University of North Carolina School of Law

Burk-Contracts-2014

14Fall

I. FORMATION OF CONTRACT (R2K 1: Contract Defined)A promise or set of promises + Enforcement

a. Determining Mutual Assent (R2K 18) i. Manifestation of mutual assent to an exchange requires that

each party either make a promise or being or render a performance

ii. RULES1. R2K 2: Promise(a), Promisor(b), Promisee(c), Beneficiary(D)2. R2K 3: Agreement Defined; Bargain Defined3. R2K 19: Conduct as Manifestation of Assent4. R2K 21: Intention to be Legally Bound5. R2K 22: Mode of Assent: Offer and Acceptance

a. The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties

b. A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined

iii. Occurs in the form of an offer and an acceptanceiv. Both must outwardly manifest consentv. Contemplating alterations to the agreement does not affect

original agreement vi. It can be an understood agreement prior to it becoming

writtenvii. CASES

1. Lucy v. Zehmer: Intent that’s not manifested to the other party is irrelevant. (R2K 16 – Drunk Enough)

2. Leonard v. PepsiCo: An offer that the offeror manifests as not to be a serious, means offeror does not give power of acceptance to an offeree

3. Gleason v. Freeman: If the written words leave the party’s intent unclear, then consider the broader context of the situation, actions, and conduct of the parties.

viii. OBJECTIVE THEORY: What a reasonable person would think based on all the facts and circumstances.

1. Once a contract is formed, you cannot take it back2. Party claiming contract formation is the person of a

“reasonable person”3. FAIRNESS EXCEPTION : If facts show that the party claiming

contract formation had a subjective view that conflicts with the objective test, the objective test is disregarded.

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b. Offer (R2K 24) Intent + Definite Terms

i. A promise by one party, made to another party, to do or not do something in the future, contingent upon the other party’s acceptance

1. Be communicated2. Indicate a desire to enter into a contract3. Be directed at some person or persons 4. Invite Acceptance5. Create a reasonable understanding that upon

acceptance a contract will ariseii. Intent to enter into a bargain via words that express intent to

be bound.1. Definiteness in (a) subject matter, (b) price, (c) quantity

iii. RULES1. R2K 26 + b,c,d: Preliminary Negotiations2. R2K 27: Existence of Contract Where written memorial is

Contemplated3. UCC 1-201(b)(3) Agreement – Price Quote can be an offer.4. UCC 1-201(b)(12) Contract5. UCC 2-102 Scope6. UCC 2-105(1)-(2) Definition of Goods7. UCC 2-106(1) Defines Contract for Sale, Sale, Present Sale8. UCC 2-204: Formation in General

iv. CASES1. Lonergan v. Scolnik (Joshua Tree): Invitations to

negotiate, to deal or that are preliminary are NOT offers.a. If the promisee knows or has reason to know

that the promisor does not intend it as an expression of his fixed purpose until he has given a further expression of assent, the promisor has not made an offer.

2. Lefkowitz v Minneapolis Surplus Store (offered sale man wants to purchase store claims sale only for women): When an advertisement is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.

3. MD Supreme v. Blake (Subcontract accepts with email of guaranty): A guaranty of a certain product at a certain price for a specific duration constitutes an offer capable of acceptance.

c. Destroying the Offer (R2K 36) i. Rejection (R2K 38)

1. An act by the offeree to terminate offer.2. Effective upon reciept3. Counter-Offers (R2K 39) = Rejection + New Offer

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a. Terminates original offer and suggests knew one – offeree becomes offeror

4. Negotiations by inquiry is not a rejectionii. Revocation

1. By communication from offeror received by offeree (R2K 42)

2. Effective only upon receipt by offeree3. Indirect (R2K 43)

a. The offeree learns from someone other than the offeror that the offeror is not longer interested in the deal

4. CASESa. Dickinson v. Dodds (Dickinson learns that Dodds

has sold property that was offered to him.): Indirect Revocation. An offer may be revoked by the offeror without an express or actual statement of revocation communicated to the offeree provided there has been no meeting of the minds and the offeree is aware of conduct by the offeror demonstrating intent to revoke the offer.

iii. Lapse (R2K 41)1. Remains open for a reasonable amount of time2. If offer is face-to-face it expires after walking away.3. CASES

a. Minnesota Linseed v. Collier White Lead (shifting industry prices… timely acceptance required): A contract is not formed where the delay between the offer to form a contract and the acceptance is unreasonable in light of the time contemplated by the parties. Lapse is based on the objective theory.

i. Usage of Trade – Common in tradeii. Course of Dealings – Common between

offeror and offereeiii. Nature of the Contract

iv. Supervening Incapacity (R2K 48)1. The offer terminates automatically and without regard

to whether the offeree was notified or aware of the death (or incapacity)

2. Does not apply after acceptancev. Destruction of the Subject Matter

d. Preserving the Offer – Options (R2K 25) REFER TO DIAGRAM An irrevocable offer

i. OPTION CONTRACT (R2K 87)

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1. Binding in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time OR by statute.

2. Reliance – if offeror should have reasonably foreseen that offer would induce reliance by the offeree prior to acceptance, and such reliance occurs, then it may be irrevocable to the extent necessary to avoid injustice

3. CASESa. Ever-Tite Roofing v. Green: Partial performance

invokes option contracts i.e. irrevocable. (R2K 41)

i. (A contract may be created by acceptance within a time frame specified by the offer, or if no time is specified, within a reasonable time)

ii. FIRM OFFER (UCC 2-205)1. By its terms gives assurance that it will be held open is

not revocable, for lack of consideration, during the time stated or reasonable time

2. Cannot exceed three months3. By Merchant, or individual with knowledge or skill

attributed to occupation4. Facilitates exchange between merchants and the

written aspect helps (a) insure there’s durable proof, and (b) channels & solemnizes the parties’ intent.

iii. RULES1. R2K 37: Termination of Power of Acceptance Under Option

Contract2. UCC 1-205: Reasonable Time; Seasonableness3. UCC 2-104(1): Defining Merchants (option contract for merchants)

iv. CASES1. Eastern Michigan Univ. v. Burgess: A lack of

consideration renders a contract unenforceable under common law, even where the party seeking to avoid the contract has acknowledged receiving consideration.

2. Beall v. Beall (farmhouse dispute): If options not binding b/c shown to lack consideration, the offer still stands for reasonable time period

a. If a purported option agreement is not supported by consideration, it is deemed to be a mere offer, which the offeree can specifically enforce if the offer is accepted before it expires or is otherwise revoked.

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e. Modes and Methods of Acceptance (R2K 22) Manifestation of assent (reasonably viewed as assent) to the terms of the offer made by the offeree in a manner [permitted] invited or required by the offer -- The parties know best!

i. Assent must be voluntary and unequivocal ii. Offeror’s Control Over the Manner of Acceptance

1. Offeror dictates terms on the assumption that he knows best how to make the deal work efficiently

2. Acceptance must conform to any and all requirements specified in the offer

3. Offeror is King, and therefore, should not be forced to deal on terms other than those she has specified.

iii. RULES1. R2K 29: To whom an Offer is Addressed2. R2K 30: Form of Acceptance Invited3. R2K 32: Invitation of Promise or Performance4. R2K 50: Acceptance of offer, by performance, by promise5. UCC 2-204: Formation in General

a. Contract. May be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract

b. Agreement. Sufficient to constitute a contract for sale ay be found even though the moment of its making is undetermined

c. Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy

d. UCC 2-206: Offer and Acceptance in Formation of Contractiv. When is Acceptance by Promise Effective? (R2K 56)

1. Offeree exercises reasonable diligence to notify the offeror of acceptance (dispatch), OR the offeror receives the acceptance seasonably (receipt)

2. MAILBOX RULE (S&H 14-16) (R2K 63(a))Unless the offer prescribes to the contrary, an acceptance sent by a reasonable means is effective on dispatch (not receipt)

a. Since the offer was made by mail, the offeror had impliedly authorized acceptance in the same manner.

b. Necessary to allocate risk c. Only valid when dealing at a distance and not

instantaneousd. Acceptance is effective upon proper dispatch via

authorized means3. Unilateral – Acceptance by return promise is REQUIRED4. RULES

a. R2K 40: Rejection or Counter-Offer Terminates the Power o f Acceptance

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b. R2K 63: Time When Acceptance Takes Effectc. R2K 65: Reasonableness of Medium of Acceptanced. R2K 66: Acceptance Must Be Properly Dispatchede. R2K 67: Effect of Receipt of Acceptance Improperly

Dispatchedf. R2K 68: What Constitutes Receipt of Revocation, Rejection,

or Acceptanceg. UCC 1-202: Notice; Knowledge

5. CASESa. Hendricks v. Beehee (Smiths do not communicate

acceptance prior to revocation): An uncommunicated intent to accept is not acceptance.

b. Adams v. Lindsell (Mailed incorrectly): During the time of travel, a letter is considered a binding offer and then completed by the acceptance by the other party

i. WHEN: Dispatch/Mailbox Rule + Manifestation of Assent

c. Solodau v. Organon (fetching letter out of mailbox): Mailbox Rule

i. HOW: Once the letter is out of the Offeree’s possession w/ the intent to manifest assent = acceptance

v. When is Acceptance by Performance Effective? (R2K 54)1. Valid upon completion of performance

a. If offeree learns of an offer after he’s rendered partial performance, then he may complete performance to accept offer.

b. If offeree learns of an offer after he’s rendered complete performance, then he may NOT accept offer.

2. No notification is necessary unless explicitly stated3. If offeror cannot learn of performance: reasonable

diligence to notify, reasonable time, notification is not required

4. Bilateral – Acceptance by performance is REQUIRED5. Part performance = option contract (R2K 45)6. RULES

a. R2K 51: Effect of Part Performance Without Knowledge of Offer

b. R2K 62: Effect of Performance by Offeree Where Offer Invites Either Performance or Promise

7. CASESa. Marchiondo v. Scheck (broker had 6 days to find

buyer – had actively pursued buyer, seller revokes morning of 6th day) Partial-Performance with a (unilateral) leads to a contract with a condition.

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b. Carlil v. Carbolic Smoke Ball: If the offeror invited performance as a means of acceptance, part-performance will suffice to form an option contract until complete performance is rendered

vi. Acceptance by Silence or Inaction (R2K 69)1. Silence cannot constitute an acceptance2. Acceptance ONLY when

a. Offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation

b. Offeror has state or given the offeree reason to understand that assent may be manifested by silence or inaction and the offeree in remaining silent and inactive intends to accept the offer

c. Because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept

3. Offeree exercises dominion over offeror’s property (An offeree who does any act inconsistent with the offeror’s ownership of offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.)

f. Imperfect Acceptance (UCC 2-207) REFER TO CHART i. Acceptance with additional or different terms (Rejecting

“Mirror Image” rule)1. With Additional Proposals = Adds new or different

terms (but not conditioned)2. With Conditional Terms = Counter-Offer (rejection +

new offer)3. A term is neither additional nor different if it is

negotiated on between the parties.ii. “Mirror Image” Rule – under common law, acceptance must be

coextensive with offer and cannot introduce new terms and conditions

iii. GATEWAY: A definite and seasonable expression of assent shall constitute acceptance even though it contains additional or different terms

iv. CONDITIONAL vs UNCONDITIONAL: If the offeree makes explicit that her assent is expressly made contingent on the offeror’s further assent to the additional or different terms contained in the acceptance there is no contract

v. ADDITIONAL TERMS are proposals that only become part of the contract upon the assent of the offeror.

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vi. AGREEMENT BY CONDUCT: If contract was not formed under 2-207, but the parties conduct nevertheless demonstrates that some contract does exist, then the terms of that contract consist of the terms on which the two writings agree and such other terms as are supplied by UCC Gap Fillers

vii. DIFFERENT TERMS1. Knockout

a. Both terms drop out of the contractb. Majority option

2. FallOuta. The offeree’s drop out

3. FadeOuta. Treat like additional termsb. Only if they don’t materially alter the contract

viii. CASES1. Gresser v. Hotzler (contract alterations): Changes don’t

invalidate an acceptance IF they’re minor because they don’t substantially alter performance obligations.

a. No detrimental reliance = No equitable estoppel2. Dorton v. Collins & Aikman Corporation (Carpetmart):

UCC 2-207 only applies to an the acceptance which is clearly predicated on the offeror’s assent to the altered agreement – Not implied

3. Klocek v. Gateway (terms in box): 2-207 does NOT only apply to instances with 2 forms; can include a discussion and a form. Non-merchants require expressed assent. The purchaser is the offeror. “Clickwrap”

a. Hill v. Gateway (opposition) – Pro-business, finding that 2-207 doesn’t apply to disagreements wit just one form, and buyers knew or should have known that there would be additional terms b/c it’s how companies have to do business. Acontract doesn’t need to be read to be effective. “K in a box” is valid for both merchants and non-merchants.

g. Electronic Acceptances i. Assent must effectively be manifested

ii. CONSIDERATIONS1. Whether a valid contract was concluded between

computers involving electronic signatures and records2. If a valid contract was formed by electronic commerce,

when was it formed?3. If a contract was formed – What are the terms?

iii. Under the UCC a parties initials or letterhead may be sufficient.

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h. Deficient Agreements i. Misunderstood, Incomplete and Indefinite Terms

1. Applies when each party agrees to the same term but attaches a different meaning

2. Effect of Misunderstanding (R2K 20)a. There is no manifestation of mutual assent to an

exchange if the parties attach materially different meanings to their manifestations and

i. neither party knows or has reason to know the meaning attached by the other; or

ii. each party knows or each party has reason to know the meaning attached by the other.

b. The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if

i. that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or

ii. that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.

ii. Indefinite Agreements – Objective Test1. Parties have made an agreement but we cannot discern

what they’ve agreed upon2. Quasi Contract – Imposes a contract even though the

parties did not make one3. Quantam Merot – What was earned (services)4. Quantum Valeba(n)t – What something is worth (goods)5. CASES

a. Raffles v. Wichelhaus (Ship: Peerless): No mutual assent IF both parties attach materially different meanings and (a) neither party realizes or (b) both parties realize

b. Varney v. Ditmars (architect and draftsman): Indefiniteness can cause a contract to be so unclear that its undeterminable what the agreement was = not enforceable

iii. Postponed Agreements1. Leaves term(s) to be agreed upon at a later date. If

cannot agree, no contract.2. Modern View – Courts willing to supply terms

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3. RULESa. R2K 27: Existence of Contract Where Written Memorial Is

Contemplatedb. R2K 33: Certainty

i. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy

c. R2K 34: Certainty and Choice of Terms; Effect if Performance or Reliance

d. UCC 2-305: Open Price Term4. CASES

a. Walker v. Keith: If the parties did not agree upon such an unequivocal item or upon a definite method of ascertaining it, then there is a clear case of non-agreement

i. Agreement to Agreeii. Dissent: Could be clear enough for a

postponed agreementb. Moolenar v. Co-Build Cos. (Mrs. Correa and the

Shepard): “Fair Market” value is specific enough for a postponed agreement.

c. CDC v. Antonell (Christmas time architect bonus): Act in good faith.. Courts will try to find a contract binding and void as little as possible.

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II. CONSIDERATION AND ITS SUBSTITUTESSomething of value given in exchange for something elseTo be supported by consideration = A promisor receives something of value in return, that is bargained for.

a. Bargain and the Legal Concept of Consideration i. “Bargained-For” (R2K 71)

1. Required of consideration2. Doctrine of Consideration – only promises supported by

legal consideration are legally binding, even if the promisor intends to bind himself by his promise

a. Given in return for some benefit rendered to the promisor (Good Consideration)

b. The promise incurs a detriment by reliance upon it (Good Consideration)

3. Casesa. McCormick v. Dressdale – A promise to give up

claims is not consideration unless there is a good reason to be true or the claimant honestly believes the claim to be true.

b. Reed v. NDAD – When a party signs a waiver in exchange for something of value, the waiver is supported by consideration.

i. Did Reed have a choice to participate? Was good consideration given?

ii. Consideration and Family Agreements1. One purpose of consideration is to distinguish between

gratuitous and non-gratuitous promises2. TEST

a. What is the promise who’s enforceability is at issue?

b. What consideration supports the promise (what did t he promsisee give/give up)?

c. Is that legally recognized consideration?d. Was it a bargained-for exchange?e. If not, is there something else that makes the

promise enforceable?3. Rules

a. R2K 71: Requirement of Exchange; Types of Exchangeb. R2K 72: Exchange of Promise for Performancec. R2K 73: Performance of Legal Dutyd. R2K 74: Settlement of Claimse. R2K 79: Adequacy of Consideration; Mutuality of

Obligation4. Cases

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a. Kirksey v. Kirksey (widow moves in with brother-in-law) – Distinction between bargained-for exchange and a gift w/ conditions.

b. Hamer v. Sidway ($5,000 to not drink, gamble or smoke) – Consideration can be either a benefit to the promisor or a detriment to the promise.

c. Scbnell v. Nell (wife dies and promises money to other people, husband agrees) – A mere promise is not a bargained-for exchange. Nominal Consideration.

iii. One Promise As Consideration for Another Promise(The Problem of the Illusory Promise)

1. Illusory Promise – A promise that includes an apparent commitment but actually leaves the promisor with a “free way out.”

2. Mutuality of Obligation – AN exchange of promises typically creates a binding contract, with each party’s promise constituting the consideration for the other party’s promise

a. When a real promise is exchanged for an illusory promise neither promise is enforceable

i. Illusory promise is not enforceable because it’s not real

ii. Promises based on condition that cannot occur = illusory

iii. If a good faith effort is not exerted to complete consideration, the inability to obtain it, does not avoid liability for breach for promise.

3. Rulesa. R2K 75: Exchange of Promise for Promiseb. R2K 76: Conditional Promisec. R2K 77: Illusory and Alternative Promises

4. Casesa. Hooters of America Inc. v. Phillips – With the

power to modify the promise, unless there is some check on that power, the promise is illusory.

iv. Consideration and Contract Modification1. Modification of Executory Contract (R2K 89)

a. Modification prior to complete performance is still binding IF

i. The modification is fair and equitable in view of circumstances not anticipated by

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the parties when the contract was made OR

ii. To the extent that justice requires enforcement in view of material change of position in reliance on the promise

2. Rulesa. R2K 73: Performance of Legal Dutyb. R2K 72: Settlement of Claimsc. UCC 1-304: Obligation of Good Faith – ALWAYS RELEVANTd. UCC 2-209: Modification, Rescission and Waiver

i. (1) An agreement modifying a contract within this article needs no consideration to be binding

ii. Allows contract modification without consideration if there is an “observance of reasonable commercial standards of fair dealings”

1. (Comment 2 – Test of Good Faith)3. Cases

a. Alaska Packers’ Assn. v. Domenico – If there is a preexisting duty to perform or promise, it cannot be used as consideration – old consideration ≠ new consideration

b. Angel v. Murray (allows modification of trash collection contract) – Enforces a voluntary modification if:

i. (1) the promise modifying the original contract was made before the contract was fully performed on either side,

ii. (2) the underlying circumstances which prompted the modification were unanticipated by the parties, and

iii. (3) the modification is fair and equitable (adequacy of exchange—objective test)

b. Moral Obligations (Substitute for Consideration)Promise to Pay for Something That Happened Before The Promise

i. Unenforceable Obligations1. Debt incurred by minor2. Debt past the statute of limitations3. Debt discharged in bankruptcy

ii. “Material Benefit” Rule1. A promise made in recognition of a benefit received is

binding to the extent to prevent injustice (R2K 86)2. EXCEPTIONS

a. Giftb. Promisor was not unjustly benefittedc. To the extent that its value is disproportionate to

the benefit.iii. Rules

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1. R2K 82: Promise to Pay Indebtedness; Effect on the Statute of Limitations

2. R2K 83: Promise to Pay Indebtedness Discharged in Bankruptcy3. R2K 86: Promise for Benefit Received4. R2K 87: Option Contract

iv. Cases1. Harrington v. Taylor (Woman saves man’s life, man

offers to pay her) – Saving a life is past consideration2. Mills v. Wyman (Promise to pay man for caring for son) –

Moral obligation is sufficient consideration for an express promise

3. Webb v. McGowin (Sees accident and prevents it and gets hurt) - Moral obligation is sufficient consideration where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor.

c. Reliance and Promissory Estoppel (Substitute for Consideration)i. Contemporary Application of Estoppel

1. Estoppel a. A right arising from acts, admissions, or conduct

which have induced a change of position in accordance with the real or apparent intention of the party against whom they are seeking enforcement from

2. Equitable Estoppela. The effect of the voluntary conduct of a party

whereby he is absolutely precluded, both at law and in equity, from asserting rights which might, perhaps, have otherwise existed, either of property, of contracts or of remedy

3. Promissory Estoppela. (1) A promise that can (2) reasonably be

expected to and (3) does induce action or forbearance by promise to the (4) promisee’s detriment is (5) enforceable to the extent to avoid injustice.

b. Enforceable to the extent to avoid injustice, stops a party from denying a promise is not enforceable

i. The defendant made an unambiguous promise to her

ii. She relied on that promiseiii. Her reliance was expected and

foreseeableiv. To her detriment

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4. Definiteness/Completeness of Promise – Formal requirements

a. Whether reliance is only a substitute for consideration

b. Whether detriment includes forgoing something the promisee may not have a right to

c. Remedies – sufficient to remedy the wrong5. Rules

a. R2K 87: Option Contractb. R2K 89: Modification of Executory Contractc. R2K 90: Promise Reasonably Inducing Action or

Forbearance6. Cases

a. Ricketts v. Scothorn (G.daughter quits job due to promise by Gpop) – The full execution of a promise may be necessary to avoid injustice from reliance – Promissory Note

b. Dargo v. Clear Channel Communications, Inc – Consideration must not be present in order to claim promissory estoppel

c. Dixon v. Wells Fargo Bank, N.A – to accommodate equitable loses, bargaining-in-good-faith will be considered a reasonable reliance.

ii. Remedial Considerations & The Diminishing Importance of Reliance

1. R2K 90 expands the doctrine of promissory estoppel as a basis for enforcing gift promises inducing reliance since there was no actual offer or “promise” – some courts require a form of agreement a necessary condition to a promisee’s recovery

2. Expectation Damages – measured by the amount necessary to put the promise in as good of a position as performance would have

3. Promissory estoppel can extend to pre-contract negotiations when one party makes a specific promise in order to entice the other party to enter into negotiations and then the first party breaks the promise for no reason.

4. Rulesa. R2K 87: Option Contractb. R2K 89: Modification of Executory Contractc. R2K 90: Promise Reasonably Inducing Action or

Forbearance5. Cases

a. Salsbury v. Northwestern Bell Telephone Company – An exception to a bargained for exchange as

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consideration = Charitable Subscription (or marriage settlement)

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III. DEFENSES TO ENFORCEMENTIs The Agreement Unenforceable because of Flaws in the Agreement Process or Problems with the Substance of the Agreement?Problem with Agreement = Process – Form – Substance

a. Statutes of Frauds i. The requirement that certain kinds of contracts be:

1. Must be in writing or evidenced by writing in order to be enforceable

2. Marking with intent to make something a memorialization of an enforceable agreement.

3. Enforceable only to those who sign (Does not need to be complete)

ii. R2K 110: Classes of Contracts Covered (4 & 5)1. Sale or interest of land: Transfers of Interests in Real

Estatea. Purchase price is irrelevant ot the question of

whether the statute of frauds applies to the deal2. Contracts that cannot be performed in a Year – One-year

provision: Service contracts incapable of performance within a year of formation.

a. Fixed Time Period – Focuses only on whether the agreement can be performed within a year and treats termination different from performance

b. Fixed Time – Focus is not on how long a person actually performs by whether her performance can be complete within a year of the date of the contract

c. Task – Contracts for performance of a specific task (as contrasted with contracts for a specific time or time period) are never within the statue of frauds

i. Capable – theoretically possible with unlimited resources

d. Lifetime – The agreement is capable of being fully performed without breach within the space of one year because an individual can die within a year.

iii. UCC 2-201 – Who signed it & What’s in writing?1. Limited to:

a. Sales of Goods for $500 +b. The recipient of a signed writing “in

confirmation of the contract” fails to object in writing within 10 days (binding)

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i. Must be signed by “the party against whom enforcement is sought”

ii. Only quantity needs to be in writing2. EXCEPTIONS: performance, estoppel, admission of K

a. Goods specially manufactured for the buyer; b. Proper judicial admissions of the contracts

existencec. Performance via proper acceptance (2-606)

i. “Substantial beginning” ORii. “Commitment for there procurement”

iv. Purpose1. To prevent false claims that there was/wasn’t an oral

agreement2. Evidentiary – to provide reliable evidence of the

existence and terms of the contracts, and the classes of contracts covered seem for the most part to have been selected because of importance or complexity

3. Solemnization – demonstrates serious intentv. What to Consider

1. How is the Statute of Frauds’ requirement of Objective Proof of the Agreement met?

2. What are the legal consequences of failure to satisfy the Statute of Frauds

a. Losing the Statute of Frauds Defense ≠ Losing suit – lies with Burden of Proof on all other elements of a breach of a contract claim

vi. Rules1. R2K 110: Classes of Contracts Covered2. R2K 132: Several Writings3. R2K 133: Memorandum Not Made as Such4. R2K 134: Signature5. R2K 135: Who must sign6. R2K 136: Time of Memorandum7. R2K 137: Loss or Destruction of Memorandum8. R2K 139: Enforcement by Virtue of Action in Reliance9. UCC 2-201: Formal Requirements; Statute of Frauds

vii. Cases1. Radke v. Brenon (dividing cost of pond land) –

Memorialization of the Statute of Frauds does not need to be complete, only complete enough.

a. A contract for the sale of land is void unless its in writing.

2. DF Activities v. Brown (ugly chair) – Affidavit is attached to an oath, Declarations are statements of belief

viii. NOTES1. Not all agreements must be in writing2. Not all writings satisfy the Statute of Frauds

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3. Promissory Estoppel = Theory of RecoveryStatute of Frauds = Defense to Enforcement

b. Fraud, Misrepresentation and Nondisclosure i. Fraud

1. Unsure of the agreement2. Not clear what is being assented to3. Confusion in terms4. Induces misunderstanding of the facts

ii. Misrepresentation of Facts1. When false statements as to existing facts induce an

individual to enter into a contract2. Occurs prior to formation3. Amounts to assertion not in accordance with the facts4. Innocent misrepresentations as to existing facts can

make a contract void – Reliance5. Material Misrepresentation – likely to induce action or

the promisor knows it would be likely to induce actiona. Other meanings of “Material”

i. Major/Substantial/Superii. Legally Significant

iii. Anything important to the other party – cause surprise or hardship

iv. (Occurs prior to agreement)6. Broken Promises

a. A basis for recovering damages for breach of contract, and

b. If material, a basis for excuse of future performance

iii. Non-Disclosure/Concealment1. Non-Disclosure + Concealment = Misrepresentation

“ “ + Misleading Statements = “ ““ “ + Knowledge of Misunderstanding = “ ““ “ + Know uncertainty of terms = “ ““ “ + Trust & Confidence = “ “

a. Non-Disclosure ≠ Misrepresentation2. A person making a contract is not required by contract

law to tell the other person all that he knows, even if he knows that the other person lacks knowledge of certain facts.

a. Unless materialiv. Rescission – The revocation, cancellation, or repeal of a law,

order, or agreementa. Material Non-Disclosure/Non-Disclosure +

Concealmenti. Necessary to prevent a misrepresentation

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ii. It’s essential to contract formationiii. It alters the meaning of the contract, oriv. The other person is entitled to know

b. Misrepresentationi. How “material” was the

misrepresentationii. Was there reliance on the

misrepresentation?iii. Was the reliance reasonable?

v. Rules1. R2K 159: Misrepresentation Defined2. R2K 160: When Action is Equivalent to an Assertion (concealment)3. R2K 161: When Non-Disclosure Is Equivalent to an Assertion4. R2K 162: When Misrepresentation is Fraudulent or Material

a. (2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

5. R2K 163: When a Misrepresentation Prevents Formation of a Contract

6. R2K 164: When Misrepresentation Makes a Contract Voidablevi. Cases

1. Halpert v. Rosenthal – Misrepresentation does not need to be known to be a defense against enforcement

2. Swinton v. Whitinsville Savings Bank – Nondisclosure alone is not a defense against enforcement

3. Weintraub v. Krobatsch – Non-disclosure + Concealment = rescindable

vii. Notes1. Use of conditions can protect buyers from

misrepresentationa. Buyer has option to back out of dealb. Not illusory because voiding of contract is

conditional not just when the buyer “feels like it”2. Defense to contract enforcement can occur at any time

after performance and before statute of limitations3. Consideration is only a problem when it is NOT

bargained-for

c. Mistake Mistaken belief that is not in accord with the facts. – Assumptions about facts at the time of formation. (R2K 151)

i. (R2K 153) Both or one party was mistaken, at the time a contract was made, as to a basic assumption that has a material effect on agreed exchange that is adverse to him THEN the contract is voidable by the adversely affected party UNLESS

1. Adversely affected party bore risk (and)

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2. (If UNILATERAL) Mistake makes contract unconscionable

OROther party had reason to know or by his own fault created the mistake.

ii. Mutual Mistake will be denied relief if:1. The court concludes that there was simply a bad

judgment or ignorance instead of “legal mistake”2. There is a mutual mistake but it is not “material,” or3. There is a material mutual mistake but “under the

circumstances,” the person seeking relief because of the mistake should bear the risk of his or her mistake.

iii. Who has the best opportunity to prevent mistake?iv. Critical problems in Determining Mistake = Proof, Policy, and

Rulesv. Rescission based on Mistake

1. The party seeking enforcement was mistaken regarding a basic assumption upon which she made the contract

2. The mistake materially affected the agreed exchange of performances in a way that was adverse to the party seeking enforcement

3. The party seeking enforcement did not bear the risk of the mistake

4. The effect of the mistake was such that enforcement of the contract would be unconscionable

vi. Rules1. R2K 151: Mistake2. R2K 152: When Mistake of Both Parties Makes a Contract Voidable

(Mutual)3. R2K 153: When Mistake of One Party Makes a Contract Voidable

(Unilateral)4. R2K 154: When a Party Bears the Risk of a Mistake

vii. Cases1. Estate of Nelson v. Rice (fine art appraisal) – A party

bears the risk of mistake when he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts which the mistake relates, but treats his limited knowledge as sufficient

2. Grenall v. United of Omaha Life Ins. Co(Life insurance with cancer) – Even if agreement is unconscionable now, at the time of offer there was no unconscionability. A unilateral mistake does not support a claim for rescission when the party seeking rescission bore the risk of the mistake

viii. NOTES1. When expectations are unclear Objective Test

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2. Misunderstanding – Materially different meanings attached to a fact

v.Mistake – A belief not in accord with the facts

d. Duress and Undue Influence (Process)i. Duress

1. By Physical Compulsiona. Physically forced to commit actsb. Party has no choice

2. By Threata. No reasonable alternative

i. Constrains choices to categorize them as unfair

b. Improper Threati. Crime or Tort

ii. Criminal Prosecutioniii. Use of Civil Process in Bad Threativ. Disrupts benefits of contractv. Unfair Terms

1. Unbalanced3. Economic Duress

a. ONLY when the party threatens to commit a wrongful act that would seriously threaten the other contracting parties properties or finances.

b. Often NOT enforceable4. Rules

a. R2K 74: Settlement of Claimsb. R2K 89: Modification of Executory Contractc. R2K 174: When Duress by Physical Compulsion Prevents

Formation of a Contracti. R2K 175: When Duress by Threat Makes a

Contract Voidableii. R2K 176: When a Threat is Improper

ii. Undue Influence1. Persuasion which tends to be coercive in nature or

excessive pressure to persuade on vulnerable to such pressure

2. REQUIREMENTSa. Lesser Weakness – lack of full vigor, physical

condition, emotional anguishb. An application of excessive strength by a

dominant subject3. Types (2+ must be present)

a. Discussion of the transaction at an unusual or inappropriate time

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b. Consummation of the transaction in an unusual place

c. Insistent demand that the business be finished at once

d. Extreme emphasis on untoward consequences of delay

e. The use of multiple persuaders by the dominant side against a single servient party

f. Absence of 3rd-party advisers to the servient party

g. Statements that there is no time to consult financial advisers or attorneys

4. Rulesi. R2K 74: Settlement of Claims

ii. R2K 89: Modification of Executory Contractiii. R2K 177: When Undue Influence Makes a Contract

Voidableiii. Cases

1. Austin Instrument, Inc. v. Loral Corp (US Gov. Subcontractor & Contractor) – A contract is voidable due to duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding free will

2. Totem Marine Tug & Barge, Inc. v. Alyseka Pipeline Service Co. – A settlement and release may be rescinded due to the existence of economic duress

3. Odorizzi v. Bloomfield School District – Differentiates between Duress by Threat vs. Undue influence

a. Duress – bad act that unduly constrains choicesi. Unfair bargaining power

ii. Identifiable at time by victimb. Undue Influence – Forces that overcome

someone’s will (mental pressurei. Abuse of trust

ii. Persuasioniii. May not be identifiable by victim at the

time

e. Illegality and Public Policy (substance)Contract is illegal and voidable against public policy

i. Exculpatory Agreement – agreement in which the parties expressly agree that the plaintiff will relieve the defendant of its legal duty toward the plaintiff

1. Exonerates an action prior to it occurring

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ii. Adhesion Contract – A legally binding contract between two parties in which one side has dominate bargaining power and uses that power to his/her advantage

iii. Covenant Not to Compete – An agreement where one party agrees that upon termination of his services, he will not engage in a similar trade or profession in unfair competition with his former employer or principal

iv. Severability – A provision in a contract providing that, should one or more terms of the contract be determined to be unenforceable, then the remainder of the terms of the contract will remain enforceable

1. “Blue Pencil Rule” – Eliminating unreasonable portions2. Modification – creating a new agreement for the parties

to upholdv. Rules

1. R2K 178: When a Term is Unenforceable on Grounds of Public Policy

2. R2K 179: Bases of Public Policies Against Enforcement3. R2K 180: Effect of Excusable Ignorance4. R2K 181: Effect of Failure to Comply with Licensing or Similar

Requirement5. R2K 184: When Rest of Agreement Is Enforceable

vi. Cases1. Hanks v. Powder Ridge Restaurant Corp. – A contractual

release of liability will not relieve a party of liability for negligence where such a release would violate public policy.

2. Valley Medical Specialists v. Farber – Restrictive covenants will be upheld if they are reasonable and comply with public policy

f. Unconscionability Must be both procedurally and substantively unconscionable (the more of one the less you need of the other.

i. Procedural1. Agreement Process2. “Unfair Surprise”

a. Small print, sales tactics, exploitation of bargaining power

3. Enforceability focused on the information about the agreement

ii. Substantive1. Substance of Agreement – Terms used2. “Prevention of Oppression”3. Focused on matters of the time of the agreement

a. Whether the terms were fair at the time of the agreement, not months or years later

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4. EXAMPLE: Illegality, Public Policy problems with the substance of the bargains

iii. Exceptions1. Arbitration2. Non-Compete3. Employment Terms/Agreements

iv. Rules1. R2K 208: Unconscionable Contract or Term2. UCC 2-302: Unconscionable Contract or Clause

v. Cases1. Williams v. Walker-Thomas Furniture Company (sales to

underprivileged) – Reasonableness and fairness are based on the terms of the contract considered in light of the circumstances existing when the contract was made

2. Vernon v. Qwest Communications Int’l – A contract must be substantively and procedurally unconscionable to be considered unconscionable.

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IV. INTERPRETATION

a. Course of Performance; Course of Dealing; Trade Custom and Usage; Gap-Fillers; Interpretation in ContextDeal is affirmed but the meaning is unclear; a nonmaterial uncertainty in the contract

i. TEST1. Is there a deal?

a. No Interpretation doesn’t applyb. Yes Move to 2

2. Is there a misunderstanding?a. No Interpretation doesn’t applyb. Yes Move to 3

3. Is it a material misunderstanding?a. No Move to 4b. Yes No Contract

4. What are the terms and what do they mean?a. Express Termsb. Course of Performance – Sequence of conduct in

the particular transactionc. Course of Dealings – Sequence of conduct based

on previous transactions between the partiesd. Usage of Trade – Regularity in place, vocation, or

tradeii. TERMS

1. Indefinite – What did they agree on?2. Ambiguous – What does the agreement mean?

iii. Rules1. R2K 200: Interpretation of Promise or Agreement2. R2K 202: Rules in Aid of Interpretation3. R2K 203: Standards of Preference in Interpretation4. R2K 204: Supplying an Omitted Essential Term5. UCC 1-303: Course of Performance, Course of Dealing, and Usage of

Trade6. UCC 2-305: Open Price Term7. UCC 2-308: Absence of Specified Place for Delivery8. UCC 2-309: Absence of Specific Time Provisions; Notice of

Terminationiv. Cases

1. Threadgill v. Peabody Coal Co. (broken probe) – Trade customs are evidence of the parties’ intent when the parties have actual knowledge of the custom or the custom is so pervasive that constructive knowledge is justified provided the trade custom is either illegal nor in conflict with public policy

a. Frigaliment Importing Co. v. BNS Int’l Sales (chickens) – Ambiguous Terms

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b. The Parol Evidence Rule Determines what terms and obligations survive the formation of a contract – If applicable, all prior obligations and terms that are related to the contract can be discharged (Must be in Writing).

i. Determining Partial and Complete Integration1. Integrated

a. Complete and finalb. Parties intend for agreement to be the only

agreementc. If there is no integration clause Objective Test

i. Would a reasonable person expect it to be mentioned in the written paper if it were to be included?

2. Partially Integrateda. The formation of the contract did not discharge

all prior agreements but rather only the conflicting terms

b. May apply missing/supplemental terms3. Scope

a. It would naturally have been included in the final expression of that deal and would have been part of the deal.

ii. Applying the Parol Evidence Rule (Supplemental vs. Contradictory)

1. Parol Evidence Rulea. Limits what we can look at in determining the

interpretation of the contractb. Applies only when the parties express the

intention to have an integrated contractc. Only applies to agreements prior to integrationd. Parties choose to tell the court how to interpret

2. TESTa. Have the parties intended the agreement to be

partially or completely integrated?i. Is it integrated and to what extent?

ii. What rule does the jurisdiction apply?1. May always define it as complete

iii. Anytime the agreement is ambiguous, we will look outside the agreement (extrinsic evidence) to determine the intentions

b. Determine the scope of integration, what does the agreement speak to?

i. How far does it extend and as to what terms?

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c. What is the interpretation offered?i. Inconsistent? Different? Partial?

Complete?d. Is there an exception?

i. Ambiguity; Usage of Trade3. TERMS

a. Condition Precedent – an event which must take place before a party to a contract must perform or do their part

b. Letters of Credit – a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount

i. If buyer is unable to pay, the bank is required to cover the full or remaining amount of the purchase

c. Contemporaneous – Existing or occurring in the same period of time

d. Parol – things outside the 4 corners of the agreement that can help determine the agreement

iii. Exceptions to the Parol Evidence Rule1. Main Exceptions

a. Contexti. Course of dealings, usage of trade (UCC)

ii. Circumstances surrounding dealb. Oral Condition to Formation (Apex)c. Defenses to Formation or Enforcementd. Rescission; Reformatione. Post-Formation Communications or Eventsf. Ambiguity (OR silent on topic)

i. Is the term reasonably susceptible to the meaning a party wants?

1. Look at the terms of the writing2. “Clear on its Face” – an ordinary

reader of English, reading the contract, would think its application to the dispute at hand certain

ii. Three tests judges could apply:1. CA – Can always look to extrinsic

evidence to determine ambiguity2. IL – “Objective” evidence is

permitted3. NY – Ambiguity must be

determined based on the “4 corners” of the document.

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2. Subjective intent has no bearing on the interpretation of the agreement

iv. Rules1. R2K 209: Integrated Agreements2. R2K 210: Completely and Partially Integrated Agreements3. R2K 212: Interpretation of Integrated Agreement4. R2K 213: Effect of Integrated Agreement on Prior Agreements5. R2K 214: Evidence of Prior or Contemporaneous Agreements and

Negotiations6. R2K 215: Contradiction of Integrated Terms7. R2K 216: Consistent Additional Terms

a. (2) An agreement is not completely integrated if the writing omits a consistent additional agreed term whit is

i. agreed to for separate consideration, orii. such a term as in the circumstances might

naturally be omitted from the writing8. R2K 217: Integrated Agreement Subject to Oral Requirement of a

Condition9. R2K 218: Untrue Recitals; Evidence of Consideration10. UCC 2-202: Final Written Expression: Parol or Extrinsic Evidence

v. Cases1. Town Bank v. City Real Estate Development – Parol

Evidence does not preclude the court from considering evidence of prior agreements for the purpose of determining the parties intent to be bound

a. Once intention for agreement to be integrated is determined, only then does the parol evidence rule take effect.

2. Apex LLC v Sharing World (12 contracts to sell cottonseed) – Inconsistent terms/agreements cannot be considered when determining the meaning of an integrated contract.—If purported additional oral terms toa written contract are such that, if agreed upon, they certainly would have been included in the contract, then the terms are not admissible at trial.

3. Trident Center v. Connecticut General Life Ins. Co – Extrinsic evidence can be used in order to determine if the parties meant for a contract to be integrated (partially or wholly) or something else.

vi. NOTES1. Statute of Frauds – Defense against Enforcement

a. Doesn’t have to be completeb. Must be clear on main terms of signficance

2. Parol Evidence – Substantive Rule of Contract Interpretation

a. Integrated Writingb. Parties Intention to be governed

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c. Terms Implied by Courts i. Effectuate Assumed Intent

1. Courts will provide missing terms when they are convinced that the parties intended to contract but overlooked or omitted an essential term that can be inferred from the circumstances

2. Typesa. Obviously Omitted Terms

i. When courts can see the parties intended a binding contract, and can specify with some precision the terms of the omitted provision

b. Trade Usagei. Terms used in repetitive and common

contracts.ii. Even if the parties may not have thought

about it the term may be inserted into the contract

iii. Does not need to be expressly agreed to by the parties

iv. Parol Evidence can be used to show that it is a term of the deal

v. Applies regardless of ‘merchant’ statusii. The Implied Duty of Good Faith and Fair Dealing

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1. A term of a contract NOT a duty imposed2. Measured by whether it was reasonable3. May cases present conflicts between the express

language of the contract and the implied covenant of good faith. – Express Language usually prevails

4. Level of control must be understood by both partiesiii. Rules

1. R2K 205: Duty of Good Faith and Fair Dealings2. UCC 1-3004: Obligation of Good Faith3. UCC 1-201: [Definitions] Good Faith means honesty in fact and the

observance of reasonable commercial standards of fair dealingsiv. Cases

1. Wood v. Lucy, Lady Duff-Gordon – When parties disagree about intentions, the court may assume OR construe the contract to make sense to keep the contract binding.

a. A contract may be enforced when there is no evidence of a promise, exchanged as consideration, in the explicit terms of the contract.

b. A promise to use reasonable efforts may be implied from the entire circumstances of a contract.

2. Locke v. Warner Bros, Inc. – Implied covenant of good faith and fair dealings. – Implied in ALL contracts.

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V. EXCUSEAfter making an enforceable deal, when are you excused from doing what you agree to do?

a. Conditions Non-Occurrence of Something That The Contract Expressly Provides Must Occur As Excuse For Not Doing What you Agreed To Do

i. Express Conditions and the Requirement of Strict Compliance1. Language in a contract2. Excuses the contract’s other promises rather than

creating no promise; anda. Failure to satisfy a condition is not a breach,

there is simply a consequence that the other promises are not required to be upheld

ii. Consequences1. Excuse of Performance – Nonoccurrence of a condition

excuses any duty to perform2. Strict Compliance – Occurrence of a condition requires

strict compliance with the contract language of condion3. The nonoccurrence of a condition is not a breach.

iii. Terms of Express Conditions

If Provided that Subject to Unless UntilOnly if So long as In the event that When On condition

iv. Excusing ConditionsAvoidance of Forfeiture, Prevention, Waiver, Estoppel, and Modification

1. Performance – fulfilling the action required by the promise contract – Measure of Breach

2. Failure to Satisfy Condition of Performance

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a. If it does happen a party is obliged to performb. If it doesn’t happen they are not required to

performi. One party is excused & forfeits

3. Non-Occurrence of a Condition is Excuseda. Modification

i. Agreement of both sides to change the contract. Mutual Assent Required

1. Unforeseen change in circumstance that are material

2. Extent that justice requiresb. Prevention

i. Action or omission by the party that is benefited by the condition that prevents the condition from being satisfied or occurring

1. Failure of condition is excused and the contract is enforceable Performance is excused

c. Estoppeli. A representation that can reasonably be

relied on to their detriment1. Representing party is stuck w/ the

representation2. Estopped to deny the

representation3. Enforceable to extent of justice

d. Waiveri. Voluntary relinquishment of a known

right. Unilateral act – No consideration required.

1. Only the party that benefits can waive condition

2. No Reliance3. Waiver can be taken back as long

as the other party hasn’t relied on it

v. Rules1. R2K 224: Condition

a. An event not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due

2. R2K 225: Effects of the Non-Occurrence3. R2K 227: Standards of Preference with Regard to Conditions4. R2K 229: Excuse of a Condition to Avoid Forfeiture5. R2K 84: Promise to Perform a Duty in Spite of Non-Occurrence of a

Condition

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6. R2K 89: Modification of Executory Contract7. UCC 2-209: Modification, Rescission and Waiver

vi. Cases1. Evans v. Triad Architects, Ltd – Express conditions must

be explicit to be considered as a forfeiture of a parties benefit

2. Luttinger v. Rosen –3. National Fuel Gas Distrib. Corp. v. Harford Fire Ins. Co. –4. Acme Markets, Inc. v. Federal Armored Espress Inc. –

Who does the term benefit?vii. Notes

1. Both Estoppel and Waiver can be present at the same time because they arise from the same facts

2. Covenant – unconditional promise to do something3. Condition – if something does or doesn’t happen then

something else4. Unless it’s very clear, terms re not construed as

“expressed conditions,” and are thought of as promises/covenant

5. Can be communicated directly or be reasonably understood by the parties

a. Past Actions/ Mutual Understanding

b. Impossibility, Impracticability, Frustration of Purpose Occurrence of Something Not Provided for in the Contract as an Excuse for Not Doing What You Agreed To Do

i. Impracticability – unreasonably costly or difficultii. Common Situations of Impracticability that Excuses

Performance1. Destruction of a material thing that’s necessary for

performance2. Death of an individual that’s necessary for performance3. An intervening change in the law that makes

performance illegal4. Discharge by Supervening Impracticability (R2K 261)

a. Where after a contract is madeb. A party’s performance is impracticablec. Without the parties faultd. By the occurrence of an event the nonoccurrence

of which was a basic assumption on which the contract was made

e. The duty to render the performance is discharged

f. Unless the language or the circumstances indicate the contrary.

iii. Rules

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1. R2K 261: Discharge by Supervening Impracticability2. R2K 262: Death or Incapacity of Person Necessary for Performance3. R2K 265: Discharge by Supervening Frustration4. R2K 267: Effect on Other Party’s Duties of a Failure Justified by

Impracticability or Frustration5. UCC 2-615: Excuse by Failure of Presupposed Conditions

a. In the sale of goods, a material change in circumstance does not excuse the condition of payment

iv. Cases1. Taylor v. Caldwell (burning down of Surrey Gardens) – In

contracts in which performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing or destruction of the person or thing shall excuse the performance.

2. Route 6 Outparcels, LLC v. Ruby Tuesday, Inc. – Excuse results from circumstances that are beyond the parties control AND are not implied assumptions depended upon in the agreement – Beyond control is not a guaranteed excuse.

3. Krell v. Henry – When a condition that is not expressly mentioned in a contract can nevertheless be implied from extrinsic evidence as being understood by both parties to be the subject matter of the contract, the nonoccurrence of the condition may excuse nonperformance of the contract by both parties.

a. The purpose of the contract was frustrated

c. Anticipatory Repudiation The other parties unambiguous indication of unwillingness or inability to perform as an excuse for not doing what you agreed to do; reasonable insecurity and adequate assurance of performance.

i. Anticipatory Repudiation – Repudiation prior to time due for performance

1. If material, excuses further contract performance by the other party just like in the case of an actual failure ot perform at the agreed upon time of performance

2. A form of breach of contract3. Requires an unequivocal indication of intention no to

perform4. Gives the option to sue immediately due to breach

ii. Protection1. Wait until lapse to declare breach

a. Whenever anticipatory repudiation occurs and is clear

b. Allowed prior to lapse however if its unclear and the party is wrong that party will be in breach

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iii. How to Know when Repudiation Occurs1. Clear unequivocal statement/indication of repudiation

a. Objective Test2. By Conduct

a. (Versus indirect revocation prior to formation)

iv. If a party stops his performance because he honestly but incorrectly interprets the other party’s post-contract words and conduct as rising to the level of an anticipatory repudiation, then it is the first party who has actually committed the anticipatory repudiation

v. Reasonable Grounds for Insecurity (UCC) – provides a basis for excuse of further contract performance by the other party of the contract

1. A party can demand in writing adequate assurance of performance

a. Can suspend her own performance until she receives adequate assurance, if commercially reasonable or

b. Stop performance altogether if adequate assurance is not timely provided

c. TESTi. Step 1 : I feel reasonably insecure

1. Is it reasonable?2. Is the other parties judgment

correct?ii. Step 2 : Is the assurance adequate

1. I s the parties judgment of adequacy correct?

2. If the insecurity is unreasonable, the other party does not have to provide adequate assurance

3. TESTa. Were there reasonable grounds for insecurity?b. Was the assurance offered adequate?c. Was it commercially reasonable to suspend

performance until receiving adequate assurance?vi. Rules

1. R2K 250: When a Statement or an Act is a Repudiation2. R2K 251: When a Failure to Give Assurance may be Treated as a

Repudiation3. R2K 253: Effect of a Repudiation as a Breach and on Other Party’s

Duties4. R2K 256: Nullification of Repudiation or Basis for Repudiation5. R2K 257: Effect of Urging Performance in Spite of Repudiation6. UCC 2-609: Right to Adequate Assurance of Performance7. UCC 2-610: Anticipatory Repudiation8. UCC 2-611: Retraction of Anticipatory Repudiation

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vii. Cases1. Norcon Power Partners, LP v. Niagra Mohawk Power

Corpviii. Notes

1. Repudiation – a party unequivocally indicating that he is not going to perform

2. UCC More SpecificR2K Requires reasonable actions & timing

3. Actions determine breach; simply relying on your own interpretation is dangerous

d. Material Breach The other party’s improper performance as an excuse for not doing what you agreed to do under a common-law contract

i. Only a material breach excuses further performance of a contract governed by common law

1. Unless any understanding to the contrary2. There cannot be both substantial performance and

material breachii. Condition Precedent – A prerequisite to the parties’

performance obligations1. The non-occurrence of a condition precedent excuses

any contract performanceiii. Condition Subsequent – Imposes a post-contractual limitation

on the duty to perform1. The occurrence of a condition subsequent excuses

continuing performanceiv. Constructive Breach

1. Miss = Material Breach2. Hit = No Breach3. Near Miss = Non-Material Breach

a. Substantial Performance - Breach that satisfies constructive requirements and allows performance to go forward but there will be remedies

b. Remedies = Difference between what you were promised and what was received

v. Constructive Conditions1. Not express conditions2. Not language in a contract that modifies obligations

created by language of promise in the contract3. Not subject to the strict compliance standard4. Made up by the court and not the parties5. Doctrine to explain why the performance by each party to

a contract is almost always dependent on the performance by the other contract party

vi. Rules

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1. R2K 234: Order of Performances2. R2K 235: Effect of Performance as Discharge and of Non-

Performance as Breach3. R2K 237: Effect on Other Party’s Duties of a Failure to Render

Performance4. R2K 241: Circumstances Significant in Determining Whether a

Failure is Materialvii. Cases

1. Jacob & Young Inc. v. Kent (Reading,PA pipes) – A party who substantially performs its obligations under a contract is entitled to expectation damages based on full performance of the contract, minus an offset for defects in the party’s performance

VI. RemediesWhat does the aggrieved party get? Obligation Wrong Remedy

a. Specific Remedies i. Remedy – something to compensate the non-breaching party

for the consequences of the breaching party’s actions1. Contract remedies are forward looking2. Seek to place the non-breaching party in the place s/he

would have been in had there been performancea. Receives the benefit of its bargain as remedy

3. Usually the amount of damages is determined without reference to the intent of the breaching party

4. Intentional breaches are generally treated the same as non-intentional ones

ii. Specific Remedies are “equitable” and available w/out jury and enforceable by contempt

1. Specific Performance2. Injunction 3. ONLY available when there is no adequate remedy of law.

iii. Substitutional Remedies are enforceable by seizing debtors non-exempt assets and selling them at auction to satisfy

b. Specific Performance/Injunctive Relief i. Specific Performance

1. Orders the breaching party to do what was promised when the remedy at law (monetary damages) is inadequate to compensate and when it is fair and reasonable to compel performance

a. Inadequate Performance

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b. Equityii. Injunctions

1. Negative – Prevent something from occurring, or someone form doing something

2. Affirmative – Requiring an action.

c. Agreed Remedies Damages/Liquidation i. Types of Damages

1. Direct/General Damagesa. The type of damages necessary to award to the

non-breaching party the benefit of his or her bargain

2. Special/Consequential Damagesa. More particular, relatively narrow, a special

second contractb. The breaching party must have been able, at the

time of contract formation, to reasonably have foreseen the loss its breach could ultimately cause

3. Incidentala. Those costs necessary to respond to or correct a

breachb. NOT lawyers fees

4. Liquidated Damages (Agreed upon in Advance)a. Provisions in contracts that agree and puts a

fixed numerical calculation, before a breach occurs, as to damages

b. Allowed ifi. Good Reason

ii. Clear formulaiii. Reasonable to the circumstances

c. Considerationsi. How hard will it be to figure out

damages?ii. Is amount reasonable?

d. Notesi. If the breach does not justify the amount

agreed It wont be enforcedii. At the time, if the agreement is terrible

but the breach is currently justifiable it It will be enforced.

d. Money Damages The presumptive remedy

i. Expectation Damages (Benefit of the Bargain)

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1. Damages – What you would have had if the contract had been performed

2. Incidental Damagesa. Costs incurred because the original party failed

to performb. Usually doesn’t amount to much money

3. Consequential Damagesa. Chain of Causation

i. How much is the breaching party responsible for?

ii. Is it foreseeable OR addressed by the parties?

ii. Limitations on Money Damages1. Avoided Costs (Lost profits)

a. The money you would have saved if there was no breach

2. Avoidable Lossa. When the non-breaching party does not have to

pay for his or her return performanceb. As a non-breaching party you must reasonably

act to keep your damages lowi. The duty to mitigate damages – denies

damages to the non-breaching party if the damages were avoidable if only the non-breaching party had obtained substitute performance

1. Non-breaching party does not have to mitigate if it would require undue risk, burden, or humiliation

3. Foreseeabilitya. Applies primarily to special/consequential

damagesb. Follows natural course of events OR Must show

that the breaching party had reason to foresee the injury

iii. When Specific Performance is necessary over Monetary Damages

1. Cannot determine accurately2. Process to determine is expensive3. May have undesirable affect (confidentiality exposure)4. Jury’s determination significantly unreliable

e. Rulesi. R2K 344: Purpose of Remedies

ii. R2K 345: Judicial Remedies Availableiii. R2K 346: Availability of Damages

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iv. R2K 347: Measure of Damages in Generalv. R2K 348: Alternatives to Loss in Value of Performance

vi. R2K 350: Avoidability as a Limitation on Damagesvii. R2K 351: Unforeseeability and Related Limitations on Damages

viii. R2K 357: Availability of Specific Performance and Injunctionix. R2K 359: Effect of Adequacy of Damagesx. R2K 360: Factors Affecting Adequacy of Damages

xi. UCC 2-716: Buyers Right to Specific Performance or Replevinxii. UCC 2-718: Liquidation or Limitation of Damages; Deposits

f. Casesi. Walgreen Co. v. Sara Creek Co. (non-compete disallowing other

pharmacies) – Damages are the normal remedy for a breach of contract, but a permanent injunction may be more appropriate if the plaintiff shows that damages are inadequate based on balancing the costs and benefits of the alternatives.

ii. Groves v. John Wunder Co. (sifting gravel) – Damages for willful breach of a construction contract, even where there has been substantial performance are awarded as the cost of completing the failed performance.

iii. Peevyhouse v. Garland Coal & Mining Co. (miners neglected to restore land) – Damages awarded for breach of an agreement to perform remedial work on property should normally be measured by the reasonable cost of performance of the work; but, when the contract provision breached is merely incidental to the main purpose in view and where the economic benefit which would result to the owner form full performance, damages should instead be limited to the diminution in value resulting to the premises because of the non-performance

iv. Hadley v. Baxendale (crankshaft) – When one party breaches a contract, the other party may recover all damages that are reasonably foreseeable to both parties at the time of making the contract, as well as damages stemming from any special circumstances provided those circumstances were communicated to and known by all parties. The parties must agree that it is actually part of the contract.

1. Formation #1: The damages a party would foresee at the time the contract was made

2. Formation #2: Formation #1 + Incorporating the risk into the contract

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