Contracts II - Stone - 3

Ben Coulter Contracts II-Stone
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CONTRACTS II
EXAM TIPS............................................................................................................................................................3
I. Intention...............................................................................................................................................................4
II. Interpretation & Implication...............................................................................................................................4
III. Offer, Revocation, Rejection, Counteroffer, Acceptance...................................................................................7
IV. Mistake, Misrepresentation, Fraud, Impossibility, & Frustration....................................................................24
V. Conditions & Performance................................................................................................................................44
VI. Third Party Beneficiaries.................................................................................................................................46
VII. Assignment and Delegation............................................................................................................................48
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EXAM TIPS
Things to do on the next exam
1. Make sure you are reflecting the handouts
a. be organized
b. budget your time
2. Don’t just recite facts
3. Use IRAQ+P
4. State the rule of law
5. Know the “tests”—example preexisting duty or commercial impracticability
6. Put it on the paper—pretend he knows nothing
7. Look for the ringer-the “clear” point
8. Err towards putting issues in, even if you think that it is a stretch
Exam Tips:
1. Likely to get an overall intent/meeting of the minds—Re-employment, Chicken case, Penzoil, etc.
2. Make sure to identify the issue and give the rules and apply and argue both ways
3. Know the 3 elements of offer, § 33 [certainty of terms], 52 [accepted only by the person invited to
accept]
Covering all the topics
Same format-Multiple Choice and Essay
Essay
1. id issues
2. tell what rules apply
3. apply to the facts
4. perhaps argue yes/no
bring a pencil
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I. Intention
A. Is there a meeting of the minds as intent to contract? What is the test?
B. Objective intent [dispassionate 3rd party] v. Subjective intent [parties in their own
minds appear to mean], Stone favors the objective test because it is less
imperfect
C. Example: Embry v. Hargadine, McKittrick Dry Goods p.330f, Employee claims that
there was an ultimatum for a one year or extension…Defendant’s response was a
go ahead, get the salesmen out, don’t worry…court reverses on the objective
standard
D. O + A [intent is a precursor] + C = K
E. Drunk Farmer Boasting Sale Example: [K as a result of drunken boasting to buy a

farm for $50k, Wife signs it]
1. Argue no K
 price is too low—no reasonable person would believe acceptance…no sense of purpose
 § 19 & 20 – no obj intent to K
 drinking = no capacity § 15 [§ 14 for infants]
 wife signing might show that this is an elaborate joke
o she might be in on it
o she might want to avoid a drunken beating
2. Argue yes K
 People sometimes sell things for ridiculous prices
 Objectively there appears to be intent to K
3. DECISION-court finds for the buyer
4. Test of capacity: Was the person unable to comprehend the nature of the business at hand? Quote is that one
must be “so drunk as to drown reason”
II. Interpretation & Implication

A. Frigaliment Chicken Case: buyer wants young chicken because there are lots of
uses for it; the seller wants to sell old chicken (only really broilers)
1. The Court said: you need a narrow interpretation of the contract
2. we default to the ordinary meaning of terms
3. But, trade usage is also an issue
a. court says the seller is new to the business; however, shouldn’t they need to know the trade usage?
b. The more common approach is the Naval Institute case—trade usage allowed…a “should have
known” test
c. Doesn’t the frigaliment decision reward one’s inadequacy?
B. 4 Part Interpretative Test

1. Look at the terms in the contract
2. Look to generally accepted meaning of the words
3. Special, or more narrow, interpretation of the words
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4. Trade usage – prior dealings – custom
 must prove with ev if you want a narrow meaning
C. Key planning point: define things in contracts
D. Restatements 202 & 203 – interpretation

1. interpret words given all of the circumstances-202, rest are 203
2. the court will prefer an interpretation resulting in a reasonable, lawful, and effective meaning over one
without it
3. express terms are given greater weight (if clear)
4. specific terms are given greater weight than vague terms
5. specically negotiated terms o/w boilerplate terms
E. Gap-filler cases
1. R2 § 204 allows the filling in of gaps – a reasonable term can be supplied by the court if needed
2. Sometimes, even major terms are allowed
3. No k unless there is reasonable certainty of terms – R2 § 33 – terms are reasonably certain “if they
provide a basis for determining the existence of a breach and for giving an appropriate remedy”
4. Courts can go one of two ways—“can we find a key?”
a. in k language or terms
b. in surrounding facts or circumstances, § 223 course of dealing – like Armco Steel
F. When is there a meeting of the minds?

A B
K agreement = k meeting of minds Preliminary negotiations = agreement to agree
Mere memorial = Penzoil K as a meeting of the minds
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G. Texaco v. Penzoil
-suit for the Tort of Interference
-only interference with K relations?
1. Argue first stage is a k?

 Some agreement
 Lawyers
 Handshake deal
 Champagne
 Press Release [key to court]
 Court says agreement
 Why didn’t Penzoil just sue Getty? There was an indemnification agreement to protect them from those
sorts of claims.
2. Argue no K?
 Agreement subject to the more formal agreement—not a memorial
 The complexity of the merger itself—can be 100s of pages
 Lawyers need to do their work-selling one of the biggest companies in the world
 Trade practice—not a done deal in NY till the details are sown up
 The court runs with the idea that the world is a jungle where a person’s word cannot be trusted. From
Texaco’s side, this means wait for the definitive merger agreement.
3. Note: Application of Corporate Law

a. Requirement for mergers is definitive board of directors approval or shareholders vote
b. Generally in life, someone can swoop in…the world is about competition. Suing is only a last resort.
4. Stone’s Comments
This is a Texas court using NY contract law…but really seems to base the decision on Texas and NY business
practices. A similar case in the 2nd District [NY] went the other way. The message in planning is dot your I’s
and cross your T’s or the K won’t be enforced. Tort-he’s skeptical. Judges gone wild. Don’t assume anything.
Is the Texas court really the one interfering with K?
5. Agreements to Agree increase the possibility of ultimate contract. They can be written as option contracts.
Staci’s looking up a skirt example.
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III. Offer, Revocation, Rejection, Counteroffer, Acceptance

A. 3 Elements of Offer
1. Intent to make an offer-more specific than general intent to K…are the offeror’s words ripe or are they just §
26 preliminary
2. Certainty of Terms - § 33, must have a “reasonable certainty of terms”
3. Communication – we must have “a properly communicated offer”…the offeror is the master of his offer §
50 & 52
B. Basic Definition: Restatement, Second § 24 – one party manifests a willingness to enter into a
bargain, and “a promise to do or refrain from doing a specified thing in the future”
C. Nebraska Seed Co. Case-- words of offer must be a final intent to make an offer…I
want is asking not offering. Look to see “I offer” or RPP standard.
1. The court says we don’t have an offer because the farmer is seeking bids…it is an invitation to make an
offer.
2. Wanting and offering are not the same thing
3. Court sees it as § 26 preliminary negotiation
4. If this is an offer, then the farmer could not possibly fill all of the orders if multiples made.
D. Authorized to offer, pleased to accept order—not the same as an offer, might be §

26 preliminary negotiations, see Moulton v. Kershaw
E. UCC disproportionality clause 2-306, massive quants not required to be filled…“all

you may order”.
Econ view says no offer because it is a world of scarce resources, impossible to allow infinity…no requirement
to tender or demand a quantity disproportionate with the stated estimate or if no s.e. exists, normal or otherwise
comparable prior output or requirements.
F. 1st Battle of the Forms

1. Fairmont Glass Works case
2. Each party wants to use their own, knowable form contracts, see back of UCC supplement
3. Court says take the correspondence as a whole
4. Criticism:
a. Restatement § 52 – looking at someone else other than the offeror
b. Indefinite or missing terms-quantity of 10 car loads
c. You don’t have to k if you don’t want one
5. Incorporation by reference-incorp the offeree’s inquiry into the offeror terms
-2 part rule
1. must be reasonably def and certain
2. true meaning may be through correspondence as a whole
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G. Are Ads offers? Lefkowitz-Furs [court finds an offer in a “first come, first serve”
setting-Ads Case]
1. The general SQ rule is that an ad is not an offer, but rather are invitations to negotiate, § 26
preliminary negots, an invitation to make an offer, a unilateral offer
2. This is a risk allocation question, would expose to infinite risk
3. Facts must show a promise of performance under positive details under § 24
H. Ford Advertisement Case-Ford case on p.423—the size counts case

1. The case
-Big print says buy a Ford, $3000 minimum trade in
-Small print says only if worth $3000
-Big print wins in this case, small print is too low
-Court says clear intent to offer in the big print and terms to seller
-But, doesn’t the small print carry weight
-We intend to limit the trade-ins to them being worth 3000
2. Read the ads as a whole, let the predominant predominate
3. The court frowns on bait and switch-Deceptive Trade Statute
4. Is it is really infinitesimally small? Does it make sense to say the court will give away $3000?
5. Opposite of chicken case
I. Definitions
 Offeror-the person making the offer
 Offeree-the person to whom the offer is being made
 Promisor-the person making the promise in question
 Promisee-the person receiving the promise
 Revoke-if the offeror withdraws his offer
 Reject-if the offeree refuses to enter into the deal
 “Remain open”-offer stays out there until the period the oferee has the power of acceptance
J. Duration of an offer
1. Black letter rule: an unequivocal rejection terminates the power of acceptance…could reject an offer for
now but say going to consider it…offeror could state in the offer that it would remain open despite a rejection…
an offeror disregarding a rejection is giving a new offer with the same terms, § 38
2. Black letter rule: a counteroffer is a rejection of the offer, and thus has the same effect as a rejection…
tempered by UCC § 2-207…[must have the 3 common law elements of offer]…ok to have a conditional term
provided by the offerors; also, one partner can bind the second partner
3. Black letter rule: to be effective, an acceptance must occur within the specified time  at the end of a
reasonable time if the offer has no specified time limit, § 41(1)…reasonable person test…very short if face to
face or through instantaneous electronic means (not much after the termination of the conversation)…also short
in inherently speculative transactions
4. Black letter rule: power of acceptance is terminated upon the death or incapacity of the offeror, § 48…
chipped away at by UCC § 4-405 and Restatement, Second, Agency § 120
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K. Mailbox Rule- R2 § 63, in the absence of the contrary, acceptance is effective when
dispatched
 Hypo on the Board
1. On the 10th, A offers to B property for $50,000 received by B in the mail
2. 11th B “sends” return letter to accept [there is a K now] and arrives at A’s place on 13th [date is
irrelevant]
3. But back on 12th, B telephones A & says “I reject” [this is too late, already a K]
L. Policy—Disciplining Ads
Two choices
1. Law schools argue for judicial analysis,
2. Business schools say it is only rare that ads are deceptive trade practices. The ads lower info costs and
are an invitation to negotiate. Bait and switch are emotional language, etc.
Goal = Discipline Ads

A. Gov Regulation = court, B. Market K discipline
statute, admin agency = decept
trade pr. acts?  big marginal benefit
 encourages competition
The result of a slippery slope
Emotion Thinking
Subjective Objective
§ 52 – Offeror is the master of his own offer
Regulating ads makes the dealer do things to increase the profit and cost to the buyer, enforce arbitration, etc. It
increases the costs of goods and services. It also increases transactions costs related to the law.
The alternative is for people to demand more as individuals. People will change their buying patterns.
M. Acceptance by accepting of application and cashing of application fee?
Steinberg, p.426
P argues that the brochure and the invitation to apply are an offer. Acceptance of application and cashing of the
application fee are acceptance. P wants the school to look objectively at the future offers. The court rules for
the P, but Stone points out that it is unenforceable. We still have legacy admits. Analogy made to Affirmative
Action. Stone thinks market competition is the best option.
N. Death of Offer
1. Revocation—withdrawal by the offeror
2. Rejection—offeree kills by refusing the offer, like § 38
3. Counter-offer—subs new offer, § 39
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O. Revocation-- Dickinson v. Dodds

1. A. K1 = Dickinson & Dodds
Vs.
B. Dodds & Allan [3rd party]
2. Issue: Was there revocation? Specifically, was it revoked when the buyer learned of the acceptance of a third
party?
3. Yes: Revocation
1. Seller agreed to sell to a third party
2. Buyer learned of it
4. Law – Revocation effective if received by the offeree before he accepts an offer. This is indirect
revocation .
Two part test in § 43.

1. takes def action inconsistent
2. offeree receives reliable information to that effect [constructive knowledge/“should have known” enough?]
5. Argue that there was no clear revocation

a. hard to say meeting of the minds with the K on the others
b. not sure if he learned enough, learning only from a 3rd party
c. shouldn’t the offeror have to communicate clearly
d. what if Berry was just the town drunk? A fact question on whether the ordinary reasonable person
would believe what the other person says.
e. if is a contract, then you can’t revoke
f. this is a naked promise [no consideration], so generally not able to hold to…
P. More revocation, rejection, and counteroffer—from Outline 432-456

1. An offeror may exclusively determine the person or persons in whom a power of acceptance is created.
R2 § 52
2. A revocation must be a clear manifestation of unwillingness to enter into the proposed bargain…
equivocal language does not necessarily destroy the power of acceptance. R2 § 42
3. Offers, acceptances, and other related communications generally must be communicated to the person
to be effective…but Dickinson v. Dodds shows not all rejections have to be. R2 § 42 allows for indirect
revocations if the offeree gets reliable information. Also stated in line with Dickinson v. Dodds on § 43.
4. R2 § 68 says a written revocation, rejection or acceptance is received when it “comes into the possession of
the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some
place which he has authorized as the place for this or similar communications to be deposited for him.”
5. Acceptance must comply with the precise requirements of the offer, since the offeror is the master of his
offer and can specify what constitutes an effective acceptance. R2 §§ 30, 58, 60  A response in the wrong
form is a counteroffer.
6. A formal requirement of acceptance may be ignored by the offeror. Conduct =, R2 § 22

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7. Acceptances are valid when out of the hand while all other communications [offers, counteroffer,
revocations, etc. are effective only when received. UCC 2-206., R2 § 63 The offeror can specify around the
mail box rule.
8. The mailbox rule may be varied or rejected by the offeror’s specification of the manner of acceptance.
9. Generally, the mailbox rule is only valid if the offeree uses a reasonable means of communication.
This is defined by the type of communication used by the offeror. Also, the restatement § 67 allows a bad
medium if it gets there in the same speed as a reasonable means would have.
10. The mailbox rule does not apply to acceptances that are not properly addressed—R2 § 66
11. Mailbox rule doesn’t apply to sending your employee with a message. R2 § 63
12. Alternate Rules

a. Field Code States like CA says mailbox rule applies to both acceptances and rejections
b. Civil Law countries generally say acceptances and revocations are effective on receipt
13. Identical offers crossing in the mail do not form a contract. R2 § 23
Q. How can an option K be terminated?
Humble Oil v. Westside Investment

 Option k
 Humble says conditional acceptance and later withdraws
 Westside says H rejected throught counter-offer
Issue: How can an option be terminated? [one with consideration]…
 Lapse of time
 Reject: The test on rejection is: “clear intent” to terminate
o through clear language
o could be language that would add up
 Court says this is perhaps an attempt to a second agreement
 A very high burden of proof on rejection of an option—want to see clear evidence that it was rejected
 Ways of saying the rule of law
o “Counter-offer will not terminate an option”
o Other courts say we have an “irrevocable offer”
o Other courts call it a “unilateral option”
R. Auctions
1. Well v. Schoeneweis
bid = offer to buy
fall of the hammer is acceptance
Buyer successfully sues for specific performance on the option K
2. Specialty Mainenance v. Rosen Systems (Auction w/ Reserve Case)

 Jury found for auctioneer, sees as auction with reserve
 P says w/out reserve b/c in ad it said w/out minimum which means w/out reserve (highest bidder gets it)
 Question of fact of auctioneer’s intent
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 Court agrees w/ jury but says it could go the other way
 Auction with reserve-bids are offer, this is the default presumption and typical result
 Auction without reserve-bids are acceptance
 UCC 2-328—
1. each lot is a different sale
2. sale complete with the fall of the hammer
3. sales are with reserve unless specified to be without reserve
S. Subcontractors v. Contractors
 Not an acceptance or consideration question
 Cases apply a lot of what we have looked at with O & A
1. James Baird v. Gimbel Brothers-common law view

Hand
 Says not to use promissory estoppel—parties seeking a promise for a promise, a bilateral k
 § 35, withdraw before acceptance
 § 42 approach, revocation by communication
 Hand says this §90 PE doesn’t apply because the K is dealing with an “offer in exchange”
 Only charity area is really stuck in the §90 promise
 Hand says no intent to be bound—no acceptance because the “if successful in being awarded this
contract”—means no K
 Plan around it by insisting on an option k ahead of time, or use condition precedent language, we are
contracting around the risk of uncertainty
 Incentives: look out for selves and put in the K

2. Drennan v. Star Paving Co.-modern view

Justice Traynor
Star = subcontractor
Drennan = prime or general contractor
 Q is the bid of the sub to the gen k1
 Star sends in 7k bid
 Drennan needs list of bids to put together the overall bid
 Drennan uses Star’s low bid
 Drennan gets the K2 deal
 Star tells of mistake and tries to revoke
 Drennan covers under K3 and sues Star for the $3800 difference, cover is the more likely outcome
 The cost of going after the bad guy is often prohibitive and the less-wise economic decision
 Mistake law was not applied
Issue: did reliance make the offer irrevocable? Was the offer revoked by Star paving?
ROL  ****Where there is offer for unil, if part perf occurs, then the –or cant revoke if the –ee
justifiably relied on the offer for unilat
3. Summary of the Two Cases

1. Traynor: Drennan = Unilateral K = Implied terms = equity and estoppel
2. Hand: Gimbel = Bilateral K = Express promises = offerer is master of his offer
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Traynor Pro Cons Hand Pros Cons
UNILATERAL Uncertainty; BILATERAL Said to be rigid
Flexibility of K Reduces law to Provides certainty in and inflexible
process; don’t case by case fact the law over
have to use issues vagueness of §§87/90
formal or option
K; incentive for
gen’l to rely
May be faster In conflict w/ Hand is consistent w/ Certainty
process; lower way K’ing Dickenson v. Dodds;
transactions parties function; either have K or not
costs negotiations in
practice continue
Incentive to Allows generals Incentive to make
avoid bid to have it both other side bound
mistakes ways before going forward
w/ offer
T. Supplement notes on Drennan and Gimble

1. Bid Substitution-shows a lack of intent of the general to be bound per the sub
These sub bids are just § 26 preliminary negotiations—not true unilateral contract. The ability of the general
contractor to seek further bids after use of the original bid encourages puffing of original sub bids.
1. Bid shopping causes subs to send in their bid at the last minute
2. Subs feel bound by their bid
3. Subs stop submitting to bid-shoppers
4. Subs also puff their bids
2.
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U. UCC and reliance doctrine--UCC 2-201(3)(a) specialty items open the door
A. Campbell v. Va. Metal Ind. – Gen relies on sub’s oral bid for doors in his K w/ Company.
Sub fails to provide doors and Gen sues. Sub claims protection by 2-201 of the UCC that a
K for goods of more than $500 has to be in writing.
1. P argues that the doors are unique and specific so therefore they should be
awarded spec. perf. N.C. Fed court agrees that the promise made by Va. was
binding.
2. This is a problem as this is a Fed court changing state law; writing generally
required by UCC 2-201, but case is an exception b/c of specially manufactured
goods (2-201(3)(1)(a)); This is Drennan approach
3. Only two times when Spec. Perf should be awarded
a. No adequate remedy at law for P
b. Irreparable harm to P if equity is not applied
B. Montgomery Ind. v. Thomas – K1 = original bid by sub, K2 = $32500 increase by sub
demanded and agreed to by P, K3 = K w/ school client.
1. Gen’l refuses to pay $32.5k over what was original bid, Court analyzes first bid like
Traynor finding it irrevocable after relied upon by D. Court also says that K2 was done by economic duress.
(No justifiable reliance under §87-§90)
2. Argue for the Sub – He made a mistake and the Gen’l agreed to it and then won’t pay,
who is duressing who here? According to facts Gen’l had notice of mistake b-4 K so he could have checked it
out if he had wanted to.
3. Call it bilateral or unilateral, sub performed fully when he held up his end of the
bargain (consider implied/quantum meruit contract)
C. Can a Gen’l really rely on a sub’s bid when it is such a competitive market and bids
could be seen as preliminary negotiation
D. Need to use planning to get around the problems of reliance.
V. Forms of Acceptance
How do you accept an offer?
 Performance-unilateral K
 Promise-bilateral K
1. Patterson v. Pattberg
How does one accept in the unilateral k area? Common law and Restatement on K go in different directions in
this case…
Facts:
1. Mortgage holder offers a reduced payment to finish the mortgage early
2. Debtor tries to accept, but the mortgage lender says too late…I sold to a third party
3. Was this an offer revoked?
4. Was this an acceptance issue?
Majority:
1. Said the offering party can choose a unilateral k or a bilateral k
2. The offeror choose a unilateral k based on “act”
3. Offer says agree to accept cash…§ 50.1, 50.3, 58…”pay me”
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4. Rule of Law: “Offer for a unilateral k can be accepted only by an act”
Dissent Approach:
1. agrees it is a unilateral k
2. he says the act is the showing up with the cash, § 50(2) part performance…“tendered”
3. problems: “checks in the mail” problem, you could jerk back the tender, stop payment of the check, this
is mere preparation to perform, no “I will love you in the morning”, money talks and BS walks
Proper planning
1. want to prevent costs
2. there is now a competitive market for lawyers
3. the plaintiff could have sought a bilateral k
1a. § 45 v. § 87(2)
 Treat both as beginning of performance?
 GM example – Ypsi & Willow Run plant for GM, abatement, flexibility with the reliance doctrine
 GM had some good reasons to want to close the plant
 Stone says
o K is a world of voluntary agreement, not reliance or court forcing
o Economic illiteracy-this is trade protectionism
o This makes us all pay the price
o The economy as a system pays because other people must bear the burden
o Customers will cheat around the system
How to plus P Sunshine?
1. Let it die under “lapse in time” under § 45?
2. Use bilateral K and specify what performance will amount to
3. Plan…
2. Brackenbury v. Hodgkin-a contradictory pull from Patterson
The Case:
 H/W move at their mother’s request in exchange for her willing the house
 Tensions develop when they do move to town, defense alleges breach of duty
 They are suing because they want the house as promised, seeking specific performance
 TC gave a life estate to the mom and enjoined others from taking away
The Court Ruled:

1. A legal and binding contract was formed – a unilateral contract, accepted by them moving to Lewiston
2. The contract created an equitable interest in the land in favor of the plaintiffs
3. The court says that the plaintiffs did not breach the contract through improper and unkind treatement of Mrs. Hodgkin
4. Not sure…edited out
 Court bases its decision on § 50(2), § 45, [§ 50(3) – P v. P]
ROL: The court says no revocation after the offeree began substantial and expensive performance.
Criticism of the case

1. this violates Patterson
2. There is an intent problem-Mom asked for lifetime care, not care for part of her life; violates the Brooklyn
Bridge hypo
3. Even reasonable expectations are against the plaintiffs
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4. The remedy sentenced the mom to torture
5. The court made this contract and wrote her will
6. Any fault on the Mom’s part could have been dealt with through torts
7. Victim law is dangerous
a. it decreases future incentives to be open
b. it is a dirty linen contest
c. Mom will say the D was at fault
d. 40 mph maybe
A common law approach? Some recovery? Maybe they would get something under quantum meruit for the
care they gave, but no specific performance.
+ P this case
1. get agreement in advance
2. examine your state’s laws
3. get a bilateral k
When should the court use equity?

1. if the plaintiff has no adequate remedy at law
2. to prevent irreparable harm
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3. Sunshine v. Manos—the “I tried but failed case”

The case:
Person sent to get a loan on certain terms. He does not get a loan on the specified terms, and the principle fires
the agent. Principle says it was a unilateral k revoked before the act was completed.
Issue: how much part performance is enough part performance?

§ 50(3) & § 58
The Court:
The trial court ruled in summary judgment for the defendant
The appellate court ruled for the plaintiff, finding partial performance and an attempt to perform
4. Irrevocable Offers
W. Real Estate Broker’s Contracts

 p.510ff
 Almost all broker’s contracts are bilateral
 Brokers for buyers are really representing the sellers
X. Unilateral v. Bilateral -- Davis v. Jacoby –

1. Uncle writes to niece asking her and husband to come to Cali and take care of him and his wife (consider that an offer), there was
an attempted bi-lateral K acceptance by promise on part of niece and husband (consider that attempted acceptance). Niece
PREPARES to go to Cali but the uncle commits suicide and niece goes out anyway in an attempt to accept. Uncle does not follow
through on promise to leave money to niece.
2. D’s argue that it was a unilateral K only accepted by full performance and the offer was revoked under §48, death of offeror or
revoked under letter of 4/15/31. P’s obviously argue a bilateral K and say that they accepted by promise, in lieu of the court finding a
bilateral K, there was part perf. by their prep to move and then the move itself.
3. § 58--Offeror can always choose whether they want a bilateral or a unilateral k
4. § 32-check out the choice aspect—if unclear, then the offeree can choose
5. Check out UCC 2-206
a. for sale of goods cases, unless otherwise unambiguously indicated by the language or circumstances, an O
invites acceptance by all reasonable manners and mediums.
b. if O to buy, can promise or ship conforming goods
c. If begging performance is a reasonable mode of acceptance, can treat lack of notice of acceptance as having
lapsed
Y. Battle of the Forms-Empire Machinery Co. v. Litton Business Telephone Systems

-home office clause-
 Litton does a lot-prep, ask for phone number, etc.
 Buyer had signed a sales agreement
 Litton backs out
 Issue: what amounts to acceptance in a form K?
 Trial court holds plain english means no acceptance, maybe treating as a bilateral k
 AZ court of appeals rules differently
 BEWARE OF LOSING CONTROL OF ONE’S OWN FORM
 Decision
A. Trial Court = Bilateral
vs.
B. Court of Appeals = Unilateral
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 The court sees enough evidence of acts of acceptance by the seller. It is possible to go either way. But, we are drawn to ¶
6. The court sees acceptance through conduct. Said the buyer waived the clause. The seller lost control of the form.
 R2 § 60  if an O sets the time, manner, or place, one can only accept as set out. If merely suggested, then alternatives
acceptable.
 § 32, § 62, UCC 2-206 – acceptance by any reasonable manner
Z. Necessity of Notification
1. UCC 2-206(2)
2. Restatement § 54(2)-the necessity of notification
3. Bishop v. Eaton, p.529

 Actual notice v. Constructive Notice
 This shows you the insurance function of K
 This seems like a unilateral K because of the K3 promise…it is for the act of Bishop of surety for the
loan of another.
 The court says the offeror Eaton is entitled to reasonable notice of acceptance.
 Reasons for notice
o Was there a clear offeror request? No
o The nature of the offer…reason to know that there are no adequate means of the offeror to know
of the performance. The guarantor would not know he is bound without notice. This is
unilateral K—promise for an act.
 What is the legal test? What type of notice is OK?
o The mail is OK, moment of dispatch makes it legally effective
o But if lost in the mail? No actual notice…the court says it is OK-constructive notice
 Goal is actual notice, but there is a default rule…the Defendant could have planned around it and put
something in the K requiring certified mail and return receipt, etc. D could have made actual receipt of
notice a material term of the contract. One acting in their own self-interest would plan. § 58, 60, 63(a)
 the offeror can control the terms of his offer
 These cases are all about how to allocate the risk, it is not about who has the most or least money…who
is in the best position and has the most incentive to plan to avoid the harm ex ante
 If the person who needs the extra term, they bear the responsibility of putting it in the K
 Questions
o If the court required actual notice?
 Conflict with the mailbox rule, complexes up the law
 It would likely cause response to response to response
o Why is the SQ good?
 It increases the speed of k
 More economically efficient
 Ends the infinite string of notices
 Uniformity and consistency in the law
o Isn’t this counterintuitive?…yes to the layman, no to the economist or planner
o UCC 2-204, 206(2)?
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AA. Rewards- Tax Nut Case, Newman v. Schiff
ROL:
 General notification equivalent to the offer
 A reward is an offer for unilateral k
 The offeror can set a time limit
§ 50, 58 Offeror is master of offer
§ 60 control of place, time, or manner of acceptance
§ 41 lapse of time if no terms stated
§ 46 revocation of a public offer
WILL WARREN REWARD OVERVIEW

A. Rewards are an offer for a return act (unilateral K)
1. The offeror is still the master of his offer
2. May state a time limit for acceptance Newman v. Schiff
B. Who may recover?
1. Only those who are aware of the outstanding offer.
2. Well-known exception for offers of rewards by governmental bodies. (One who is
ignorant may collect from gov’t).
C. Time may lapse on reward
1. Gen rule is that offer will lapse after a “reasonable time” (§41)
D. Offer of reward may be revoked (§46)
1. By method in which it was given if given to public at large, then has to be revoked by
providing to public at large those who do not see revocation cannot assert acceptance.
Acceptance of reward by performance (§51)
E. Part of acts performed before learning of reward
1. Present law holds that one who has partially performed the called for act may accept and
receive the reward by completing the act.
F. Actions taken pursuant to a legal duty. (§73)
1. Police, fire and rescue are not entitled to a reward if they were under a legal duty to
perform the act before they undertook the desired performance.
G. Actions not motivated by reward
1. Can usually recover
H. Actions different from requested acceptance
1. Can usually recover
I. Apportionment of rewards
1. Should equal contributors to an act get the reward?
J. Reliance
1. Should the court allow a person who has undertaken that performance requested by the
rewarding party the remedy of expenses even if no completion?
2. Cf. w/ the Sunshine case and the “I tried” rule of that decision.
3. I say NO.
BB. Silence as acceptance
1. The Whip Case—Hobbs v. Massaoit Whip Co.

 Can silence ever be acceptance? In appropriate circumstances, but not always.
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 Mere silence does not constitute acceptance. For example, if one has a duty to respond. In this case,
there had been previous acceptances…a “course of duty” issue.
 On the other hand, this a future-looking k. All other deals were in the past.
 There is also the possibility of acceptance through acts or conduct through, for example, use.
 Also, there might be if the offer says he will treat silence as acceptance under § 69.
 Don’t forget the SQ; courts are reluctant to enforce silence as acceptance.
 Past dealings might cut either way…more likely if silence has been treated as acceptance four or five
times in the past.
Facts:
Eels skins case, there is no response or express k
The skins are destroyed and the sender sues
We must show a legal vehicle for recovery
 Could have used bailor/bailee property law as a different vehicle…allowing us to use run of the mill law
instead of creating a unique k. “We don’t have to bastardize common law .”
 Could we use the conversion tort? Property conversion?
Elements of Silence by Acceptance

1. silence
2. duty created by prior dealings
3. retention of goods for an unreasonable time period without rejection
*Note: generally, mere silence does not equal acceptance, see § 69

Maybe Acceptance
1. Silence + performance
2. Silence + trade usage
3. Silence + retention and use of the goods, Austin v. Burge, 156 Mo.App. 286
2. Ransom v. The Penn Mutual Life Insurance Company Co.

-Facts
• Tenders payment and form
• K says must approve
• Company wants him to seek another physical
• Killed in a car wreck prior
-Issue: Acceptance? The court says yes. It says acceptance is immediate.
-Problems
• The K said home office approval was required
• This is standard insurance practice to centralize contracts
• § 58 – Isn’t acceptance necessary, says the party can choose any term they wish
• The insurance company could plan around this by putting in a clause of liquidated damages of returned
payment with interest…might still be struck down as unconscionable and violative of “reasonable expectations”
-What could the plaintiff have done?
1. He could have gotten the exam ex ante
2. He could have sought a binder
-The courts are split
1. Some say there is a binder approach
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2. The majority view is follow the black and white terms…no court created binder, get your own in the k
3. Felton v. Finley
 Lawyer provided legal services related to an estate
 Some involved don’t want to be part of the suit one way or another
 Lawyer sues the ones who did not go along
 Dissent says appellants refused to be a party to the lawsuit.
 This is the view from the high court down the road
 Finley does get the benefit of the K
 The court says he is an incidental beneficiary
4. Hail Case
 How much time is a reasonable time before the insurance company has accepted through silence?
 It varies…argue for your client.
 The court saw a duty as per usage of trade because time is of the essence in the farming biz when a
storm can come at any time
 This is an extreme situation…quick rejection or acceptance required in the insurance realm
5. Roberts insurance case

 Person previously accepted a policy
 Court says silence is not acceptance; it would have been easy to
 Court says not enough in the past, 1 transaction doesn’t make a prior course of dealing
 Common Fund Doctrine—all who benefit from a fund are liable, even if a passive beneficiary, Felton
v. Finley
 Criticism: k is not a socialism group of a common fund
CC. 2nd and True Battle of the Forms
Goal = meeting of the

minds (k); aiding in the
smooth flow of commerce
a. Relaxing (Mirror Image b. Strict MIR = private
Rule) MIR = public ordering
ordering = Ransom, Itoh,
Roto-Lith, Federal Statute
on Unordered Goods
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1. Mirror Image Rule

Any communication in response to an offer that attempts to accept the offer must conform precisely to the terms
of the offer; any purported acceptance that varies any term of the offer is not an acceptance but a counteroffer.
Restatement § 39 (counteroffer), Restatement § 58 & 59 (“must comply” with the terms of the offer) = calling
for perfect tender.
2. UCC 2-207
§ 2-207. Additional Terms in Acceptance or Confirmation.
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly
made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of
the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the
writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on
which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
3. The legislature and the courts have relaxed the mirror image rule. Both ask whether we have the
material terms? If the answer is yes, then they find the k and leave the remaining terms to be worked out by the
parties later.
 Critics say the minor terms were important too and resources have been expended to make; also, whose
offer is it anyway?; also, aren’t all terms of a k important?; there is no true agreement without all of the
terms agreed on; also, what if we can’t work it out? The court will be stepping in and stealing the K;
open this up and socialism results; § 204 gap fillers; also, what and how many terms are enough for the
k?; also, what does material mean?; no real meeting of the minds if terms are left out
4. New Rule of Law

Acceptance that is not the same, is still an acceptance to the extent it corresponds to the offer…the remainders
become a counter-offer. The court says the C-O is accepted here through silence and use of the goods. UCC 2-
207
 The criticism is that this is “the anarchy of uncertainty.” Could argue that the silence is not enough because
the warranty remedy is a material term of the k. It is a big deal. It is a material term that alters the k. Also, no
evidence of trade usage, no prior course of dealing, nothing but mere silence. Whose K is this anyway? Whose
property rights are these anyway? No definition of what are material terms.
5. What if conflicting terms?

1. Knockout terms: get rid of the terms, maybe there is an implied warranty of merchantability under 2-314.
2. Equate the language with additional terms and use the cases under conduct/silence/etc. to try to find a way to
handle this. Modern courts only sometimes will play this “equity game.”
3. Conform to the strict mirror image rule
DD. Part Performance v. Preparation to Perform
1. Kearns v. Andree
 Seller orally agrees to sell a house, buyer calls for repair changes
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 Seller makes the changes
 Buyer won’t close the deal
 Buyer sells to a 3rd party and sues for the cost of the repairs [reliance interest] and the loss on the price
[expectation interest]
 Note: k was oral, and any land k has to be in writing as per the Statute of Frauds
 Court allows for cost of repairs
 This isn’t part performance, it is preparation to perform
 ROL: Court says one can recover for damages in expectation of receiving payment…this is in essence §
90 reasonable reliance with pre-contractual liability
 How do we argue against recovery even under the reliance doctrine?
o If there is no enforceable k, how can a plaintiff expect to rely on payment?
o Contracts are about allocating risk…get it in express fashion
 This is a bigger blow to the mirror image rule because it impacts statutory law
 It destroys predictability
2. Hoffman v. Red Owl Stores (Recovery for Expenses Only)

A. Various names: Babe in the woods, court equity welfare case, case of the ultimate gap fillers
1. Hoffman’s ultimate goal was a franchise
2. He was supposed to do many things for the store b-4 he would get said franchise, BUT he didn’t
follow through.
B. What is his K?
1. He had no offer so he could not purport an acceptance and therefore no K here.
2. This is only PRELIM. NEGOT.
3. Not a K b/c there was not set terms to seal the deal.
4. Argue Yes:
a. Not a pure breach of K under § 17 so has to argue §90 reliance.
b. Unequal bargaining plane b/w parties, big ol’ mean store v. babe in the Ohio woods Hoffman.
5. Argue N to liability for Red Owl on bad faith argument b/c there are “costs to being poor” and
shouldn’t punish D for his superior bargaining skills while rewarding P for his ignorance.
C. Restatement 1st §90—Three Elements
1. Was the promise one which the promisor should reasonably expect to induce action or forbearance of
a definite and substantial character on the part of the promise?
2. Did the promise induce such action or forbearance?
3. Can injustice be avoided only by enforcement of the promise?
D. Other Notes
1. Court in Hoffman used a disciplined mind by not awarding expectancy damages only restitution
a. When is winning losing, Hoffman expended all his resources thinking he could recover his lost
profits but only won what he had spent.
2. Why didn’t court grant specific performance?
a. Court won’t force an agreement b/w two unwilling parties (where animosity exists)
comparable to a “shotgun business wedding.”
E. Hoffman Rule: One may in some circumstances come under a duty to bargain in good faith, breach of
which duty may result in liability for damages, at least to the extent of compensating the detrimental
reliance of the injured party.
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IV. Mistake, Misrepresentation, Fraud, Impossibility, & Frustration

Replevin—an action for the repossession of personal property wrongfully taken or detained by D, whereby P
gives security for and holds the property until the court decides who owns it
A. The “Big 8” Common Law Policemen to the Bargaining Process

 even if we have O + A +C = K, one of these might kill it…no “true meeting of the minds occurred”
A. Cause parties to be excused from an otherwise valid K

1. Fraud
2. Misrepresentation
3. Duress
4. Illegality
5. Incapacity (Inadequacy) – infants, insane, etc.
6. Undue Influence
7. Impossibility of performance
a. Impracticability
b. Frustration of purpose
8. Mistake
B. When do we let people out of the K and is it a good idea to do so?
1. Does use of these doctrines create a lack of incentive use due care?
2. Most likely reason for excuse is if there is no meeting of the minds and an investment in bad
information such as in fraud.
B. Mistake
A. Farnsworth
1. Types of mistake
a. “a belief not in accord with the facts” R2 § 151
b. historically, many courts denied mistake of the law claims because ignorance is no excuse, but today
most courts will grant relief
c. must be ex ante and misprediction excluded because not an error about the facts at the time of the k
 incorrect prognosis on personal injury is not mistake, incorrect diagnosis is a mistake
d. multilateral v. unilateral mistake
2. 3 Part Restatement Test for Mistake—R2 § 152, the party adversely affected must show
a. the mistake goes to a basic assumption on which the contract was made— some say must go to
identity or existence, not attributes, quality or value- Farnsworth criticizes
b. the mistake has a material effect on the agreed exchange of performances, the imbalance resulting
must be “so severe that he cannot fairly be required to carry it out”
c. the mistake is not one of the party who bears the risk
i. a person bears the risk if it is in the k
ii. when one knows that they have limited knowledge of an issue—ex/ Wood v. Boynton
iii. when the court allocates the risk to him because it is reasonable to do so—ex/contractor
discovering rock in the soil
3. Generally, a party is not barred on the basis of mistake merely because that party could have avoided the
mistake by the exercise of reasonable care, unless lack of good faith and fair dealing R2 § 157
4. Mutual Mistake-when both parties are wrong about the same facts
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5. Basic remedy for mutual mistake is avoidance, might be a loose statute of limitations, and both parties are
entitled to restitution
6. Unilateral mistake-when only one party has an erroneous perception as to the facts
7. Avoidance generally not available for unilateral mistake
8.
B. Sherwood v. Walker—pregnant cow case

1. Main Facts
a) The P buyer thought the cow could be bred
b) The D seller thought no
c) The cow was pregnant at time of sale
d) D seller refused to transfer the cow to the buyer, and the buyer sues
2. Holding
a) Mutual mistake of material fact
b) R § 152 -- voidable, not void
3. Some would argue windfall for the plaintiff, others would argue windfall for the defendant
4. Information Costs—if we always had perfect information, the difficulties in life would not
arise, but we live in an imperfect world
5. Key Question—who is to bear the risk or cost of lack of information?
6. Dissent: an unforeseen contingency, neither party really knew
a) Buyer bought the cow for the price believed worth as fertile
b) Seller sold as infertile, thought this was a good price
c) The price is thus a reflection of the statistical probabilities attached to their
beliefs…compromise price
d) No warranty conditions of sale in this case, “as is” in 2-316 warranty terms
e) Prices are important because prices convey information
f) The alternative would be to kill the K at every turn
g) Would only rescind if the thing is different than intended in substance, Ex cow X
delivered when there was a K for cow Y
h) The price allocated the risk, when there is high information cost
i) This was an unforeseen consequence, not a mutual mistake
j) No guarantees in life…just risk taken
k) Did the parties do all they could at the moment? Dissent says yes and that this is
just business judgment…the real reason for contracts in the first place
l) Also, could argue that this is only a unilateral mistake, so no rescission under R §
153; although, both
7. UCC 2-615: excuses performance if unexpected occurrence, so K should be rescinded
8. R § 154—Party bear the risk when they assume that they have limited knowledge
a) Given the state of vet knowledge at the time, they should have known
9. Law for losers, intellectual wimpism, etc.
10. Ex post remedy for someone who does not investigate ex ante? Why reward such losers?
C. Lenawee County Board of Health v. Messlerly

1. Neither party knew of the sewer
2. Buyer agrees in the K to
3. R § 154a-if there is agreement of the parties, then the party bears the risk
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a) Certainly if explicit agreement
b) Perhaps if implicit agreement?
4. R § 154b-…limited knowledge, live with it…if you are aware of the risk at the time of
contract, you take the risk
5. This case says confine Sherwood to its facts
 Note: Stone’s 5 deregulators, 1/5 is science and technology…we now would use a medical test to know the
cow’s condition, making the cow’s fertility moot…there is a duty to investigate under § 163, if you don’t want
to pay the toll, you don’t get to play the role
 Stone is very skeptical of the 8 CL policemen…might find mistake if the cow was dead, or if the parties were
thinking of 2 different cows, aircraft engines case on p.607-08
D. Wood v. Boynton
1. Laymen would think mistake-error of fact, mere error, limited knowledge, etc.
2. The court definition of mistake is different
a. it requires that the thing sold or contracted for is different than the thing delivered…
the substance of the consideration must be different
b. in this case, both parties knew which stone was referred to, just ignorance on details,
composition, etc.
3. Both this case and Sherwood are about differing valuations
4. Shouldn’t these cases just be consideration cases? The court leaves the value to the parties.
5. The general rule as to mistake on the value is that the court will not intervene ***R § 154b
6. Both parties have equal chance to investigate ahead of time, example KBB, Edmunds, etc. in
the car realm
7. R § 163 – duty to inspect, look out for yourself!
8. The jeweler did not know it was a diamond…We generally don’t hold people to mere opinion
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E. Mistake to this point

1. mutual bilateral – cow case, topaz case
2. mistake plus imposs
3. mistake plus express warranty
4. mistake plus fraud
5. mistake tied to innocent misrepresentation
6. mistake plus implied warranty for a particular purpose
F. Life Insurance Cases

-1 case is guy assumed to be dead, life insurance money is returned
-1 case is a guy insured, but turns out to be dead, no K
Statutes are afraid of fraud if you can insure dead people and/or based on impossibility of performance mindset.
If an annuity K—restatements on § 162…annuities work like Social Security, if dead when taking the k, then
mistake lets out of the claim; if has a terminal illness, then not mistake but could contract around this
G. Personal Injury claim and releases: courts often let people out of releases when they are
discovered then they are worse off…Stone seems not to be a fan because it is a slippery slope on holding to
their word and letting people get money quick and back out later [time value of money, sureness of settlement]
H. p.610 Griffith v. Brymer—Coronation case

 Court supplies an implicit term to dictate the K
 Court says the contract is void because of mutual mistake of the K—links it to impossibility on mistaken
belief that the King is healthy:  this is mistake based on impossibility
 Could also argue for a condition precedent here, coronation
 Analogy to Talledega
 Stone Says: what were the explicit terms of the contract? Inn keeper is not the person who should be the
person responsible for the changed coronation date.
 Seats, rooms, etc. is the ultimate perishable commodity—advertising leader
 Could the innkeeper take out insurance vs. rain, etc.? It would affect every room rate.; hotels would do
it as trade groups, chains etc. to keep costs down
 You could also for a raincheck ex ante
 Don’t mess with Mother market, she will prevail
I. Mistake + Express Warranty--Smith v. Zimbalist

 Where a document was signed that B got a Stradivarius and instead the violin was a fake violin case—
 Mistake attached to express warranty
 Stone says this might be a grow the hell up case
 Buyer says the response is the buyer relied on the seller…§ 169 or § 162 fraud
 Seller and buyer are both collectors
 § 163 duty to investigate and look after own self-interest…Get your own expert.
 How could you ever expect the seller to contract in the best interest of the buyer?
 Only bilateral mistake is pure mistake law, the other cases are hybrid attempts by the court…is this like
a contort, leading to the death of contract?
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J. Forrest service case
1. marks trees incorrectly
2. plaintiff could not export the timber, argues for relief
a. mutual error
b. other side would argue you assumed the risk
c. court grants because a material innocent misrepresentation and the plaintiff reasonably
relied on the misrepresentation
3. Stone says the guy should have measured his own property, draws on § 163 reasonable opportunity to
know, self-interest rule
K. Laidlaw v. Organ tobacco case

Seller asked the buyer if he knew any facts affecting the tobacco. Buyer did but remained silent.
 Seller should have investigated the value of his own property. This would be a unilateral mistake and §
153 means no help.
 Seller wins on re-trial
 Some might argue fraud in the inducement…court says “active fraud”
 Court says a failure to disclose is active fraud if there is a duty to disclose.
 You do not generally have a duty to disclose
 No “brother’s keeper” in contract, each side looks out for their own self-interest
 Active fraud—one side can’t impose misinformation like the realm of § 161, here a failure to answer
might be more than mere silence, a seamless web of active failure to respond to a question accurately
 This obligation to disclose would create a free-rider/moral hazard problem
 § 163 duty of investigation
 There is also a property rights of information view carry the day? You have a property right in
information. It is OK to give it away, but the court should not take it.
 GET THE DE NOVO TERM—NEW TRIAL ON THE RECORD
 Some judge would find suppression of material circs…equivalent to active fraud is this near-beer
fraud? The slippery slope of equity?
 The legal test

1. No beginning duty to disclose
2. But there is a duty not to actively impose misinformation
 There might still be a duty to disclose—economic efficiency demands it at times

 Who has the incentive and the best position to disclose—3 rules on the discovery of information
remember, the test is ex ante, who has the information up front?
1. if equally difficult to discover, not duty to disclose required-§163 [no free lunch position]
2. if the seller ex ante can more efficiently discover at lower cost, he has the obligation to disclose
3. if the buyer ex ante can more efficiently discover at lower cost, he has the obligation to disclose
 The duty to disclose is rarely applied…for example used car
o Seller is the expert, but,
o There is a high transactions cost to him
o Both parties have high transactions costs
o We factor in the kind of difficulty—there are tons of parts
o People are taking a § 154 approach—live with the lack of info
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L. R2 § 161
p.627 Lean Curtiss

Court deciding whether disclosure of fact that disinfectant
 Court says that the government needed to disclose

 § 161d-gov had a strong or special duty—like lawyer-client, doctor-patient, trustee-trust
 Find 161 tests in the supplements
M. Clerical Error--Baptist Church case

Contractor makes error and submits bid. Church knows and accepts bid anyway. Contractor tries to get out of
the k.
 There are some laws preventing the bidder from pulling out
 Courts however let out on mistake by clerical error based on unilateral mistake
 One “rescinds” based on mistake
 General SQ rule is no help on mistakes
 Here the construction company is allowed to rescind
 Clerical Error Exception—3 part test
1. the other party must be able to be returned to the SQ
2. one party knows or has reason to know of the other party’s clerical error
3. if it will prevent an unconscionable taking advantage of a mistaken party—we won’t allow
taking advantage on honest clerical error §153a
 Might argue against this by saying that the person is responsible. Who is going to allocate the risk?
What is the test?
 Legislatures sometimes have rules dictating these things…
 Could argue this is an incentives question – if we hold them to the bid, it creates a powerful incentive to
be careful….is this negligence on the part of the company? Isn’t there more than one error? The
judgment verification error seems to be gross negligence? Is there really a difference?
 The court might also be making a mistake related to agency law, P is usually responsible for A’s errors
committed within scope of charge, respondiat superior
 4 CL problems with the court

1. ignore k terms
2. 1st act of negligence-clerical error
3. 2nd verification problem-agreeing changes could be made
4. Court ignoring agency law-P responsible for A
Stone says who the hell is unconscionable? Is the court being unconscionable?
Legislatures allow rescission on clerical errors at times…we could go too far and make a mountain out of a
molehill. It may be better to allow wealth maximization. Hypothetical contract analysis allows a different
approach. Ex ante, you would not expect this?!
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N. A v. B
Goal
A. Mistake, externalize, B. Failure to look out for
nirvana own self-interest,
internalize, reality
 A rare occurrence that the court lets people out on mistake

 6-7 mistake ways to allow recision, but all are
 Is it a § 152 cow case, or is it the dissent?
Life Insurance Cases

-mistake
-1 case is guy assumed to be dead, life insurance money is returned
-1 case is a guy insured, but turns out to be dead, no K
Statutes are afraid of fraud if you can insure dead people and/or based on impossibility of performance mindset.
If an annuity K—restatements on § 162…annuities work like Social Security, if dead when taking the k, then
mistake lets out of the claim; if has a terminal illness, then not mistake but could contract around this
Personal Injury claim and releases: courts often let people out of releases when they are discovered then they
are worse off…Stone seems not to be a fan because it is a slippery slope on holding to their word and letting
people get money quick and back out later [time value of money, sureness of settlement]
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p.610 Griffith v. Brymer

 Landmark
 Court supplies an implicit term to dictate the K
 Court says the contract is void because of mutual mistake of the K—links it to impossibility on mistaken
belief that the King is healthy:  this is mistake based on impossibility
 Could also argue for a condition precedent here, coronation
 Analogy to Talledega
 Stone Says: what were the explicit terms of the contract? Inn keeper is not the person who should be the
person responsible for the changed coronation date.
 On the other hand, don’t both parties know the reason for renting the room and thus no reason for the K?
How far must it go? Must the inn keeper take the risk?
 The plaintiff had the best opportunity to take care of this ex ante
 What kind of planning solves this? Draw contracts with explicit terms.
 Seats, rooms, etc. is the ultimate perishable commodity—advertising leader
 Could the innkeeper take out insurance vs. rain, etc.? It would affect every room rate.; hotels would do
it as trade groups, chains etc. to keep costs down
 You could also for a raincheck ex ante
 Don’t mess with Mother market, she will prevail
p.611 London Times excerpt

Following arguments on assumption of risk
The overwhelming number of people would say you are responsible for renting the room
Scoring joke…
There is also rental insurance by the guests
Met Life Case-Read 612ff
Read McNamara p.614
Smith v. Zimbalist
 Where a document was signed that B got a Stradivarius and instead the violin was a fake violin case—
 Mistake attached to express warranty
 Is warranty of some kind not a better way of handling these cases?
 Stone says this might be a grow the hell up case
 Buyer says the response is the buyer relied on the seller…§ 169 or § 162 fraud
 Seller and buyer are both collectors
 § 163 duty to investigate and look after own self-interest
 If you are buying something, investigate! Get your own expert.
 You only might win and there are high transactions costs…look at the real world
 How could you ever expect the seller to contract in the best interest of the buyer?
 Only bilateral mistake is pure mistake law, the other cases are hybrid attempts by the court…is this like
a contort, leading to the death of contract?
 Are the courts over-reaching for some crazy legal vehicle?
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Mistake to this point
7. mutual bilateral – cow case, topaz case
8. mistake plus imposs
9. mistake plus express warranty
10. mistake plus fraud
11. mistake tied to innocent misrepresentation
12. mistake plus implied warranty for a particular purpose
Forrest service case

4. marks trees incorrectly
5. plaintiff could not export the timber, argues for relief
a. mutual error
b. other side would argue you assumed the risk
c. court grants because a material innocent misrepresentation and the plaintiff reasonably relied on
the misrepresentation
6. Stone says the guy should have measured his own property, draws on § 163 reasonable opportunity to
know, self-interest rule
Hinsen v. Jefferson, p.618

-restriction to residential only
-needs a sewage sytem but it would cost a lot
-Court says not limited to residential use
-implied warranty for a particular purpose is the reasoning, argues it is warranted through the deed
-But, no evidence of warranty of cheap land use
-This is a consideration value question
-The court says the high cost of the sewage system was unknown and not reasonably discoverable by the
buyer…Stone says this is a “stump stupid” point, if you buy land, check out the stuff
-Stone says lost cost and the buyer did not even look
-Worth it even if you win? You will get tied up in a bunch of cases and lose a lot of resources…Stone says this
is the reason the US is losing competitiveness…where is the tipping point?
-Another better vehicle available?
-Condition precedent argument here? Make argue impractibility? What can you find to meet the needs of your
client?
Laidlaw v. Organ tobacco case

Seller asked the buyer if he knew any facts affecting the tobacco. Buyer did but remained silent.
 Seller should have investigated the value of his own property. This would be a unilateral mistake and §
153 means no help.
 Seller wins on re-trial
 Some might argue fraud in the inducement…court says “active fraud”
 Court says a failure to disclose is active fraud if there is a duty to disclose.
 You do not generally have a duty to disclose
 No “brother’s keeper” in contract, each side looks out for their own self-interest
 Active fraud—one side can’t impose misinformation like the realm of § 161, here a failure to answer
might be more than mere silence, a seamless web of active failure to respond to a question accurately
 This obligation to disclose would create a free-rider/moral hazard problem
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 § 163 duty of investigation
 There is also a property rights of information view carry the day? You have a property right in
information. It is OK to give it away, but the court should not take it.
 GET THE DE NOVO TERM—NEW TRIAL ON THE RECORD
 Some judge would find suppression of material circs…equivalent to active fraud is this near-beer
fraud? The slippery slope of equity?
 The legal test

3. No beginning duty to disclose
4. But there is a duty not to actively impose misinformation
 There might still be a duty to disclose—economic efficiency demands it at times

 Who has the incentive and the best position to disclose—3 rules on the discovery of information
remember, the test is ex ante, who has the information up front?
1. if equally difficult to discover, not duty to disclose required-§163 [no free lunch position]
2. if the seller ex ante can more efficiently discover at lower cost, he has the obligation to disclose
3. if the buyer ex ante can more efficiently discover at lower cost, he has the obligation to disclose
 The duty to disclose is rarely applied…for example used car
o Seller is the expert, but,
o There is a high transactions cost to him
o Both parties have high transactions costs
o We factor in the kind of difficulty—there are tons of parts
o People are taking a § 154 approach—live with the lack of info
p.627 Lean Curtiss

Court deciding whether disclosure of fact that disinfectant
 Court says that the government needed to disclose

 § 161d-gov had a strong or special duty—like lawyer-client, doctor-patient, trustee-trust
 Find 161 tests in the supplements
Baptist Church case

Contractor makes error and submits bid. Church knows and accepts bid anyway. Contractor tries to get out of
the k.
 There are some laws preventing the bidder from pulling out
 Courts however let out on mistake by clerical error based on unilateral mistake
 One “rescinds” based on mistake
 General SQ rule is no help on mistakes
 Here the construction company is allowed to rescind
 Clerical Error Exception—3 part test
1. the other party must be able to be returned to the SQ
2. one party knows or has reason to know of the other party’s clerical error
3. if it will prevent an unconscionable taking advantage of a mistaken party—we won’t allow
taking advantage on honest clerical error §153a
 Might argue against this by saying that the person is responsible. Who is going to allocate the risk?
What is the test?
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 Legislatures sometimes have rules dictating these things…
 Could argue this is an incentives question – if we hold them to the bid, it creates a powerful incentive to
be careful….is this negligence on the part of the company? Isn’t there more than one error? The
judgment verification error seems to be gross negligence? Is there really a difference?
 The court might also be making a mistake related to agency law, P is usually responsible for A’s errors
committed within scope of charge, respondiat superior
 4 CL problems with the court

1. ignore k terms
2. 1st act of negligence-clerical error
3. 2nd verification problem-agreeing changes could be made
4. Court ignoring agency law-P responsible for A
Stone says who the hell is unconscionable? Is the court being unconscionable?
Legislatures allow rescission on clerical errors at times…we could go too far and make a mountain out of a
molehill. It may be better to allow wealth maximization. Hypothetical contract analysis allows a different
approach. Ex ante, you would not expect this?!
GE case-rougher on defs, see in book
p.635 photo price case
 4mm v 4 m – ordered 4 million labels instead of 4000 label

 Small business gives a clue of error
 No order of size before
 Seller had not sold that much to everyone
 Rescission, but only if can put the seller back in the SQ

 Compromise-if mere price labels, printer might be able to sell the extras
 We could charge interest or storing fees to the buyer
 Parties might be able to reach and agreement
C. Next DAY
Restatements §§ 161, 163 – when is there a duty to disclose?
One way is to follow the Kronman analysis, p..621?

Who actually has the information
§ 163 duty to investigate approach-individual responsibility, no duty to disclose particularly if there is a high
search cost…but duty to disclose if there are unique low search for self
The 3 rules
1. if equally difficult to discover the information-then no duty of either party to disclose even if later finds-
covers most of the cases
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2. if the seller has lower search costs then the seller may have a duty to disclose the discovered info
3. if the buyer has lower search costs, then the buyer may have a duty to disclose the discovered info
 usually, it is hard for both

 competition, you don’t have to give away your competitive adv
p.628 Church Case-clerical error

1. this is a unilateral mistake, but courts says honest clerical errors will be a basis
2. mistakes in judgment are not rescindable
Upton FD Case-Wrong Fire Department Case, No free lunch

D calls Upton police, fire brigade comes
UFD discovers not his district, argues D in breach
D won’t pay, says gratuity
Distinguished from neighbors
Different here:
1. intent of the parties-government is not a gratuitous neighbor, all pay through taxes or K
2. agency issue?
Question-when does the error of information rise to the level of rescission mistake? Here, he has to internalize
the cost. Here, the incentives are helped by requiring him to pay. He is in the best position to decide.
Also-this is an emergency-he wants help and can only expect it free if it is truly a gift
D. Impossibility and impractibility Doctrine

Taylor v. Caldwell
Leases a hall and spends money on ads, etc.
Music hall burns to the ground
D claims defense of impossibility
Question is: who will bear the risk for that?
Impossibility doctrine is rarely used
Impossibility excuses performance only when the D can claim “it” cannot be performed rather than “I” cannot
perform.
SQ is to not excuse: ROL-contracting parties must perform the black and white of the contract or pay damages
even if it is difficult.
Test: when without fault by the parties, it is known ex ante, it is known that the k cannot be fulfilled
without the existence of some specific thing, we will excuse performance under the impossibility doctrine.
 Here, fire destroying building
3 common examples where the court will find impossibility

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1. Contract for personal service, but there is death, illness, etc.
2. Contract where intervening legislation makes the K unlawful-frat house beer K example
3. Concert hall case-where the subject matter is known as essential to performance but it is destroyed without
fault
-these are all default rules, so parties can allocate the risk through contracts
-public ordering is the fall back, default rule
Hypo-building contractor 2/3 of way through and fire strikes

 Court says no impossibility
 Contractor must rebuild or not get paid
 This is not a case of “it cannot be performed”
 Who assumes the risk of non-performance due to unforeseen hardships
 again, we analyze using ex ante cost of information analysis
 Builder is in better position to seek insurance
 In Taylor, the concert promoter has better information, so we excuse the landlord
 Could get third party insurance here or have higher prices to self-insure
Can we avoid the lawsuit fight ex ante? Are we going to use K terms or go to court and
risk the default rules? What are the default rules?
Goal = allocate risk

clearly
a. Non-economic b. Economic criteria,

criteria = Posner
NOIFTRAP
NIPSCO v. Carbon County Coal Co.

**Posner, so:
1. Economic analysis to allocate risk
2. Will use simple rules for a complex world
 N is a utility…k to buy coal

 The PSC [Indiana Public Service Commission]
 PSC board mandated that NIPSCO purchase cheaper electricity rather than generate more expensive
electricity internally from coal.
 Case is coming out of the 70s spike in energy prices
 Buying from the outside market makes the coal unneeded
Impossibility
1. NIPSCO prevents the use
2. Argues that there is a force majeure clause—impossible, impracticable, frustrated, §§§261, 263, etc.
3. NIPSCO sees the heavy foot of government regulation as the intervening force
4. Makes the K for the coal unneeded
Judgment
1. no excuse on possibility grounds
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2. says not impossible,
3. power company eats the higher cost
Power companies will have the pros, and there is regulatory capture of the regulator bodies. The parties will be
raised in the long-run…
R=C+Ir
Posner takes the approach so as not ot excuse unprofitabke contracts. How are you going to allocate the risk for
the unforeseen action of the regulatory bodies? The black and white of the Coasean contract should thus
control. Who ex ante had the lower information costs? NIPSCO, the consumer. They are the firm that deals
daily with the PSC. The coal company does not deal with the folks. NIPSCO carries the risk if the case is
decided on an economic basis. Public service group are an expected risk.
p.662, Coronation Purpose
 court uses the essential purpose doctrine
 again, stone says who has the lower info cost
Wolftrap Case
Ampitheatre case, wine and cheese concert area
There is a power outage at an opera k
WT closes it down, the opera company sues him
But , power outages are foreseeable. Posner would say no excuse…clear risk.
-impossibility generally if the events are unforeseeable because people can plan to allocate the risk
-so, no relief
Here, we excuse if foreseeable. We says it makes performance impractibal

What incentive is created? Sloppiness, race to the bottom, etc.?
How about the analysis per NIPSCO? 2/3 house?
Doesn’t Wolftrap have better incentive and lower information costs? WT runs the place, knows the risks,
knows the profit/loss, etc. More like the builder in the 2/3 house case.
There are two ways for the courts to allocate risk

Let the party with lower information cost--Economic
1. How do we insure?
1. put in k
2. higher prices
Stone says vague terms like F,R,J
2. Use fair, reasonable and just
The opera company will plan around this bleeding heart liberal k by putting a clause in allocating the risk in
some way. Don’t mess with mother market! People will try to avoid the court and keep their freedom.
653 FL power case

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§ 261-265 Impossibility, Impractibility, etc.
UCC 2-615 Impossibility

K not tort?
 Introduction
 Are we going to use the lower cost provider mindset? If so, we follow Posner’s approach. Could someone
insure through insurance, contract clause, etc. This allows planning.
 Perhaps parties relieved from unforeseeable loss, but no relief for foreseeable loss. Ex/NIPSCO case…could
predict a change in rules…Is the government a reliable contracting party? It is foreseeable that the regulators
would change the rules.
 There is a different direction in Wolftrap. ALCOA might also go in this area.
Wolftrap.
Follows the modern rule of impractibility under § 261
Electric outages are very common
This is a contradictory pull from NIPSCO
This case allows them to externalize the cost
Who was better positioned to solve? Wolftrap, but the case doesn’t go that way and it is in conflict with the
other cases.
Transatlantic Shipping, p.646

Concern: yes, we did have changes as a result of the war. Who is to bear that risk? Adjustment on price?
Quantum merit? How far would we go? What if a headwind caused more cost? Query? Foreseeable risk? Can
we say the contract allocated that risk? Yes, in the contract price. Who has the lower cost in preparing to deal
with those things? The shipping company…you could put a cost plus clause in the contract. 1 sentence in the
contract could have avoided all of these transactions costs.
ALCOA case, p.664
§ 265, the doctrine of Frustration—leads to equitable reformation of the contract

 Alcoa was to sell aluminum to Essex, price to be determined by a special form designed by Allen
Greenspan.
 Stone says there are too many variables to predict the economy.
 ALCOA looked likely to lose $60 million
 You don’t have to be a loser…invest in a diversified portfolio. Helps the pursuit of happiness.
 Welfare for the rich, Greenspan and ALCOA are bailed out
 But isn’t there assumption of the risk by ALCOA? Essex agreed to the price. Essex was totally
innocent here.
 How argue this makes sense?
o High information costs on both sides
 But isn’t this the reason we contracted?
 We could put this into the formula
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 BP v. Hunt Brothers—investment in oil in Libya, BP sues for a “just sum” after Quadafi
nationalized the oil.
 What will the court do? Generally, the court will leace them where they find them. But, might apply §
272 and
o Give dollar damages (ALCOA example)
o If partial performance, dollar damages if benefit to defendant proved in addition to plaintiff’s
perf, (Carroll v. Bowersock)
 There are big lists of limitations on damages and remedies
 Some courts would go the other way because it is equity
 In the real world, find what your state says, argue yes/no for your clients
 What is the vehicle to determine a “just sum”? The court gives actual benefits. What if BP had spent
money like drunken sailors? Or just sailors on leave? Are the courts substituting their judgment?
 Even the language “just compensation” is dangerous
 BP should have had to eat the risk, they were the lower cost divider, look under UCC 2-615
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Hahn v. Ford Motor Co., p.723

 Might there be an insurance way to handle it? 3rd parties? In the contract?
 We start out with a contract…we end up with some tort.
 Misrep/Fraud Warranty Unconscionability  Product Liability [a lot of courts take the RAD
approach, reasonable alternative design, RAD would have been superior]…an economist says cost
would be unlimited because things will always break
 An economist says apply Hand’s B<P*L, for each dollar invested do we get 1.01 in additional safety? If
the answer is yes, and the defendant doesn’t spend it? Maybe liability. If less return, then why would
you invest?
 Unless you prove under misrepresentation and fraud
 In America, we load up with warranty, unconscionability
 We have a form of CONTORT
 Look back over the warranty stuff under UCC 2-312-18
 seller limited warranty on new auto.

a. Limit was on the time or mileage of auto and limited to consequential damages.
b. Sellers are allowed to do this under 2-314
c. Statutes require the limitations to be
1) In writing and
2) Conspicuous – dispute over exactly what is conspicuous (in hindsight or foresight).
d. 2-316(3)(c) – Buyer may be able to know about implied warranty b/c of course of dealing
which would bring it to buyer’s attn.
1) In Hahn buyer testified that he knew of the warranty
2) Seller offered extended warranty so impliedly buyer should have asked
about what was included w/ standard warranty.
 Is it too much to ask to read the contract?
 Are we honoring the black and white of the contract?
 Ford wins
State Lemon Laws-statutory unconscionability statutes saying we can use the statute
for remedy if specific events occur…all states have them. But have massive
limits…usually just cars. Usually hard to prove. Usually high transactions costs.
These are statistically improbable laws. STONE APPLIES THIS TO ALL
CONSUMER PROTECTION LAWS. This raises the price for all because of the
losses. Wouldn’t the common law breach of contract work? Failure of
performance? Failure of consideration? True warranty breaches?
A&M produce-
 CA commercial unconscionability, 2-719.3 provision
 Exclusion of warranty provision
 Does the court allow the commercial limiter? No
 7 part test
 Two kinds of unconscionability
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a. procedural-oppression and surprise. But what is oppression? No real negotiation and absence of
material choice. Surprise? Stone says read your contract.
b. Substantive-being commercially unreasonable
 Imperfection liability?
Balfell v. Boyd, Conditions, 3rd Parties, Assignment, read Farnsworth
402 a  R2 of Torts
K law  Big 8 Policemen  warranty  unconscionability  products liability
Tort law  402a of torts  products liability
A MERGER OF CONTRACT AND TORT LAW
How do we work out this merger?

 Hand Formula, B < PL
a. R3 Torts 402a; B < PL b. RAD [reasonable

alternative design] [will
always have a better, more
expensive alternative] What
is reasonable?
Mouse in a coke bottle
1. in a single product
2. a rare occurrence
3. prohibitive costs to manufacture to achieve safety
4. only a minor injury
5. nothing the consumer can do to prevent/provide for safety
6. there would only be a slight increase in cost of coke if we find a way to deal with this (insurance
pool)
A. RAD-no fault liability for everyone

B. Coase Formula-voluntary assumption of the risk
Spa Petite
2 part test for exculpatory clclauses

1. ec must be unambiguous
2. ec must be limited to freeing D from negligence
 maybe unequal bargaining power
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--adhesion k [take it or leave it]
No real adhesion ks in USA—competition
Rugler v. Roman
Unconscionability case
Almost fraud
Owens
How to rebut illegality
1. P had a bad decision, didn’t look out for his own self-interest
2. P did do his § 163 duty to investigate
Illegality K
1. Agreements to commit a crime or toert
2. ASgreements to interfere with trade
3. Agreements to violate regulatory statutes (K is void, not voidable)
§ 181 – no recovery for illegality
Revenue raising statute v. Regulatory Statute

a. revenue k is not void
b. regulatoryk is void
Bel-Fel v. Bagel
-vulnerable widow
-does she have a k induced by fraudulent misrepresentations?
ROL: fraudulent misrepresentations render a k void
Dancing Lesson Case

-finds fraud
-all emotion and very little about law
-quick conclusion of fraud
-****know the 5 common law elements
Misrep
Scienter-intent to deceive
Reliance-anyone really think this?
Injury? Got instruction and companionship and the chance to compete
 Maybe we could have used something else? Think through…find another avenue.
Teacher Retirement Case--Incapactity?

 Infants-voidable
 Mental Illness or Defect—can disaffirm for incapacity
 Drugged or drunk-maybe, maybe not if self-induced, addiction maybe flips it back
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TEST  if the party is unable to comprehend the nature of the events at hands
Duress-R § 175, 176

Threats of criminal prosecution
Threat of totally unfounded civil suit
Threat of physical force
Arguably economic duress—courts are reluctant to have
177 – Undue Influence, Anna Nicole Smith Cases

 “Gentle persuasion” theory
 Extreme vulnerability of one party and therefore abuse of a close confidential or personal relationship
 One extremely dominant party and
 $50,000/month for companionship
 Also pops up in wills and trusts
8 COMMON LAW POLICEMEN-

Rarely, in very extreme cases, will we be able to carry the burden of proof
Case-by-case approach will start killing the rule of law  people then face more risk, more uncertainty
Goal
A. case by case, massive B. Strict Big 8, high
gov regulation, law by wish, standard of proof
law by hope
Politics Market
 If the court protects her here, wouldn’t it logically extend to all kinds of things like dresses, etc.
FORCE THE HIGH LEVEL OF PROOF! THEN, WE WOULD HAVE LESS CERTAINTY.
Economic analysis of law is really poor people’s law…
Investment-psychic income
 Dear Abbey—dancing lessons—Cha Cha Cha

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V. Conditions & Performance

Conditions
R §§ 224-229
Classify as to time
1. Conditions precedent—trigger, B Ks with C to buy C’s house conditioned on B’s ability to find suitable
financing
2. Condition subsequent—defeating provision, if this event occurs, it operates to discharge contract, extend
to family law, B contracts wit C to support C until C is remarried as a clause of a divorce, a remarrying
ends the requirement
3. Concurrent conditions—parties are at exchange, B and C contract for sale of car for $1000, it is implied
that the seller’s obligation to hand over the car is conditioned on the tender of the money at the moment
of sale
Classify as to Form
1. Express conditions in the contract
2. Implied or inherent conditions
 On the one hand, do we have a condition or is this an essential term, p.782 case
Remedy for the breach of the condition—R § 224 the victim is allowed to proceed or abandon as desired
p.787 case –earnest money is part of the purchase price case…
the idea of personal satisfaction ks –haymore, 796 GM case

-what constitutes satisfactory
Test: objective standard-honest, good faith, skillful and workmanlike manner in accordance with the accepted
standards of the locality and industry, insulation example
A subjective test: portrait painting example if there is a clear statement in the contract of intent to the
evaluation…personal nature, Posner on 798
Burger King Case—we have to have build one per year…this is an example of a
condition subsequent…called “defeated” if fail to meet the specs…is there
waiver?
Divisibility of Ks—see Farnsworth, each restaurant sep, we can still terminate

and end the k
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Laurdis—k one term with date to file a claim on insurance
Legislative statutes have dealt with
But, very similar to statute of limitations
Yes
815-Student v. Newberry Case

Wants to be paid monthly, not in the K
The court says we have two steps:
1. It is implied or constructive condition that there is no payment until the plaintiff proves substantial
performance
2. Once substantial performance occurs, it is implied that the other party has the duty to pay
Based on substantial performance and expectancy interests
818-Pope Construction Case—can be implied, here it is the implied condition that the prime have the
road ready for guardrails, the court finds as implied k because it is a common occurrence,
825-Sahadi as surety
D’s are personal guarantors
1 day late to pay, the bank calls in the loan
Issue: is 1 day late a material condition and is there substantial performance?

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VI. Third Party Beneficiaries

A. Introduction
1. Performance of a contract usually benefits third parties but they cannot usually enforce it
2. Examples: office workers, transit riders…these people are not in privity with the promisor
B. Intended and Incidental Beneficiaries

1. The right to sue as a 3rd party in a contract dispute was upheld in Dutton v. Poole [father/son/daughter dowry
case], later reversed, trust concept used to avoid
2. In the US, Lawrence v. Fox established “creditor beneficiaries”
3. L v. F was then applied in NY to mortgage assumption cases
4. Extended in Seaver v. Ransom – will/judge/niece issue  “donee beneficiaries”
5. R1 classified third parties into creditor or donee beneficiaries
6. Modern Rule
a. incidental beneficiaries do not acquire rights under a contract—R2 § 315
b. intended beneficiaries do acquire rights—R2 § 302
i. Two requirements: one must show…
A. that recognition of a right to performance in the beneficiary is appropriate to
effectuate the intention of the parties
B. Either:
1. the performance of the promise will satisfy an obligation of the promisee to
pay money to the beneficiary; or
2. the circumstances indicate that the promise intends to give the beneficiary the
benefit of the promised performance
ii. also, beneficiary’s identity only need be known when the performance is to be done
iii. courts also do not require gift benefits to be motivated by altruism
iv. courts will recognize explicit intent of benefit or lack of benefit
v. parole evidence rule applies
vi. the Restatement requires both the promisor and the promisee to intend to benefit the third
party
vii. Beneficiaries of gift promises can refuse them
viii. reliance also impacts beneficiaries
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C. Rights of Parties
1. Beneficiaries have rights against promisors
2. B’s can put forward a claim against promisees
3. the promisee has a right against the promisor
4. if the beneficiary consents, then the promisor and the promisee are generally free to make a subsequent
agreement that will discharge or modify the promisor’s duty to the beneficiary; AND, AT A CERTAIN POINT, a
beneficiary that does not consent is no longer vulnerable to such an agreement then, the beneficiary’s right is
“vested”
a. Some courts say vests with the k’s completion
b. some say it vests when the beneficiary assents to it
c. Some say it vests when the ben relies on it—R2 view
d. Can contract around this
5. The beneficiary is subject to any defenses and claims of the promisor against the promisee arising out of the
contract R2 § 309 including…
a. lack of consideration
b. public policy
c. statute of frauds
d. common law policemen
e. conditions
f. failure to perform
g. any damages by the promisee
h. NOTE: CANNOT BE USED TO IMPOSE LIABILITY ON THE BENEFICIARY, though this is
subject to contrary agreement
6. If one assumes a debt, they have to pay it regardless of legitimacy
7. Generally, the beneficiary is not subject to separate obligations of the promisee to the promisor—R2 § 309
D. From Class
3 types of 3rd party beneficiary-donee [gift], creditor [key man insurance], incidental [Can people who would
have benefited sue for breach? Not if not in the k]
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VII. Assignment and Delegation

A. Introduction-terminology and background
1. a contract right is a kind of property
2. historically called a “chose in action”
3. Terminology
a. assignment of rights-an obligee’s transfer of a contract right
b. delegation of performance of duties-an oblifor empowering another to perform the obligor’s duties
4. could be given a debt/note as a gift
5. could be a consumer debt—bank will collect
6. could be a commercial sale to a retailer on credit—this is done by assigning an account receivable—the
wholesaler will still collect
7. could be a builder’s loan-paid off a certain amount at a time
8. could be an ongoing business—would involve both assignments and delegations
B. Assignment
1. Historical background and code provisions
a. free assignability makes our modern credit economy work
b. at common law, ks were not assignable for fear of multiplied litigation
c. Courts in equity allowed assignment in the 17th century
d. 18th century courts in law started allowing assignabiltiy
e. American courts brought in free assignability
f. UCC article 9 really takes over
i. applies generally to transfers for value of “accounts”
ii. some exclusions including: wage claims, for collection only, as part of a sale of a business, person
under a contract in addition, assignment of a single account to address indebtedness
2. Effectiveness of an Assignment-what is needed?

a. Owner of the right must manifest and intent to make a present transfer required without further action
by the owner or by the obligor
i. Thus, promises to collect and then pay are not assignments
ii. Also, promises to assign are not assignments
iii. Also, orders to pay a third person a debt is not an assignment
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iv. checks are not assignments
b. Assignments may be limited in effect-for example, they may be voidable by the assignor or
conditional
c. Partial assignments are now allowed, although they once were not
d. No statute of frauds application unless for land
e. Article 9 of the UCC requires an authenticated agreement
3. Limitations on Assignability-can be limited for various reasons

a. for public policy—example future wages
b. if the transfer of the right would adversely affect the obligor, obligor can waive
c. parties can put a term in the k prohibiting assignment in most jurisdictions, but construed narrowly,
some good faith limitations imposed
4. Limitations on Assignability of Future or After-Acquired Rights

a. you can’t transfer things you don’t own
b. courts sometimes overlook after-acquired rights if they grew out of a continuing relationship
c. Equitable lien exemption-granted in Mitchell v. Winslow, the ineffective mortgage is treated as a
promise to make a mortgage, enforced in equity because damages in law would be inadequate, and
equity considers done that which should have been done
d. UCC changed things by adopting the “floating lien” on collateral of all kinds
5. Revocability of a Gratuitous Assignment

a. the assignee’s right is terminated if the assignor revokes the assignment, becomes incapacitated, or
dies
b. Gratuitous assignments like family gifts are revocable
c. This revocability can be limited by consummation of the gift or reliance
d. If an assignee gives value for the assignment, it is not gratuitous and is therefore not revocable
6. Vulnerability of Assignee to Discharge or Modification

a. if the obligor pays the assignor before being notified of the assignment, the debt is discharged
b. if after being notified, the debt is not discharged—no defense
c. notification must actually be received, must indicate details, must identify the rights of the parties,
proof might be required, etc.
d. if this happens, the assignee may be able to hold the assignor liable for breach of warranty
e. UCC Rule 9-405(a): “an assigned contract is effective against an assignee if made in good faith”
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7. Vulnerability of Assignee to Obligor’s Defenses and Claims

a. “the assignee stands in the shoes of the assignor”—takes what the assignor had, warts and all
b. include statute of frauds, lack of consideration, public policy, common law policemen, breach,
nonoccurrence of a condition, etc.
c. also vulnerable to claims to the extent that they merely reduce the amount owed, no liability unless the
assignee assumed the duty of performance
d. using a promissory note, a financial institution enforced the debt as a holder in due course
e. some places also used “waiver-of-defense” clauses to prevent defenses if the consumer’s debt is assigned
f. After state statutes prohibiting them on the state level, the FTC said the use of negotiable promissory notes
and waiver-of-defense clauses was an unfair trade practice…this puts the financial institution in the position
of the retailer
g. Absent disclaimer, an assignor that assigns for value impliedly warrants that the right as assigned
actually exists and is subject to no claims or defenses good against the assignor, other than those stated or
apparent at the time of the assignment.
h. UCC Article 9 says the rights of the assignee of an account are subject to any defense or claim not arising
from the contract between the debtor and the assignor if it “accrues” before the account debtor receives
notification of the assignment.. Restatement follows suit. UCC 9-404, R2 § 336
8. Vulnerability of Assignee to Competing Claims of Ownership

a. comes out of equities—applies the maxim that “the first in time is the first in right”
b. today the assignee’s interest is regarded as legal
c. an assignee that is in good faith takes free of latent equities; an assignee in bad faith, with notice, or without
giving value would be subject to them
d. 3 rules on priority of competing assignees
i. New York Rule-the first assignee prevailed
ii. English Rule-the first assignee prevailed unless the second assignee had notified the obligor of its
assignment before the first assignee notified the obligor of its.
iii. Massachusetts/Four Horsemen Rule-the first assignee prevailed, unless the second assignee had
done one of four acts:
A. received payment or other satisfaction of the obligation
B. obtained a judgment against the obligor
C. made a new k with the obligor by novation
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D. obtained possession of a symbolic writing
iv. Both Restatements support the 4 horsemen rule-R2 § 342
v. UCC 9 has chose to say the person who files documentation in a government office prevails, but
casual or isolated assignments are excluded
e. an unsecured creditor has to file an attachment BEFORE an assignee takes something
C. Delegation-when one owing a duty manifests an intention to confer upon

another person the power to perform that duty
1. Delegability of Performance
a. no particular language is required
b. the delegating party remains bound, but performance or the consent of the obligee can relieve the duty
c. the significance, thus, is that the performance by the delegate will discharge the duty
d. Some performances are nondelegable
i. for public policy
ii. written into the k
iii. when the choice of the person was very important to the oblige
e. Test of delegability: a performance is nondelegable to the extent that the obligee has a “substantial interest”
in having the original promisor perform, or at least control performance. UCC 2-210, R2 § 318. The court will
look at all of the circumstances:
i. was the performance “personal,” ex/singer
ii. the degree of control that the delegating party can be expected to exercise over the delegate
f. The restriction is designed to protect the obligee, so the obligee can dispense with it
2. Assumption and Novation

a. mere delegation imposes no duty on the delegate to perform unless it has undertaken to do so
b. the delegate can assume the duties by expressly promising to fulfill them, and then both parties are bound
c. a court can infer an assumption by a delegate through their conduct
d. an obligee can consent to a delegation of duty by a Novation
e. a Novation can be inferred R2 § 329
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D. Notes from Class on Assignment and Delegation
Assignor
Assignee
Obligor
We delegate duties…we assign right

Assignments can be gifts
Can you assign all duties? What if personal satisfaction? No
Building construction k? Objective test means generally OK
Can contract around it or it may be so personal as to require
Notice—
Credit sale—two appriaches

1. either one, the first assignee to give notice
or, secondly, the first to attain the assignment has the rights

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Ben Coulter Contracts II-Stone

Covering all the topics

Same format-Multiple Choice and Essay

E. Drunk Farmer Boasting Sale Example: [K as a result of drunken boasting to buy a

II. Interpretation & Implication

B. 4 Part Interpretative Test

 must prove with ev if you want a narrow meaning

C. Key planning point: define things in contracts

D. Restatements 202 & 203 – interpretation

F. When is there a meeting of the minds?

1. Argue first stage is a k?

3. Note: Application of Corporate Law

III. Offer, Revocation, Rejection, Counteroffer, Acceptance

D. Authorized to offer, pleased to accept order—not the same as an offer, might be §

E. UCC disproportionality clause 2-306, massive quants not required to be filled…“all

F. 1st Battle of the Forms

H. Ford Advertisement Case-Ford case on p.423—the size counts case

Goal = Discipline Ads

§ 52 – Offeror is the master of his own offer

M. Acceptance by accepting of application and cashing of application fee?

O. Revocation-- Dickinson v. Dodds

Two part test in § 43.

5. Argue that there was no clear revocation

P. More revocation, rejection, and counteroffer—from Outline 432-456

6. A formal requirement of acceptance may be ignored by the offeror. Conduct =, R2 § 22

12. Alternate Rules

13. Identical offers crossing in the mail do not form a contract. R2 § 23

Q. How can an option K be terminated?

Humble Oil v. Westside Investment

2. Specialty Mainenance v. Rosen Systems (Auction w/ Reserve Case)

1. James Baird v. Gimbel Brothers-common law view

2. Drennan v. Star Paving Co.-modern view

3. Summary of the Two Cases

T. Supplement notes on Drennan and Gimble

2. Brackenbury v. Hodgkin-a contradictory pull from Patterson

The Court Ruled:

Criticism of the case

When should the court use equity?

3. Sunshine v. Manos—the “I tried but failed case”

Issue: how much part performance is enough part performance?

W. Real Estate Broker’s Contracts

X. Unilateral v. Bilateral -- Davis v. Jacoby –

Y. Battle of the Forms-Empire Machinery Co. v. Litton Business Telephone Systems

 § 32, § 62, UCC 2-206 – acceptance by any reasonable manner

2. Restatement § 54(2)-the necessity of notification

3. Bishop v. Eaton, p.529

WILL WARREN REWARD OVERVIEW

BB. Silence as acceptance

1. The Whip Case—Hobbs v. Massaoit Whip Co.

Elements of Silence by Acceptance

*Note: generally, mere silence does not equal acceptance, see § 69

2. Ransom v. The Penn Mutual Life Insurance Company Co.

5. Roberts insurance case

CC. 2nd and True Battle of the Forms

Goal = meeting of the

1. Mirror Image Rule

4. New Rule of Law

5. What if conflicting terms?

DD. Part Performance v. Preparation to Perform

2. Hoffman v. Red Owl Stores (Recovery for Expenses Only)

IV. Mistake, Misrepresentation, Fraud, Impossibility, & Frustration

A. The “Big 8” Common Law Policemen to the Bargaining Process

A. Cause parties to be excused from an otherwise valid K