claim was unliquidatedor subject to a bona fide dispute, and the claimaint obtainedpayment of the instrument, the following subsections apply. Theclaim is discharged if the person proves that the instrumentcontained a conspicuous statement to the effect that theinstrument was tendered in full satisfaction of the claim. Etc. etc.

b) School Lines, Inc. v. Barcomb Motor Sales A check wasaccepted but accepted as partial payment was written on theback by P, despite Ds writing that the check was payment in full.P prevailed because in this instance there was no bonafide disputeover money owed (i.e. money was liquidated) and acceptance ofpartial payment doesnt relieve D of the full debt.

c) Kilander v.Blickle Co. Lack of consideration is the only

argument why a creditors acceptance of a tendered finalpayment in the amount the debtor admits he owes is not anaccord and satisfaction.

A. THE EXECUTORY ACCORD An accord without satisfaction nopayment or transfer has been made & at most there has just been anexchange of new promises. Under the common law, executory accordshad no effect whatsoever on the transaction until they became accord& satisfaction situations. However, most statutes today make theaccord an enforceable contract when it is in writing and signed by theparties. Where the settlement is oral, the common law rule presumablysurvives.a) Three situations that arise in cases of executory accord:

i. Creditor Rejects Agreed Upon Settlement Item Could be

viewed as a new contract to replace the original, or it could beviewed as an offer to cancel the debt on receipt of the item. Ifits only an offer, it lacks consideration or reliance & the creditorcan change his mind if the debtor is notified in time. This isstandard doctrine.

ii. Creditor gets Impatient & Decides to Take Legal Action In this case, lawsuit would fail because the creditor hassubstituted the debt for a new item to be delivered by a fixeddate. Because the date is not yet due, the action cant proceedyet. This is upheld especially when a debtor has undertakensome new expense or inconvenience in order to carry out thenew arrangement. This is viewed more as a substitution thatcarried with it a suspension of liability & the accord can be a

defense to a premature lawsuit.iii. Debtor Defaults If the debtor fails to deliver on either

promise, first you have to see whether or not substitution ofthe new contract for the old. If that wasnt the intent, and itwould merely have resulted in forgiveness if performed, thenthe creditor has a choice between the two agreements. This isconsistent with the Restmt view. Choice need not be made until

judgment is entered. Breach of an accord must be material (i.e.


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past the time of occurrence) in order to sustain a pre-settlement claim.

A. LEGAL DUTY APART FROM CONTRACT Duties owed to the public a) Denney v. Reppert Employees/public officials cant receive

compensation for things they are already obligated to perform,except if they are doing something they are NOT obligated to do

(i.e. if a policeman does something outside of his jurisdiction).People who are able to collect dont have to be aware that they areable to collect. This is similar to Alaska Packers. If you already havea duty to do it, you cant manipulate it for money. When a reward isoffered for some act anyone can collect it except one acting withinthe scope of their employment or official duties.

b) Lord v. Lord marriage carries with it some existing duties thatcant be compensated for under contract; its against public policy.

1. SCRUTINY of LIMITED COMMITMENT At-will contracts/clausesreserving an unlimited power of cancellation. Many clauses reinforced thisin the automobile franchise situations where the franchised dealer wasrequired to provide satisfactory sales performance or best efforts to bemeasured by franchisors satisfaction. This caused conflicts, and some

statutes required good faith meaning the parties are guaranteedfreedom from coercion or intimidation by the other party.Recommendation, endorsement, exposition, persuasion, urging, orargument would not constitute a lack of good faith.

a) Sheets v. Teddys Frosted Foods, Inc. An employee wasterminated for repeatedly complaining about his employers violationsof the law allegedly because the employer was unsatisfied with hisperformance. Employer doesnt have an absolute right to terminate anemployee wrongful termination employee shouldnt have to choosebetween obeying the law or keeping his job. This is a public policyreason. Here plaintiff had a clear legal duty to do what he did. Dissentargues that plaintiff could have reported his concerns anonymouslyand still kept his job.

b) Price v.Carmack Datsun, Inc. P was injured in an automobileaccident; company tried to pressure him not to use his insurance; Pfiled a claim, then company fired him. IL ct said the only exceptions tothe at-will doctrine were those that violated a CLEARLY MANDATEDPUBLIC POLICY, one that strikes at the heart of citizens social rights,duties, and responsibilities.

c) Public Policy generally - Public policy is a very narrow/limitedexception. In CA have to be fundamental policies delineated instatutory or constitutional provisions, Usually comes up in two cases:1.) workers compensation claim, 2.) report of unlawful or improperconduct. NY refuses to recognize wrongful discharge or impliedcovenant of good faith (this is minority rule).

d) McDonald v.Mobil Coal Producing, Inc. Employee was accused

of sexual harassment & resigned. Claims the company forced him toresign. Co says they are at-will employer. Employee argues thatemployee manual & course of dealing modified this employment at-will. Disclaimers in employee manuals and elsewhere must beconspicuous which is a matter of law. If disclaimer is not set off in anyway, it is not conspicuous. Simply bolding text without distinguishing itin another way is not enough. Disclaimer has to be clear as to its effecton the employment relationship. When there is ambiguity as to


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employers manifestation of intent via writing or actions, the meaningof the employment contract becomes a mixed question of law & fact.

e) Kari v.General Motors Corp. Employers communications (i.e.handbook) can create an offer, but that offer must contain a promiseas well to be contractual. The promise must be conveyed in such amanner that the promisee can justly expect performance and

reasonably rely thereon.f) Dore v.Arnold Worldwide, Inc. At-will employment stands wherethere is no ambiguity.

1. STANDARDIZED TERMS, UNCONSCIONABLE INEQUALITY & GOODFAITH Concern is contracts of adhesion (i.e. take-it-or-leave-itcontracts). Generally questions include whether such provisions/contractsare enforceable when the terms are buried in the fine print and are notfreely negotiated. Focus on assent, unconscionability and publicpolicy. Duty to read - One is bound by his contract unless he can showfacts & circumstances to demonstrate that he was prevented from readingthe contract, or that he was induced by statements to refrain from readingthe contract. Just signing without reading it doesnt give you an escape. Ifyou had a reason to know or shouldve known you cant just denounce the

contract.a) Agricultural Insurance Co. v. Constantine One isnt bound byprinted terms when they are an attempt to remove a bailees liabilityfor negligence in the course of general dealing with the public. Thatwould be against public policy.

b) Weisz v.Park-Bernet Galleries, Inc. Even in cases of deceptionwhere a disclaimer is placed very prominently, it is the customers dutyto exercise care in proceeding under the disclaimer.

c) Henningsen v.Bloomfield Motors, Inc. Ps bought a car whichsteering wheel spun off in wifes hands and caused an accident. Therewas a disclaimer to the warranty of merchantibility which was on theback of the sales contract in very fine print and buried amongst otherclauses. Liability was limited to the replacement of defective parts. An

acknowledgment of these provisions was printed below the signatureline. P didnt read any of these provisions. Court held that Ps werentbound by these limits on liability because of public policy reasons. Youhave to consider 4 factors: 1. A realistic evaluation of interest of buyer& seller, 2. Look at prior precedent, 3. Look at mass productionmethods used, 4. Look at the bargaining position occupied by theordinary consumer in such an economy. Here, a uniform warrantydoesnt really give the buyer ANY bargaining power or choice. Theresa gross inequality in bargaining position. Ct basically said contracts ofthis type were contracts of adhesion. Further, court requires NOTICE(which can be satisfied by conspicuous disclaimer) andUNDERSTANDING (would an ordinary layman understand theterms)? Ct has a duty to protect the rights of the buyer against

unilateral acts (read unequal/unfair acts) of a manufacturer.d) Superwood Corp.v. Siempelkamp Corp. UCC 2-314 & 2-316

2-719, & 2-607: 2-314: Implied warranty of merchantibility have topass within that industry without objection or be of fair or averagequality/fit for the purpose for which such goods are used. 2-316:Exclusion or Modification of Warranties: negation or limitation isinoperable to the extent that such consideration is unreasonable.Merchantibility must be mentioned & conspicuous if in writing, The

phrase there are no warranties which extend beyond the description


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or limit application of any unconscionable clause as to avoid anyunconscionable result. The test for unconscionability is to be made asof the time the contract was made.

b) Williams v.Walker-Thomas Furniture Co. Where the element ofunconscionability is present at the time the contract is formed, thecontract should not be unenforced. Unconscionability is: 1.) absence of

meaningful choice on the part of one of the parties, 2.) contract termswhich are unreasonably favorable to the other party, 3.) you have toconsider all of the circumstances, gross inequality of bargaining powercan negate any meaningful choice. Consider how the contract wasentered into (knowledge of the parties, reasonable opportunity tounderstand the k).

c) Brower v.Gateway 2000, Inc. UCC 2-207 1.) A definite andseasonable expression of acceptance or a written confirmation which issent within a reasonable time operates as an acceptance even thoughit states terms additional to or different from those offered or agreedupon, unless acceptance is expressly made conditional on assent tothe additional or different terms. Ct says arbitration clause is validbecause it didnt materially alter an oral agreement, merely a provision

of the contract that existed between the parties. Just because unequalbargaining power doesnt necessarily invalidate the contract as one ofadhesion. The Gateway provision wasnt take-it-or-leave-it, you had 30days to change your mind. Look to procedural unconscionability &substantive unconscionability to make the entire determination. Thesubstantive element by itself can be enough.

d) Unconscionability generally Two purposes: 1.) prevent unfairsurprise, 2.) to prevent oppression. If all you have is a proceduralproblem there are other doctrines to deal with it (likemistake/reformation, etc.). But, you can have unconscionability onsubstantive grounds alone. Unconscionability combined with a breachof the duty of good faith is standard practice.

i. Restmt 2nd of Contracts Section 205 Duty of Good Faith

& Fair Dealing Every contract imposes upon each party aduty of good faith and fair dealing in its performance and itsenforcement. Good faith in general emphasizes faithfulness toan agreed common purpose, and consistency with the justifiedexpectations of the other party;

a) Market Street Associates Ltd. Partnership v. Frey Enforceability of the contract in part depends on whether one partywas trying to intentionally trick or deceive the other party. Eventhough one party may not have read, if the other party doesnt act ingood faith in the course of dealing, then the contract may not beenforceable. Here its a breach of good faith because the party didmore than exploit knowledge to its benefit, it actually took advantage.If contract provisions had been mentioned and the financing were still

denied, then no breach of good faith. Undue advantage taking basically failure to point out a problem and reason to believe the otherside was unaware.

b) COMMENT Regulation of Unfair Terms 1.) Compulsory contracts if you dont have the option to deal, it increases chances for coercion.In many cases statutes require fair dealing and equality of treatmentsuch as by utility companies to the people seeking the services. 2.)Prohibitory Terms Certain things you cant agree to. Denial of legaleffect is sometimes grounded in public policy. Against public policyoften = illegal. 3.) Requirements of form Sometimes special care is


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needed to make parties aware of the terms. Certain terms havespecific form requirements. 4.) Balancing the Standard Form partiesin certain trade associations may devise standard forms that fairlybalance the interests of all parties.

I. THE MATURING & BREACH OF CONTRACT DUTIES A. The Interdependence of Promises

1) Nichols v. Raynbred - ?a) The Dependency of Promises quid pro quo performance forwhich $ was promised must have been already rendered. Dependencyarises in connection with agreements under seal.

b) Kingston v.Preston 3 types of covenants 1.) Mutual &Independent -either party may get damages for breach and a breachby the other party is no excuse. 2.) Conditions and dependent theperformance of one depends on prior performance of the other. 3.)Mutual conditions performed at the same time if one party was readyand offered to perform and the other party neglected or refused toperform he who was ready has fulfilled his obligation and can sue. Toclassify, express conditions look @ intent of the parties; impliedconditions rely on judicial discretion.

i. Restatement of Contracts 2d Order of Performances 234 When all performances can be rendered simultaneouslythey are due simultaneously unless there is language toindicate the contrary. 5 categories where this is possible: 1.)fixed time for both parties performance, 2.) time is fixed forone and not the other, 3.)Where no time is fixed for either, 4.)Same period is fixed within which each party must perform, and5. Where different period are fixed within which each partymust perform. The simultaneous performance rule applies to allbut 5.

ii. Restatement 238 When performance is duesimultaneously, it is a condition of each partys duties that suchperformance be rendered or offered with manifested present

ability to do so.a) Price v. Van Lint Promises are independent unless the nature of thecontract suggests otherwise. Where there are mutual promises andtime to perform for one may arrive before the other, the latter promiseis independent. Ordinary breach of a loan doesnt make one liable fordamages, but where extraordinary injury occurs, a party can be liablefor consequential damages.

b) Conley v.Pitney Bowles Bilateral contract agreement wherepromises of future performance are exchanged. If one partysperformance is to be rendered before the other, it is a conditionprecedent to the latters duty. All performance due at any earlier timeshall also be performed.

c) Bell v.Elder One party has to be ready to tender or offer

performance even if the other party was unable to tender or offerperformance; otherwise the party cant sue for breach.

d) ANTICIPATORY REPUDIATION - Wholesale Sand & Gravel, Inc. v.Decker Anticipatory repudiation Unequivocal, absolute and definiteintent that the promised performance will not be completed within thetime fixed for it in the contract arrives. This can be either by words orconduct. The failure to return to the site after repeated promises to doso constituted an anticipatory repudiation. Restatement 253 Whereobligor repudiates a duty before he has committed a breach by non-


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performance and before he has received all of the agreed exchange forit, his repudiation alone gives rise to damages for total breach. Whereperformances are to be exchanged under an exchange of promises,one partys repudiation of a duty to render performance discharges theother partys remaining duties to render performance. Repudiationmay also excuse non-performance of a condition.

e) K&G Construction Co.v. Harris Courts assume that promises andcounter-promises are dependent, but it depends on the circumstances.Here the promises were mutually dependent because performance ofone depended on performance of the other. Subcontractors promise tosubmit summaries was precedent to the payment of 90% for the work.If contractors had to keep paying for crappy work and then sue for it,theyd become insolvent before work was done. Bulldozer damage wasa material breach of promise to perform work in workmanlikemanner. This justifies withholding of a progress payment, but notrefusal to keep working. The refusal to keep working may constitute arepudiation even if the initial breach did not.

f) Stanley Gudyka Sales Co.v. Lacy Forest Products Co. Breachhas to be material not insignificant. Use of the remedy of termination

has to be used proportionally to the need, and notice had to be givenfirst of the need for the other party to remedy its breach. Terminationis without just cause if you dont first give notice.

g) Ziehen v.Smith Some courts say if lien or other encumberancepresent on property for sale that relieves the vendee and he can gethis purchase money but the general rule is in order to get damages orrecovery of $ paid for breach of executory contract, you must showperformance or tender of performance on your part, and that the otherparty is in default or that the performance or tender has been waived.Vendees performance and tender is dispense of if the vendor hasdisabled himself from performing or on the fixed date of performancehe is unable to perform. Here D was unable to deliver title to theproperty so any tender of performance by the P or demand of

performance on his part was unnecessary and useless. Here it wasntobvious that the other party couldnt perform since he just found outabout the encumberance on the day of performance. He could stillremove the encumberance if he wanted.

h) Neves v.Wright A seller doesnt have to have title during the entireexecutory period of a contract; you cant rescind until the closing. Thisrule is designed to provide flexibility in real estate transactions. Basictest is whether the defect, by its nature, is one that can be practicallyremoved.Buyer cant act unilaterally in renouncing the contract withgiving the seller a reasonable opportunity to explain and giveassurances.

i) For concurrent conditions tender need not be absolute. Atender conditional on contemporaneous performance by the D is

sufficient and necessary. Sometimes ready and willing on part of P issufficient. In some cases you have to have ready, willing plus an offerby one party so that both parties arent sitting on their hands at home.Each could have a right to Specific Performance but only one has aright to breach. A situation can arise where theres no right of actionagainst either party. A conditional tender is necessary to put eitherparty in default so if both parties remain inactive, neither has a right ofaction. Possibility of putting either party in default will cease if thedelay is too long. Tender can be satisfied by giving notice ofreadiness to perform. A demand for the performance of


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anothers concurrent act is also understood to indicatereadiness and an offer to perform. In some cases whereneither party has performed and the time for performance haspassed, the contract simply ends & neither party can collectdamages. The court can return earnest money paid in arescission like action.

j) Caporale v. Rubine another partys act can excuse tender of suchperformance by the complaining party, but in order to recover fordamages that other party had to be ready and willing to tender at thetime that the defaulting party could not.

k) ESTABLISHING ENTITLEMENT TO RELIEF Anticipatory breach byrepudiation discharges any remaining duties of the non-breacher, butwhen enforcement is sought either specific performance or damages,things are more complicated. Its easy to be excused fromperformance. But to recover you must show that you could haveperformed had the breach not occurred. Otherwise the court would beallowing you to put yourself in a better position than you may havebeen in had the contract occurred.

l) Stewart v.Newbury Work must be substantially performed before

payment can be demanded.m) Where one partys promise requires a substantial time forperformance, some extension of credit is practicallyunavoidable. Where there is no fixed time, the latters duty isconditioned on performance by the former. The party whoseperformance requires time is to extend credit to the latter.Two sufficient reasons for the survival of the rule that salariesshould be paid when work is completed: the other party is in abetter position or has greater responsibility and the latterparty cant be compelled to perform specifically.

n) Kelly Constr. Co v. Hackensack Brick Co. Where a sale is of aspecified quantity of goods, a failure to pay when part delivery hasbeen made, but when there is no specified payment date in the k, does

not excuse the seller from completing delivery. This rule is in spite ofthe uniform sales act which says that delivery and payment areconcurrent conditions. But, this doesnt apply when deliveries are to bemade in installments. Because the contract is entire it doesnt requirepayment until Ds performance is completed in full.

i. UCC 2-307 Unless otherwise agreed, all goods sold incontract must be tendered by a single delivery and payment isdue only upon such tender. Where the circumstances permiteither party to make or demand delivery in lots, the price, if itcan be determined, may be demanded for each lot. 2-612authorizes installment contracts where elivery in separate lotsis to be separately accepted.

ii. Restatement 2d 233 Where only a part of a partys

performance is due at one time if the other partys performancecan be so apportioned that there is a comparable part that canalso be rendered at that time it is due at that time unless thelanguage or the circumstances indicate to the contrary.

iii. Restatement 2d 240 - If the performances to be exchangedunder an exchange of promises can be apportioned intocorresponding pairs of part performance so that the parts ofeach pair are properly regarded as agreed equivalents, apartys performance of his part of such a pair has the same


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effect on the others duties to render performance of the agreedequivalent as it would had only that pair of performances beenpromised. b.) Ks are often referred to as divisable or severablewhen pairs of agreed equivalents. But under this position theyare not treated as two separate contracts. If theyre separateneither promise should be made together, and neither breach of

either contract would have an effect on the other. But this is nottrue where there is one contract broken into parts of agreedequivalents. The parties exchanged promises for an exchangeof their whole performances.

iv. NOTE Divisable or Severable Ks Search is for pairs ofcorresponding performances that appear to be roughcompensation for each other. Inquiry is Whether, had theparties thought of it, they would be willing to exchange the partperformance irrespective of what transpired subsequently.

v. Partial performance of a divisible contract still allows a partywho fails to perform to recover. Substantial performance of onepart of a divisible contract has the same effect on thecorresponding part as substantial performance of an indivisible

duty has on the entire contract. But if the parties have madetwo contracts, a partys breach of one will not excuse the otherparty from the performance due the breacher under the 2nd

contract unless of course one contracts performance isconditioned on the other.

a) Tipton v. Feitner Failure to perform by one party doesntnecessarily preclude him from recovering damages from the otherparty if they breach. Cases where a condition is a condition precedent:1.) if parties stipulate dependent or conditional performance, 2.) Wherethe act to be done by the P must naturally precede what the D is goingto do, and when it is necessary to be done to enable D to perform, and3.) if the Ds performance is the payment or equivalent for somethingwhich he is to receive from the plaintiff unless it is provided that such

equivalent is to be rendered in advance of what is to be received onaccount of it, credit being given for the latter. The delivery andpayment are each conditions of eachother and neither party can suefor breach without having offered or tendered performance on his part.

i. VENDORS REMEDIES FOR THE PRICE - Affirmativedoctrine of mutuality if vendee has a right to sue, thelandowner should also have a right to sue for specificperformance.

ii. Mutuality ensuring completion of the exchange bothequity and law courts can do this - Rutherford v. Haven & Co.presented the question whether in equity the vendor of realestate who seeks performance of a contract with mutual anddependent covenants must tender performance (the deed)

before filing the complaint. The answer is no because in equitythere are more protections, for example, the court hangs ontothe deed for the defendant. What if the vendor sues at law forthe whole unpaid value of the contract price? Is this proper orshould it be brought in equity? If the recovery is only for aspecific sum of money, then an action at law seems to beproper. The enforcement measures are basically the same. Onlyproblem is judicial inability to ensure completion of theexchange at lw. One other issue is that this action seems morelike specific performance


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iii. Recovery of the Price of Goods - Sellers in certain types ofsituations have long been able to recover the price of goodseven if their performance was not complete. Under UniformSales Act you could recover if 1.)the property/legal title in thegoods had passed to the buyer, 2.) the price was payable on aday certain, 3.) even if title had not passed, if the goods could

not readily be resold for a reasonable price.A. Interpreting Conditions

1. A condition is some operative fact subsequent to acceptance and priorto discharge. An OFFER is a cause or condition of the power of the offeree.An ACCEPTANCE is a condition or cause of contractual rights & duties. Apromise is always made by the act or acts of one of the parties. Acondition has to be mutual. The purpose of a promise is the creation of aduty or disability in the promisor. Fulfillment of a promise discharges thisduty, the occurrence of a condition creates a duty. Nonfulfillment of apromise is a breach and creates in the other party a right to damages. Thenonoccurrence of a condition will prevent the existence of a duty in theother party but it may not create any duty to pay damages at all and it willnot unless someone has promised that it shall occur.

a) Howard v. Federal Crop Ins. Co. If violation of a term in aninsurance contract is a condition precedent to payment by theinsurance co, nonpayment is not a breach. If the term in the contract issimply a promise, then insurer is in breach if they dont pay. If bothparties are in breach each can maintain an action for damages if thepromises are mutual. You dont actually have to use the word conditionto create a condition; it is determined by the intent of the parties.Restatement holds that when clause is in doubt, it is generally viewedas a promise. Forfeitures are frowned upon as a matter of law.InsurnaceInsurance policies are construed against the insurer. Contractprovisions will not be construed as conditions precedent unless thecontract explicitly says so.

b) Merritt Hill Vineyards, Inc. v. Windy Heights Vineyard, Inc. Failure to fulfill conditions doesnt lead to an action for damagesalthough it excuses performance by the other party when one partyfails to perform.

c) Gray v.Gardner The promisor has the burden of proof to show thata certain condition occurred that would let him off the hook by theterms of the contract. As a matter of law, a ship has not arrived in portuntil it has dropped its anchor and has moored.

i. Restatement of Contracts section 250 condition is accordingas the context indicates, either a fact, or a term in a promiseproviding that a fact shall have such effect(other than a merelapse of time) which unless excused a.) must exist or occurbefore a duty of immediate performance of a promise arises, in

which case the condition is a condition precedent, or b.) willextinguish a duty to make compensation for breach of contractafter the breach has occurred, in which case the condition is acondition subsequent. Federal rules of civ pro have madepleading requirements for conditions precedent less specific.

a) Parsons v. Bristol Development Co. When payment of money isto be made from a specific fund and not otherwise, the failure of suchfund will defeat the right of recovery. A party who prevents fulfillmentof a condition of his own obligation cannot rely on such a condition to


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defeat his liability. DOCTRINE OF CONDITIONS one is not to benefitlegally from an act aimed at defeating anothers contractual rights.Prevention Doctrine An express promise to perform on thehappening of an event warrants implication of a promise to refrainfrom activity impeding its happening and breach of the impliedpromise is legally as serious as breach of the express.

i. Restatement 2d Contracts 227 - In resolving doubts as towhether an event is made a condition of an obligors duty andas to the nature of such an event an interpretation is preferredthat will reduce the obligees risk of forfeiture, unless the eventis within the obligees control or the circumstances indicate thathe has assumed the risk.

a) Ewell v. Landing Obligation to pay money can clearly be madecontingent on the occurrence of a future event. Intent of parties isinferred such that justice is not distorted.

b) Ames v. Wesnofske The words when after and as soon ashave the same effect as if in creating an express condition such thatwhen the condition doesnt occur no duty of performance arises.

c) - Excuses for Nonperformance/Disability - Royal Globe Ins. Co.

v. Craven Policyholder was denied compensation under the policybecause her notice was untimely and constituted a waiver of the rightto collect. Estoppel doesnt come into play because there wasnothing false or misleading which the P relied upon. Disabilitytolls the running of the clock but doesnt dispense with it.Once the disability is relieved, the clock starts ticking.

d) Semmes v. Hartford Ins. Co. Plaintiffs disability to sue due to theCivil War relieved him of the condition of bringing the action within 12months, however, once his disability was relieved he still waited toolong to bring the suit because he was required to bring it within areasonable time.

e) Monteiro v.American Home Assurance Co. Illness of oneslawyer was not an excuse tolling disability because the lawyer was not

a party to the contracts or a person essential to the performance of theinsureds contractual duties. This excuse for nonperformance was notrecognized.

f) Gilbert v.Globe & Rutgers Fire Ins. Co. A waiver is a voluntaryrelinquishment of a known right whereas an estoppel consists of apreclusion which in law prevents a party from alleging or denying factsin consequence of his own previous act, averment or denial. Hence, if aparty relinquishes a known right awarded him by contract, he cannot,without the consent of his adversary reclaim it. But the ban of estoppelmay be lifted by the party against whom it is invoked by the giving ofproper notice.

g) COMMENT- Waiver of Conditions In insurance cases waiver andestoppel are almost interchangeable. Conduct amounting to waiver

typically involves reliance, especially when the conduct occurs beforethe time for occurrence of the condition. Generally a waiver once madeis irrevocable and cannot be revived. Promises found to constitute awaiver do not need consideration.

h) TIMELINESS AS EXPRESS CONDITION Parties can contract tomake timeliness an express condition. Many written contracts usetime-is-of-the-essence clauses and rely solely on questions of theparties intent. If time is of the essence, performance on thedesignated date is mandatory.


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i. Porter v. Harrington parties have a right to make a statedtime for performance the essence of a contract. Such anagreement, when not waived by either words or conduct, isbinding and will be given effect by courts of equity and law.

a) NOTE WAIVER & THE UCC - In cases of land, common lawprinciples govern. When a sale of goods contract is subject to a dispute

over timeliness the UCC section 2-209(4) + (5) comes in. Bead v.Saxton explains the scope of the UCC in these cases and states thatunder the UCC a buyers drawn out delay in rejecting deliveries ofgoods, coupled with its delay in notifying the seller of allegednonconformities of the goods was a waiver of the time-is-of-the-essence clause relating to the sellers duties under the k. Thus, buyerwas obligated to accept late deliveries. Ct identifed a relevant factor ascourse of performance between t he parties after he sale but beforethe formal rejection. Course-of-conduct factor incorporates commonlaw principals of waiver. Buyers silence precludes it from complainingabout defects such as delay that were readily apparent at the time oftender. Analysis above comes from UCC 2-208: ANY COURSE OFPERFORMANCE ACCEPTED OR ACQUIESCED IN WITHOUT OBJECTION

SHALL BE RELEVANT TO DETERMINE THE MEANING OF THEAGREEMENT. Where it is ambiguous whether : explains the meaningorconstitutes a waiver of a term, preference is in favor of waiverwhenever such construction plus the application of the provisions ofthe reinstatement of rights waived is needed to preserve the flexiblecharacter of commercial contracts and to prevent surprise or otherhardship.

b) Platt Pacific Inc. v. Andelson When parties have agreed thatdemand for arbitration must be made within a certain time, its acondition precedent to the agreement being submitted to arbitration.Where arbitration date is not met, the loss of the rights constitutes awaiver, not due to voluntary relinquishment although that is apermissible definition, but due to failure to perform an obligation.

c) Clark v.West If you waive a condition precedent, you cant insistupon forfeiture. You can still get consequential damages from breach,but not specific performance. This is the case in express waiver.Implied waiver = silence. If the waiver is of consideration or subject-matter, and not the method of performance (substance over form)then strict performance can be held throughout the contract. But herewaiver concerns the method of performance. Waiver = voluntary &intentional relinquishment of a known right, Cts use it to defeatforfeiture, waiver is irrevocable. Equitable Estoppel = a party maybe precluded by his acts and conduct from asserting a right to thedetriment of another party who entitled to rely on such conduct hasacted upon it. Waiver seemed to exist here because P believed andrelied upon Ds acceptance despite knowledge of a violation of the

condition.d) Schultz v.Los Angeles Dons Where notice was oral instead ofwritten, despite language requiring written notice, oral notice wassufficient because the condition for written was waived as thefootball club still acted on the oral notice to the same benefit thewritten wouldve provided.

e) Aetna Cas. & Sur. Co. v. Murphy A timely notice provision can beexcused when the insurer hasnt suffered any prejudice, but theburden is on the insured. Avoiding forfeiture despite a breach relies ona factors test. In some cases excuse of breach is allowed to prevent


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disproportionate forfeiture. Ct must weigh extent of denial ofcompensation with the importance to the other party of protectionagainst risk and the degree to which that protection will be lost ifnonoccurrence is excused.You have to consider equity and fairness aswell as factors test from Jacobs & Youngs. Look at: purpose to beserved, desire to be gratified, excuse for deviation, and the

cruelty of enforced adherence. If something other than noticestrictly enforced can provide for protection then strict enforcement isunwarranted. In non-insurance cases often even substantialcompliance doesnt suffice.

A. Conditions of Satisfaction

a) Grenier v. Compratt Constr. Co. A condition of satisfaction can beexcused if it is impracticable, if occurrence is not material, and forfeiturewould otherwise result. This is Restmt 271 position. Enforcement dependsupon what the parties intended and it is unlikely that parties wouldcontract for something that couldnt be done. Ct relied on excuse, notsubstantial performance.

b) Loyal Erectors v.Hamilton & Sons Inc. Progess payments are usuallymade for the benefit of/to protect the contractor.

c) Second Natl Bank v. Pan American Bridge Co. If everything elseconformed with a contract, and an architects refusal to deliver acertificate of satisfaction was withheld in bad faith, then the contract is notforfeited. The actual conformity of the work cant be included in the badfaith test.

d) Maurer v. School Dist. No. 1 If architect has no authority to refuse ona certain condition, that right of refusal is considered waived and thecontract must be performed properly.

e) Nolan v. Whitney Where contract had been completed with trivialdefects, it is sufficient to constitute substantial performance. Party mustperform before he can claim money owed to him, but performance doesnthave to be literal and exact. Unreasonable refusal by the architectdispenses with its necessity this acts something like estoppel (or waiver).

f) Van Iderstine Co. v. Barnett Leather inc. The rule applied tocontracting cases doesnt extend to goods when an experts inspection isrequired. Unless certificate has been withheld dishonestly and in bad faith,P cant recover.

g) Fursmidt v. Hotel Abbey Holding Corp. Two categories in contractsregarding conditions of satisfaction: 1.) contracts relating to operativefitness, utility, marketability, only required to satisfy a reasonable mani.e. installation of machinery, or 2.) Literal construction where agreementsprovide for performance involving fancy, taste, sensibility, or judgmentof the party for whose benefit it was made. i.e. making of a garment,giving of instruction, etc. In fancy cases, honest judgment is all that isrequired. But honest dissatisfaction doesnt always give one a right torecovery even if they do have a right to terminate (this is because

sometimes they have to have been willing to tender their ownperformance in order to get damages).

h) Haymore v.Levinson Condition of satisfaction in construction cases isobjective; cant withhold approval unless there is a reasonable justificationfor doing so.

i) Breslow v. Gotham Securities Corp. In a case involving an attorneysperformance, this involves operative fitness, so in the case of fullperformance a lack of satisfaction cant raise an issue at trial. That which


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the law shall say a contracting party ought to be satisfied with, the law willsay he is satisfied with.

j) Morin Bldg. Products v. Baystone Constr. Inc. Restmt if it ispracticable to determine whether a reasonable person in the position ofthe obligor would be satisfied, an interpretation is preferred under which acondition of satisfaction occurs if such reasonable person in the position of

the obligor would be satisfied. Requirement of reasonableness is designedto approximate what parties would have provided that they did notforesee, if they had foreseen it. Reasonable person standard applies tooperative fitness, commercial quality, and mechanical utility. Standard ofgood faith applies to personal aesthetics or fancy.

A. PROTECTING THE EXCHANGE ON BREACH

a) Plante v. Jacobs In construction cases, substantial performance = doesperformance meet essential purpose of contract. Essential = specialfeatures of great personal importance. Two measures for recovery:diminished value or cost of completion. When separation of defects wouldlead to confusion, the rules of diminished value could apply to all defectts.Diminished value rule applies when the nature and magnitude of thedefect is significant.

b) Jacob & Youngs v. Kent Where an omission wasnt fraudulent or willfuland its replacement would lead to economic waste, the court foregos suchreplacement. When the omission is innocent & trivial the measure isdamages. When an insignificant depature, conditions will be viewed asindependent and collateral. The reasonable and probable intention is theone used. But you cant frustrate the purpose of the contract. Considerthese factors: weigh the purpose to be served, the desire to be gratified,the excuse for deviation from the letter, the cruelty of enforcedadherence. Parties are free to contract for perfect performance. Ct adoptsdiminished value approach because the cost of completion would begrossly and unfairly out of proportion to the good to be attained.

c) RESTITUTION for the WILLFUL Defaulter Does a partys ownperformance preclude a restitution remedy? Recovery required completed

performance but restitution on a theory of quantum meruit wasrecoverable for substantial performance and the failure to perform notbeing willful. Massachusetts says failure to perform in full bars recovery onthe contract but if you have a substantial performance plus good faith youcan recover in quantum meruit.

d) Hadden v.Consolidated Edison Co. of New York Even where anemployee committed some wrongdoing late in his career, he is stillentitled to pension benefits for the 37 years that he substantiallyperformed. A willful breach often defeats a claim of substantialperformance in many cases, but here his willful misconduct affected aterm in the contract and not the entire contract.

e) Worcester Heritage Society Inc.v. Trussell - In order for rescission tobe available as a remedy for breach of contract the non-performance must

be so material that it goes to the essence of the contract. Here the timefixed for completion was unrealistic, D had 75% performed, and therehadnt been a total failure of consideration. D paid purchase price andinvested additional funds & labor towards the restoration.

f) Hathaway v.Sabin Where a condition occurs that appears to makeperformance by one party impossible, should the other party anticipatethis and himself not perform or be ready to perform, he is liable in theevent the other party can perform despite the impossibility.


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g) NOTE: A Roadmap for Insecurity UCC 2-609 establishes a dialogue the right to ask for assurances only comes into play when one partybelieves that the other may break the contract when the othersperformance comes due. A party demanding assurances is calling forsomething not required by the parties contract.

h) Restatement of Contracts 2nd Section 251: Where reasonable grounds

arise to believe that the obligor will commit a breach by non-performancethat will itself give the obligee a claim for damages for total breach, theobligee may demand adequate assurance for due performance, and may,if reasonable, suspend any performance for which he has not alreadyreceived the agreed exchange until he receives such assurance. Theobligee may treat as a repudiation the obligors failure to provide within areasonable time such assurance of due performance as is adequate in thecircumstances of the particular case. If the obligees belief is incorrect, hisown failure to perform or making of alternate arrangements may subjecthim to a claim for damages for total breach.

i) Printing Center of Texas Inc.v. Supermind Does the doctrine ofsubstantial performance apply in transactions involving contracts for thesale of goods? No. In cases where the sale of goods are involved, there is

the PERFECT TENDER RULE.This rule says that if goods or tender ofdelivery fail in any way to conform to the contract, the buyer may rejectthe whole. Purchaser then has a right to damages for breach of contract. Ifgoods fail to conform to either express or implied terms of the contract thebuyer has a right to reject them. Even a minor defect constitutes bad faith.A sample which is made part of the basis of the bargain creates anexpress warranty that the whole of the goods shall conform to the sample.Further it is implied that books be commercially acceptable & appealing tothe public since they were to be sold to the public. They must pass withoutobjection in the trade and be fit for ordinary purposes to be merchantible.

i. UCC 2-609 Right to Adequate Assurance of Performance Acontract for sale imposes an obligation on each party that theothers expectation of receiving due performance will not be

impaired. When reasonable grounds for insecurity arise withrespect to the performance of either party the other may in writingdemand adequate assurance of due performance and until hereceives such assurance may if commercially reasonable suspendany performance for which he has not already received the agreedreturn. (2) Between merchants the reasonableness of grounds forinsecurity and the adequacy of any assurance offered shall bedetermined according to commercial standards. (3) Acceptance ofimproper delivery or payment does not prejudice the aggrievedpartys right to demand adequate assurance of future performance.(4) After receipt of a justified demand, failure to provide within areasonable time not exceeding thirty days such assurance of dueperformance as is adequate under the circumstances of the

particular case is a repudiation under the contract.a) Prescott & Co. v. J.B. Powles Co. Ct permitted buyer from refusing240 crates of onions when he ordered 300, regardless of the reason for thedeficiency the buyer can refuse to receive goods if they are not of theexact quantity ordered. Only excuse would be if the buyers own actrendered performance impossible or waived it.

b) Ramirez v.Autosport UCC 2-601 retains perfect tender rule to extentthat a buyer can reject goods for any non-conformity. UCC 2-607(1)&(2)

The buyer must pay the contract rate for any goods accepted. Acceptanceof goods by buyer precludes rejection of the goods accepted & if made


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with knowledge of a non-conformity cannot be revoked because of itunless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itselfimpair any other remedy provided by this article for non-conformity. UCC2-612 An installment contract is one which requires or authorizes thedelivery of goods in separate lots to be separately accepted, even though

the contract contains a clause each delivery is a separate contract or itsequivalent. The buyer may reject any installment which is non-conformingif the non-conformity substantially impairs the value of that installmentand cannot be cured or if the non-conformity is a defect in the requireddocuments; but if the non-conformity does not fall within subsection (3)and the seller gives adequate assurance of its cure the buyer must acceptthat installment. (3) Whenever non-conformity or default with respect toone or more installments substantially impairs the value of the wholecontract, there is a breach of the whole. But the aggrieved party reinstatesthe contract if he accepts a non-conforming installment withoutseasonably notifying of cancellation or if he brings an action with respectonly to past installments or demands performance as to futureinstallments.

c) Beck & Pauli Lithographing Co.v. Colorado Milling & Elevator Co. Stipulations as to time of performance were not necessarily essentialunless it was clear that the stipulations of the contract or the nature of itssubject matter that parties intended performance within a fixed time in thecontract to be a condition precedent to enforcement. This case involvedcontracts of artistic skill & labor manufactured specifically for thedefendant and no one else. Defendant wasnt justified in refusing toaccept the goods on account of slight delay.

d) COMMENT: Goods & Services If the items are movable and thus goodswithin the purview of UCC Three transactions where applicabilty ofsales/goods law is concerned: a.) K may provide for transfer of ownershipof goods. One solution is to apply Article 2 to the goods portions andnormal k law to everything else. Another position is to examine whether

the bulk of the transaction concerns goods & should apply UCC. b.)Rendition of a service oten involves transfer of ownership of goods.Classification & applicable law in these situations turns on what theessence of the contract is, the main objective of the parties, or thedominant aspect of the transactions. c.) Lease of equipment. 2-102 of UCCarguably covers leasing because it is a transaction in goods.

e) Plateq Corp.of North Haven v. Machlett Labs, Inc. By signifying awillingess to accept regardless of defects in products/goods, and by failingto make an effective rejection, you have accepted. Then acceptance canonly be revoked by showing substantial impairment of value to you.Because post-installment inspection was not permitted, the impairmenthadnt been proved. Because goods werent readily re-saleable due totheir unique nature, P was entitled to k price minus salvage value plusinterest. Acceptance occurs under UCC 2-606 when a buyer, after areasonable opportunity to inspect the goods signifies to the seller that hewill take them in spite of their non-conformity OR fails to make an effectiverejection. UCC 2-709 contract price should be paid because goods cantotherwise be sold at a reasonable price. Sometimes waiver or estoppelcan be invoked to prevent use of a different stated ground for avoiding thecontract when other unstated objective were consciously known andwithheld in sales of goods cases. UCC 2-605(1) -Buyer who rejects atender without stating objections you cant reject or revoke later if youfail to state a defect in connection with rejection that couldve been easily


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ascertained through inspection. UCC 2-606(1)(b) Goods are accepted ifthe buyer fails, after having had a reasonable amount of time in which toinspect them, to communicate its rejection to the seller.

f) Worldwide RV Sales & Service v.Brooks When Brooks went to pickup his mobile home, it was not as specified. He rejected, noting defects,and demanded his down payment. W offered to cure the defect, but

Brooks didnt accept because it wouldnt make the mobile home conformto the specs in the original k. Refund of deposit allowed. Worldwide cantclaim benefit of UCC 2-508 because it failed to make a conforming deliveryor conforming tender, since what it offered was inadequate.

g) Fortin v.Ox-Bow Marina, Inc. Four months after acceptance, psrejected a boat even though Ds had made some attempts to cure thedefects. UCC 2-608(1) judge must decide whether the defectssubstantially impair the value of the goods to the revoking buyer. This isobjective based on totality of the circumstances including number of non-conformities, type, time, and inconvenience in downtime and repair. Evencosmetic defects can substantially impair the value. Enough mistakes canshake the buyers faith in the goods which leads to fewer uses if any at all.Any delay by buyer is justified when in constant contact w/ seller regarding

non-conformities of the goods and the seller makes repeated assurancesthat non-conformities will be repaired.

h) COMMENT: Anticipatory Breach of Unilateral Obligations Anticipatorybreach usually only applies to bilateral contracts for future promises. Alsodoesnt apply to bilateral contracts involving money only where one partyhas performed fully. Damages remedies measured by expectancy. Thiscomes from Hochster v. De La Tour if an action for damages were notallowed when the repudiation occurred it would force a plaintiff to remainunnecessarily idle. Promisee who fully performed could sue whenever afterthe actual breach had occurred.

I. THE RIGHTS & DUTIES OF NON-PARTIES:

A. Third Party Beneficiaries General rule considers reasonable reliance of athird party and probable intentions of the contracting parties.

1. Lawrence v. Fox One party owed another money, and made a separateloan to a third person. The third person said that rather than pay theloaner back, he would pay the loaners other creditor. He didnt. A promiseto repay in exchange for a loan is proper consideration. Promise was madeby implication to the loaner and by implication to the intended recipient. Athird party can maintain an action on the basis of implied promise &privity. Implied promise to pay created almost a trustee like duty to theloanee to pay the original creditor. A parol promise is valid, but also valid ifit wouldve been in writing. Concurrence suggested that even absentimplied promise/privity/trustee relationship, there was an agencyrelationship whereby Holly was the agent securing the promise for theprincipal.a) Legal Categories for Third Party Interests:

i. Trust Analysis If the promise involves holding the moneyfor a specified time to later be distributed for a specifiedpurpose at the loaners direction, then a trust relationship likelyexists where legal title passes in trustee/loanee, and equitabletitle exists in the beneficiary/3d party recipient. The questionwould be whether this was the INTENT of the parties.

ii. Agency If one party purported or INTENDED for another as anagent for the purpose of receiving a promise to pay, it wouldntmatter whether the authority to do so existed at the time, as


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long as the promise is later ratified or known about by theprincipal. By this analysis, the principal is made the promiseeand has a right to an action. You can ratify the agency bybringing a lawsuit.

iii. Novation new k substituted for old one. Original debtorwill be party to the novation, but its not essential.

iv. OFFER of novation The novation or formation of a newcontract by two parties could be consider as an offer to thethird party whose later acceptance would be sufficient to givehim an independent right to cause of action.

a) Seaver v. Ransom Court applies trustee/agency theories to thirdparty interests. The general rule was that privity was necessary to themaintenance of an action on the k. Three permissible ways as a thirdparty beneficiary to enforce: 1.) Where there is a pecuniary obligationrunning from the promisee to the beneficiary; a legal right foundedupon some obligation of the promisee in the third party to adopt andclaim the promise as made for his benefit. 2.) Cases where thecontract is made for the benefit of the near relation of a party to thecontract (moral duty to provide for future). 3.) Public contract cases

where municipality seeks to protect his inhabitants by covenants fortheir benefit. 4.) Cases where, at the request of party to the contract,the promise runs directly to the beneficiary although he does notfurnish the consideration.

b) NOTE: Overlapping Duties Person bringing suit in Seaver wasrecipient of gift promise. Niece was a donee beneficiary because thecontract conferred upon her the benefit of promised performance.Whereas in Lawrence v. Fox creditor beneficiary becauseperformance of the promise would satisfy the promisees actual orsupposed duty to the beneficiary. PROMISOR under either type ofcontract owes a DUTY to the PROMISEE to perform as well as to theintended beneficiary.

i. Restmt of Contracts 2d 302 Intended & Incidental

Beneficiaries (1) Unless otherwise agreed between promisor& promisee, a beneficiary of a promise is an intendedbeneficiary if recognition of a right to performance in thebeneficiary is appropriate to effectuate the intention of theparties and either (a) the performance of the promise willsatisfy an obligation of the promisee to pay money to thebeneficiary; or (b) the circumstances indicate that the promiseeintends to give the beneficiary the benefit of the promisedperformance. (2) an incidental beneficiary is a beneficiary whois not an intended beneficiary.

a) Pierce Associates v. Nemours Foundation In order for there tobe a third party beneficiary, the contracting parties must intend toconfer the benefit. The intent is to be determined from the language of

the k. The owner is not necessarily a beneficiary just because hebenefits in every subcontractor arrangement.

i. COMMENT: Intention to Benefit The Assuming Granteeof Land Whose intention matters? Any intention manifestedby either party is relevant. But, the significant intention isusually that of the promisee.

ii. Anderson v.Fox Hill Village Homeowners Corp. Awomans employer had a contract with the landlord that thelandlord was supposed to clear off all ice. Court held that the


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employee (the woman) was not an intended beneficiary of thecontract and could not recover on that theory. And further,because the ice was a natural occurrence, the landlord was notliable in tort because he is only liable for defects occurring withthe property.

iii. H.R. Moch Co. v. Rensselaer Water Co. Duty exists

between a water company and a municipality, but a companywhose factory was damaged as a result of the water companyrunning out of supplies is not entitled to recover because hehad no privity in that relationship. The water company wasnever intended to be held liable for incidental damages fromperforming its services.

iv. Doyle v.South Pittsburgh Water Co. When a city failed tomaintain its fire hydrants making them unusable to the firedepartment when plaintiffs home caught fire, the city wasliable. Where a party to a contract assumes a duty to the otherparty of the contract, and it is foreseeable that breach of thatduty will cause injury to some third person not a party to thecontract, the contracting party owes a duty to all those falling

within the foreseeable orbit of risk of harm.v. Heyer v.Flaig A third party beneficiary to a will can hold anattorney liable when that person suffered loss of benefits as aresult of the attorneys mistake. The recovery would be as anintended beneficiary.

vi. Hale v.Groce A third party beneficiary acting as an intendedbeneficiary can maintain an action against an attorney whomakes a mistake in will-drafting.

vii. Restatement of Contracts 2d Variations of a Duty to ABeneficiary section 311 (1) Discharge or modification of aduty is ineffective if a promise term creating a duty so provides.(2) in the absence of such a term, promisor & promisee retainpower to discharge or modify the duty by subsequent

agreement. (3) Such a power terminates when the beneficiary,before he receives notification of the discharge or modification,materially changes his position in justifiable reliance on thepromise or brings suit on it or manifests assent to it a therequest of the promisor or promisee. (4) if the promiseereceives consideration for an attempted discharge ormodification of the promisors duty which is ineffective againstthe beneficiary, the beneficiary can assert a right to theconsideration so received.

viii. Rouse v.United States An individual who does not sign anote is not liable on it. One who promises to make a payment tothe promisees creditor can assert any defense that promisorcould assert against the promisee.

contracts ii outline fall 2009

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