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Contracts II Outline

Professor Albert

For Test: 35 multiple choice questions (2pts each); 2 writing questions with 2 sub parts each
-Spend 2 hrs on multiple choice, 1 hr on essay
-One of the Essays: What are all of the arguments she can make and what is the likelihood of the success of
each argument

I. Defective formulation and indefinite agreements


a. General rule: the terms of an agreement must be reasonably definite to create an enforceable
contract, as per Restatement § 33.
i. What approach should we take to determine if an agreement is too indefinite to be
enforceable?
1. Make sure there is incurable uncertainty about what the parties agreed to.
2. Make sure the uncertainty relates to a material aspect of the relationship between
the parties.
ii. Raffles v. Wichelhause - The Peerless Case
1. Who should bear the risk of ambiguity of terms?
a. Restatement § 206: Interpretation against the drafter: In choosing among
the reasonable means of a promise or agreement or a term thereof, that
meaning is generally preferred which operates against the party who
supplies the words or from whom a writing otherwise proceeds.
2. Suppose what was said was ambiguous but both parties had the same ship in
mind- would there be a contract in that case?
a. Ambiguities: Basic rule. If the agreement is ambiguous on its face, or
becomes ambiguous in performance, parol evidence is admissible to
clarify the parties’ intent.
i. But, if the ambiguity is so fundamental that there is no way that the
court could determine what the parties intended, there may be no
enforceable contract at all.
ii. Minority view: the trend is to admit parol evidence more
frequently. Even where the terms of a contract appear to have a
plain meaning; parol evidence will still be admitted to interpret the
terms if the language of the contract is reasonably susceptible to
the interpretation offered by the party wishing to admit the parol
evidence.
b. Restatement §20 Effect of Misunderstanding
i. (1) There is no manifestation of mutual assent to an exchange if the
parties attach materially different meanings to their manifestations
and
1. (a) neither party knows or has reason to know the meaning
attached by the other; or
2. (b) each party knows or each party has reason to know the
meaning attached by the other.
ii. (2) The manifestations of the parties are operative in accordance

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with the meaning attached to them by one of the parties if
1. (a) that party does not know of any different meaning
attached by the other, and the other knows the meaning
attached by the first party; or
2. (b) that party has no reason to know of any different
meaning attached by the other, and the other has reason to
know the meaning attached by the first party.
iii. Comment B: The meaning given to words or other conduct
depends to a varying extent on the context and on the prior
experience of the parties. Almost never are all the connotations of
a bargain exactly identical for both parties; it is enough that there is
a core of common meaning sufficient to determine their
performances with reasonable certainty or to give a reasonably
certain basis for an appropriate legal remedy. See § 33. But
material differences of meaning are a standard cause of contract
disputes, and the decision of such disputes necessarily requires
interpretation of the language and other conduct of the parties in
the light of the circumstances.
3. What if the parties here actually did have different ships in mind when they struck
their deal? Would there be a contract under § 20?
a. Comment C: Interpretation and agreement... the parties may have different
understandings, intentions and meanings. Even though the parties manifest
mutual assent to the same words of agreement, there may be no contract
because of a material difference of understanding as to the terms of the
exchange.
iii. UCC § 2-204 - Formation in General.
1. A contract for sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of
such a contract.
2. An agreement sufficient to constitute a contract for sale may be found even
though the moment of its making is undetermined.
3. Even though one or more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a
reasonably certain basis for giving an appropriate remedy.

II. Incomplete and deferred agreements; remedies


a. What happens when the parties have the intent to be bound, have reached an agreement on some
of the terms but have left other terms open or provided that the terms would be clarified or
defined later on?
i. “[W]here the parties have completed their negotiations of what they regard as essential
elements, and performance has begun on the good faith understanding that agreement on
the unsettled matters will follow, the court will find and enforce a contract even though
the parties have expressly left these other elements for future negotiation and agreement,
if some objective method of determination is available, independent of either party’s
mere wish or desire.”

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1. Restatement § 204. Supplying An Omitted Essential Term - When the parties to a
bargain sufficiently defined to be a contract have not agreed with respect to a term
which is essential to a determination of their rights and duties, a term which is
reasonable in the circumstances is supplied by the court.
a. Omission of Price Term
i. No K under §33
ii. § 2-305(4). Where they intend to conclude a contract for the sale of
goods, however, and the price is not settled, the price is a
reasonable price at the time of delivery if
1. (a) nothing is said as to price, or
2. (b) the price is left to be agreed by the parties and they fail
to agree, or
3. (c) the price is to be fixed in terms of some agreed market
or other standard as set or recorded by a third person or
agency and it is not so set or recorded. Uniform
Commercial Code § 2-305(1). Or one party may be given
power to fix the price within limits set by agreement or
custom or good faith. Similar principles apply to contracts
for the rendition of service.

III.Infancy and mental incompetence


a. Capacity to Contract Generally
i. Restatement § 12. Capacity To Contract
1. No one can be bound by contract who has not legal capacity to incur at least
voidable contractual duties. Capacity to contract may be partial and its existence
in respect of a particular transaction may depend upon the nature of the
transaction or upon other circumstances.
2. A natural person who manifests assent to a transaction has full legal capacity to
incur contractual duties thereby unless he is
a. §13 - under guardianship, or
b. §14 - an infant, or
c. §15 - mentally ill or defective, or
d. §16 - intoxicated.
b. Infancy - Voidable
i. Restatement §14. "Unless a statute provides otherwise, a natural person has the capacity
to incur only voidable contractual duties until the beginning of the day before the person's
18th birthday"
1. Those who deal with minors do so at their own risk, and knowing of the fact that
the minor can void the contract at any time, but they (adult) cannot.
ii. If minor turns 18 after the contract, after time silence will count as affirmation of its
terms.
iii. Bowling v. Sperry
1. Minor (P) buys a car (with help of aunt) from D for $140 and returns it after
discovers that it is defective. D estimates that repairs will cost $45-95, so P tries
to disaffirm the contract. D responds that P’s grandmother and aunt were present

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at the time of purchase. Trial court holds for D. Reversed.
2. Can a minor enter into a contract to purchase a non-necessary item? No.
a. General rule that contracts of minors are voidable. Irrelevant whether
adults were present at the time of purchase, or even loaned P money.
b. Lying Exception: Contract valid if minor lies about his/her age (depends
on jurisdiction). In this case, D was aware of P’s age when sale was
negotiated.
c. Necessity Exception: Infants can contract for necessities if they are offered
at a reasonable price. Burden of proving this is on the D. In this case, it
does not seem that the car was necessary to P.
d. Standard remedy is restoration- just give back whatever the minor has.
Does not matter even if P caused the damage to the car. The parties do not
need to be placed in statu quo (whereas restoration would require the item
to be back in its original state).

c. Mental Incompetence - Void


i. Restatement §15 - Mental Illness of Defect - a person incurs only voidable K duties if
mentally incompetent.
1. Unable to understand nature and consequences of transaction
2. Unable to act in reasonable manner in relation to transaction & other party knows
ii. CitiFinancial, Inc. v. Brown
1. D, a severely retarded individual, and his mother obtained a loan from P that
consolidated their debts and lowered their monthly payments. The D was required
to sign a contract with an arbitration clause that required any claims against P to
be arbitrated. D brings suit alleging fraud and breach of contract, and seeks to
avoid arbitration on the grounds that D is incompetent and thus the agreement is
void. P argues that the D’s mother signed the agreement as guardian, and that the
issue of competence should be decided by an arbitrator.
2. Can a party void a contract based on incapacity? Yes.
a. If a party lacks capacity to consent, there is no contract.
b. Whereas contracts with infants or incapacitated individuals are voidable,
those with incompetent individuals are void. For instance, contacts with
drunks can be affirmed once they sober up, but contracts with
incompetents can probably never be confirmed.
d. Intoxication – Voidable
i. Restatement § 16 - Intoxicated Persons
1. A person incurs only voidable contractual duties by entering into a transaction if
the other party has reason to know that by reason of intoxication
a. (a) he is unable to understand in a reasonable manner the nature and
consequences of the transaction, or
b. (b) he is unable to act in a reasonable manner in relation to the transaction.
ii. Evidence of impairment must be present

IV. Mistake

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a. Defined
i. Restatement § 151 - Mistake Defined - A mistake is a belief that is not in accord with the
facts.
b. Mutual Mistake
i. Restatement § 152 - When Mistake Of Both Parties Makes A Contract Voidable
1. Where a mistake of both parties at the time a contract was made as to a basic
assumption on which the contract was made has a material effect on the agreed
exchange of performances, the contract is voidable by the adversely affected party
unless he bears the risk of the mistake under the rule stated in § 154.
2. In determining whether the mistake has a material effect on the agreed exchange
of performances, account is taken of any relief by way of reformation, restitution,
or otherwise.
ii. Beachcomber Coins, Inc. v. Boskett
1. Facts: Pl purchases rare dime from Df. Both parties believe it is genuine and
worth $500 (price); no fraud. 3rd party wants to buy dime from Pl for $700,
provided it’s authentic. Then discovered it’s counterfeit. Pl sues to rescind K.
a. No one assumed the risk; both thought it was real. Court decides to use
industry custom of a “return privilege” for altered coins. Pl can return &
get money back.
c. Unilateral Mistake
i. Restatement § 153. When Mistake Of One Party Makes A Contract Voidable - Where a
mistake of one party at the time a contract was made as to a basic assumption on which
he made the contract has a material effect on the agreed exchange of performances that is
adverse to him, the contract is voidable by him if he does not bear the risk of the mistake
under the rule stated in § 154, and
1. (a) the effect of the mistake is such that enforcement of the contract would be
unconscionable, or
2. (b) the other party had reason to know of the mistake or his fault caused the
mistake.
ii. Boise Junior College District v. Mattefs Construction
1. Facts: Bids for construction K, costs estimated at $150k. Df places bid for $141k
+ promise to pay diff with next lowest bid if they refuse to perform. Df bid very
low due to mistake. Next lowest bidder $149k. Pl sues to recover diff.
2. Court uses a 5-part test to decide whether a mistake in bidding in public works K
can be rescinded for mistake: don’t need to know this test.
a. Mistake is material? – omission of an item represents 14% of total cost –
yes.
b. Unconscionable to enforce? – Cost for Df is $151. – yes.
c. Mistake due to violation of positive legal duty or culpable negligence?
Clerical error. –No

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d. Party to whom bid is submitted will not be prejudiced except by loss of
bargain? Pl expected to pay $150k, next lowest $149k. –No hardship.
e. Prompt notice of error given? Notice before Pl could accept. –Yes.
d. Substance vs. quality as a basic assumption - Party excused from performance if there is a
mistake about the very nature/character of the thing being bargained over. No relief if it is just a
disagreement or mistaken belief over the quality or value.
i. Sherwood v. Walker
1. Facts: Pl wants to buy cow from Df, and chooses one that both parties believe is
barren, and only worth price of its beef $80. Df discovers cow is not barren and
worth $750+, and refuses to sell.
2. Substance (nature/character) vs. quality
a. Substance - (majority view). Mistake made on what was actually sold –
the beef or the breeding cow.
b. Quality (dissent) – b/c it was the same cow, whether it was barren or
breeding
e. “As is” Clauses – Buyer is assuming the risk

i. Lenawee County Board of Health v. Messerly


1. Facts: Pickles buys property from Messerly. Neither party knew that there was an
illegal septic tank there. K said that buyer has inspected property & accepts in
present condition. Board of health subsequently obtains an injunction & says it’s
uninhabitable by humans until sewage fixed. Pickle seeks to rescind/avoid K
based on the mutual mistake.
2. Contract can’t be rescinded due to a mutual mistake as to the nature of the
property when the K included an “as is” clause b/c buyer had assumed the risk.
f. Who bears the risk?
i. Restatement § 154. When A Party Bears The Risk Of A Mistake
1. A party bears the risk of a mistake when
a. the risk is allocated to him by agreement of the parties, or
b. he is aware, at the time the contract is made, that he has only limited
knowledge with respect to the facts to which the mistake relates but treats
his limited knowledge as sufficient, or
c. the risk is allocated to him by the court on the ground that it is reasonable
in the circumstances to do so.
ii. When a Party bears the risk of mistake (§ 154)
1. When by agreement risk is allocated to him
2. He is aware, at time K made, that he has only limited knowledge with respect to

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facts to which the mistake relates but treats his limited knowledge as sufficient
3. Court allocates risk b/c it’s reasonable to do so.
iii. Ayer v. Western Union Telegraph Co.
1. Plaintiff sends offer for sale to buyer via telegraph (Df). Df makes a mistake in
transmission, and offer sent to buyer for less than Pl wanted. Pl still sold to buyer,
then sues Df for diff in value.
2. The person who chose the means of communication bears the risk.
g. Theres a Mistake, Now What?
i. Restatement § 155. When Mistake Of Both Parties As To Written Expression Justifies
Reformation - Where a writing that evidences or embodies an agreement in whole or in
part fails to express the agreement because of a mistake of both parties as to the contents
or effect of the writing, the court may at the request of a party reform the writing to
express the agreement, except to the extent that rights of third parties such as good faith
purchasers for value will be unfairly affected.
ii. Restatement § 156. Mistake As To Contract Within The Statute Of Frauds - If
reformation of a writing is otherwise appropriate, it is not precluded by the fact that the
contract is within the Statute of Frauds.
iii. Restatement § 157. Effect Of Fault Of Party Seeking Relief - A mistaken party's fault in
failing to know or discover the facts before making the contract does not bar him from
avoidance or reformation under the rules stated in this Chapter, unless his fault amounts
to a failure to act in good faith and in accordance with reasonable standards of fair
dealing.

V. Fraud
a. When Misrepresentation makes a K Voidable – not necessary that misrepresentation was
intentional; a negligent or even innocent misrepresentation may be sufficient to make a K
voidable if it is material.
i. Restatement § 159 – Misrepresentation Defined
1. A misrepresentation is an assertion not in accord with the facts.
ii. Restatement § 160 – When an action is equivalent to an assertion (concealment)
1. An action intended or know to be likely to prevent another from learning of a fact
is equivalent to an assertion that the fact does not exist
iii. Restatement § 164. When A Misrepresentation Makes A Contract Voidable - when it
induces a party to assent and:
1. When one party makes a fraudulent or material misrep, on which other party
justifiably relies
2. When a 3rd party makes a fraudulent or material misrep, on which a party
justifiably relies, unless the other party to the transaction in good faith & w/o
reason to know of misrep gives value or relies materially on the transaction.
iv. Restatement § 162. When A Misrepresentation Is Fraudulent Or Material – when it

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induces a party to assent, and:
1. He knows or believes that the assertion is no in accord with the facts, or
2. He does not have the confidence that he states or implies in the truth of the
assertion, or
3. He knows that he does not have the basis that he states or implies for the
assertion.
b. When Reliance is Justified - Must show that you in fact relied, and that it was justifiable.
However, if misrep is intentional, may not need to show reliance is justifiable.
i. Restatement § 171
1. Not justified when it’s an assertion of Intention only, as long as intention is
consistent with reasonable standards of fair dealing. (§ 171(1))
2. If reasonable, promisee may interpret a promise as an assertion that promisor
intends to perform (§ 171(2))
3. A recipient's fault in not knowing or discovering the facts before making the
contract does not make his reliance unjustified unless it amounts to a failure to act
in good faith and in accordance with reasonable standards of fair dealing. (§ 172)
c. Non-Disclosure as a Misrepresentation and the Duty to Disclose
i. Non-disclosure does not necessarily amount to fraud, but one cannot falsely impose
information on the other party (or if there is silence in bad faith). If the information is in
the public domain where one party could have obtained it with due diligence, then there
is no duty to disclose.
1. Laidlaw v. Organ
a. Plaintiff to sell tobacco to Defendant. News spread that War of 1812 is
over, and price of tobacco expected to go up once war was over. Buyer
calls seller next day and wants to buy the tobacco. Seller didn’t know war
is over, but asked buyer if there was any news. Buyer silent; purchase
made. News was in public domain & both parties had access to info.
Defendant had no duty to disclose. However, you cannot by implying or
acting in a certain way to impose on the other party so that they would
interpret it in a certain way. Jury would need to decide if silence made in
bad faith.
b. Even in contractual situations where a party to a transaction owes no duty
to disclose facts within his knowledge or to answer inquiries respecting
such facts, the law is if he undertakes to do so he must disclose the whole
truth.
ii. Restatement § 161. When Non-Disclosure Is Equivalent To An Assertion
1. (a) Where he knows that it is necessary to correct a previous statement or false
impression
2. (b) Where he knows that disclosure would correct a mistake made by other party
as to a basic assumption on which K made, & if non-disclosure made in bad faith.
3. (c) Where he knows the disclosure would correct a mistake made by other party
as to a writing
4. (d) If there is a special relationship of trust& confidence btwn the parties.
a. Failure to Correct a Mistake (§161(b)) – If one party knows that the other
is making a mistake as to a basic assumption, failure to correct that
misunderstanding will constitute a misrepresentation if the non-disclosure

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amounts to a “failure to act in good faith” or to act “in accordance with
reasonable standards of fair dealing.”
iii. Hill v. Jones
1. Pl wants to buy house from Df. Looking at house, Pl sees something that looks
like termite damages & asks Df if it is, Df answered that its water damage. House
passes a termite inspection, and Pl buys the house. Then Pl finds out there had
been termite infestation in the past, causing $5k in damages, and sellers knew and
never told anyone. If Hill hadn't asked about the ripple, then probably no duty to
disclose. But they asked. Saying it is water damage may be factual, but he
probably knows that he is misleading them into believing that there are no termite
problems by that statement. He knew they were making a mistake (§161(b)), and
didn’t correct that mistake. But court still has to decide if the misrepresentation
was material or not.
a. Positive Concealment § 160.– when you act in a way that is intended or
you know it’s likely to prevent the other from learning a fact, even though
it’s not verbal. (Ex: Maybe in Hill they put boxes on termite holes
specifically so that inspector wouldn’t have seen it).
b. Half-Truths (§ 159 comment b) – Of part of the truth is told, but another
portion is not, so as to create an overall misleading impression, this may
constitute misrepresentation.
d. Misrepresentation of Fact vs. Opinion
i. Misrepresentation must be of fact, rather than opinion (which is usually merely
“puffing”). However, there are special circumstances that make an assertion of opinion
actionable.
ii. Restatement § 169. – Reliance on an opinion is not justified unless:
1. When there is a special relationship of trust & confidence, that recipient
reasonably relies
2. Recipient reasonably believes that, as compared with himself, the person whose
giving the opinion has a special skill, judgment or objectivity with respect to the
subject matter
3. Recipient is for some other reason particularly susceptible to a misrep of the type
involved.
4. A statement of a party having superior knowledge may be regarded as a statement
of fact although it would be considered as opinion if the parties were dealing on
equal terms.
iii. Vokes v. Arthur Murray, Inc.
1. Pl bought a whole bunch of dance lessons and is alleging that Df induced her into
buying them by telling her she was a wonderful dancer, and encouraging her that
she should keep progressing, when in fact this was not true.
2. Dfs were experts in the field (they had superior knowledge), so their opinion
mattered, and Pl takes it at face value (& they’re not dealing on equal terms). Df
believed the opposite of what they actually told her (he lied). Although Df had no
duty to disclose, once he decides to disclose, he must tell the truth.
iv. Restatement § 168. Reliance On Assertions Of Opinion – An opinion is one of belief, w/o
certainty as to the existence of a fact or expresses a judgment on something. A recipient
may interpret that the assertion is not incompatible with his actual opinion, and that he

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knows enough facts to justify in him forming the opinion.

VI. Duress and undue influence


a. Duress Generally
i. Defense of duress is available if Df can show that he was unfairly coerced into entering
into the contract, or into modifying it. The essential rule is that duress consists of “any
wrongful act or threat with overcomes the free will of a party.
1. Restatement § 174 When duress by physical compulsion prevents contract
formation
a. If conduct that appears to be a manifestation of assent by a party who does
not intend to engage in that conduct is physically compelled by duress, the
conduct is not effective as manifestation of assent
2. Restatement § 175 When Duress by Threat Makes a Contract Voidable - Where
assent is induced by an improper threat by other party that leaves victim with no
reasonable alternative.
a. Also if it’s a 3rd party who threatens, unless the other party enters in good
faith, doesn’t know of duress, and gives value or relies materially on the
transaction.
3. Subjective standard: Look at the subjective to determine if someone’s free will
has been overcome. Moral compulsion or psychological pressure may constitute
duress if the subject of the pressure is overborne and he is deprived of the exercise
of his free will. Also you would take into account if a person of ordinary firmness
would have also been coerced in the situation.
a. Rubenstein v. Rubenstein
i. Under duress by his wife, Pl conveyed to her property. She
threatened to poison him w/ arsenic etc., plus her dad in jail for
murdering ppl w/arsenic, so this shows he really believed she
would do it.
ii. This court used a subjective standard: the party’s state of mind is
relevant in determining whether there is an interference of free will
in contracting (eggshell plaintiff).
4. Restatement § 176 - When a threat is improper
a. Threat is improper if what is threatened or the threat itself is a crime or
tort, if criminal prosecution is threatened, if you threaten to sue, but no
basis so in bad faith, or the threat is a breach of the duty of good faith and
fair dealing under a K with the recipient.
b. Economic Duress
i. There will be duress if the threatened breach would, if carried out, result in irreparable
injury that could not be avoided by a lawsuit or other means, and the threat is made in
“breach of the duty of good faith and fair dealing.”
1. Austin Instrument, Inc. v. Loral Corp.
a. Loral got a govt K, and contracted with Austin for some goods it needed
for the govt K. Then Austin threatened to breach unless Loral agrees to
some new K’s and a raise in the price of the existing K.
i. To find economic duress in a business K:

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1. There is a wrongful threat to breach
2. It overcomes free will
3. There are no alternative sources of goods,
4. Ordinary remedies doesn’t cover the loss
ii. Machinery Hauling, Inc. v. Steel of West Virginia
1. Pl contracted to buy steel from Df, and have it delivered to a 3rd party. 3rd party
rejected the steel b/c it was defective, and told Pl to return remaining undelivered
loads. Df told Pl that if it did not pay $31k, price of undelivered loads, it would
cease doing business with Pl (this potential loss was over $1mm/year).
2. Df has no obligation to Pl - no legal duty to do business w/Pl, and no K exists for
future business. No duty of good faith in negotiations. The threat to not do
business in the future is not economic duress.
c. Undue Influence
i. Restatement § 177 - When Undue Influence Makes a contract Voidable
1. Undue influence is unfair persuasion of a party who is under the domination of
the person exercising the persuasion or who by virtue of the relation between
them is justified in assuming that that person will not act in a manner inconsistent
with his welfare
2. If a partys manifestation of assent is induced by undue influence by the other
party, the contract is voidable by the victim
3. If a partys manifestation of assent is induced by one who is not a party to the
transaction, the contract is voidable by the victim unless the other party to the
transaction in good faith and without reason to know of the undue influence either
gives value or relies materially on the transaction

VII. Unconscionability
a. Restatement § 208 – Unconscionable Contract or Term
i. If a contract or term thereof is unconscionable at the time the contract is made, a court
may refuse to enforce the contract or may enforce the remainder of the contract without
the unconscionable term, or may so limit the application of any unconscionable term as to
avoid any unconscionable result.
b. UCC § 2-302. Unconscionable contract or Term.
i. Provides that if the court as a matter if law finds the contract or any clause to have been
unconscionable at the time of was made, the court may refuse to enforce the K, or may
only enforce part of it w/o unconscionable terms, or may limit the application of it to
avoid an unconscionable result.
ii. No definition of unconscionability – this gives courts discretion
1. Policy: to prevent oppression and unfair surprise
c. Consumer Transactions
i. The defense of unconscionability is mainly used by consumers
ii. Williams v. Walker-Thomas Furniture Co.
1. Buyer enters into installment Ks for sale of furniture. K had a provision where
debt incurred at time of purchase would be added onto outstanding debts, so until
everything paid off, it extended a security interest to everything she bought (even
though she might have paid that balance already). She defaults, and store wants to
get all her stuff.

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2. Ordinarily one who signs a K w/o full knowledge of its terms might be held to
assume that risk. But when a party of little bargaining power (no real choice)
signs a commercially unreasonable contract with little or no knowledge of its
terms, it is hardly likely that consent was really given to those terms. In such a
case, the court should consider whether the terms of the contract are so unfair that
enforcement should be withheld (is it unconscionable?).
a. “Unconscionability has generally been recognized to include an absence
of meaningful choice on the part of one of the parties together with
contract terms which are unreasonably favorable to the other party.”
d. Contracts of Adhesion
i. Contracts that have a standardized form and are presented on a take it or leave it basis
1. At common law these Ks have been "presumptively enforceable" - excuse only
when P able to show that the drafter actively caused the misrepresentation.
2. Restatement § 211- if a party has reason to know that the other party wouldn't
assent to a particular term, that term won’t be part of the K.
3. Basically, they are enforceable, unless unconscionable
e. Procedural and Substantive Unconscionability
i. For K to be unconscionable there must be procedural and substantive unconscionability
(although a greater degree of one can make up for less of the other).
1. K can be procedurally (manner in which K was enacted) unconscionable if there
is oppression or surprise (unequal bargaining power; lacks meaningful choice).
2. K can be substantively unconscionable where the actual terms of the agreement
are so one-sided they shock the conscious (party benefits from unreasonably
favorable terms).
a. Ferguson v. Countrywide Credit Industries, Inc.
i. Pl brings tort claims against employer. Df says K has an arbitration
clause.
ii. Standardized K is enforceable unless it’s unconscionable – pattern
of one-sided terms
1. There was procedural unconscionability – oppression;
wouldn’t have a choice if you want the job; no negotiations
2. There was substantive unconscionability – terms so one-
sided it shocks the conscious
a. One-sided coverage of claim (those that employee
would bring covered, those that employer would
bring not covered)
b. Arbitration fees may be unconscionable if costs
more than normal litigation
c. One-sided discovery provision – Df had certain
advantages

VIII. Illegality
a. Unenforceable on Grounds of Public Policy
i. Agreements Unenforceable on Grounds of Public Policy - Although all the conditions of
a K are satisfied, a K can be held unenforceable if there's something in the bargain,

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performance or objectives that are "illegal" or against "public policy."
ii. Where both Parties are guilty of Illegality – the court will do nothing; no one can recover.
This may be unfair because one party will benefit at the loss of another. However, the
denial of K's enforceability would help public policy by deterring parties from entering
into these types of agreements b/c of the lack of judicial protection. However, sometimes
a guilty party ends up being rewarded for engaging in the illegal transaction. In this type
of situation, the courts may allow restitution.
1. Sinnar v. Le Roy
a. Store owner denied beer license. He agrees with his friend that, through a
3rd party, to get him a beer license for $450. Couldn’t get license, Pl
(owner) wants money back (3rd party has it).
b. Clearly illegal b/c only state can give you this type of license. Pl cannot
recover; we want to discourage people from entering into illegal
agreements.
iii. Restatement § 178 – When a term is unenforceable on grounds of public policy
1. A promise or other term of an agreement is unenforceable on grounds of public
policy if legislation provides that it is unenforceable or the interest in its
enforcement is clearly outweighed in the circumstances by a public policy against
the enforcement of such terms.
2. In weighing the interest in the enforcement of a term, account is taken of
a. the parties' justified expectations,
b. any forfeiture that would result if enforcement were denied, and
c. any special public interest in the enforcement of the particular term.
3. In weighing a public policy against enforcement of a term, account is taken of
a. the strength of that policy as manifested by legislation or judicial
decisions,
b. the likelihood that a refusal to enforce the term will further that policy,
c. the seriousness of any misconduct involved and the extent to which it was
deliberate, and
d. the directness of the connection between that misconduct and the term.
iv. Hard to define public policy; also would be an argument of last resort
v. "Public policy … is but a shifting and variable notion appealed to only when no other
argument is available, and which, if relied upon today, may be utterly repudiated
tomorrow."
vi. Court may decide that there is a public policy strong enough to deny enforcement of the
K, but not deny restitution. Court will look at a legislative mandate to direct. When none
available, the promise or term is unenforceable if the "interest in its enforcement is
clearly outweighed in the circumstances by a public policy against the enforcement of
such terms."
1. Factors in weighing this interest:
a. The parties' justified expectations
b. Any forfeiture that would result if enforcement were denied, and
c. Any special public interest in the enforcement of a particular term.
vii. Watts v. Watts
1. Parties lived together for 13 years, but never married. When relationship ends,
she’s left with nothing. She files suit to get a portion of property accumulated

13
during their relationship.
2. Df argues that relationship was immoral & illegal, so recognition would be
against public policy. Court points out that where the sole consideration was the
illicit relationship, then yes, it would not be enforceable. However, the illicitness
was not what was bargained for. The claim here would be unjust enrichment
where Pl did a lot of work to help build the couple’s wealth.
viii. Non-Compete Agreements Unenforceable on grounds of public policy because overbroad
1. In general, courts focus upon 2 aspects of the covenant:
2. Whether it protects some legitimate interest of the promisee,
3. Whether it is reasonable in scope
a. Data Management, Inc. v. Greene
i. Suit for breach of non-compete. Clause says that for 5 years after
termination, employee will not perform any other similar services
for any person or firm in the state of Alaska.
ii. Court proposes three methods with approaching overbroad
covenants:
1. Strict Method – if overbroad, then it’s unconscionable &
won’t be enforced
2. Blue Pencil method – Just strike out certain words that
make it unconscionable
3. Rule of Reasonableness – If found to have been written in
good faith, reasonably alter the covenants to make I
enforceable. Court uses this method.
ix. Remedies
1. Where both parties are equally guilty, the typical remedy is for courts to leave the
parties as it finds them; reduces the incentive to enter into illegal contracts.
2. Exceptions: 1) If parties are not equally at fault, court may choose to enforce or
get involved via its equitable powers. 2) If the offense is not sufficiently serious,
the courts may enforce it anyway (watering a lawn on a no-water day). 3) the
courts may sever the contract and enforce the non-illegal parts. 4) If one party
repudiates before the commission of the illegality, may be able to get restitution.
3. Contracts are void when illegal, even if illegality is not raised at trial.
a. A lot will depend on whether the P knew or should have known about the
illegality.

IX. Parol Evidence Rule


a. Restatement § 209 – Integrated Agreements
i. An integrated agreement is a writing or writings constituting a final expression of one or
more terms of an agreement.
ii. Whether there is an integrated agreement is to be determined by the court as a question
preliminary to determination of a question of interpretation or to application of the parol
evidence rule.
iii. Where the parties reduce an agreement to a writing which in view of its completeness and
specificity reasonably appears to be a complete agreement, it is taken to be an integrated
agreement unless it is established by other evidence that the writing did not constitute a

14
final expression.
b. When two parties have made a K and have and have express in a writing to which they have both
assented as the complete and accurate integration of that K, evidence whether parol or otherwise
of prior understandings or negotiations will not be admitted for the purpose of varying or
contradicting the writing.
i. Even if PER excludes evidence, may have a cause of action for fraud or other K action
that may make the writing worthless
ii. The person who is trying to exclude the evidence that is not in the writing will raise the
parol evidence rule, he then must prove that the writing was created with mutual intention
to be final and complete
iii. The judge will then evaluate all relevant evidence to establish the intent of the parties and
see if they intended the writing to be final and whether the evidence should came in or
not
1. Four Ways to Get Parol Evidence In: (Must be collateral to K, Consistent with K,
and not expected to be included in the K)
a. Enforcement of an oral agreement
b. Modification of the written agreement
c. Challenge the contract
d. Differing interpretation of Contract
2. Questions to Ask when dealing with Parol Evidence
a. Is the K written-
i. YES→ go to b
ii. NO→ PRE does not apply
b. Is the K final-
i. YES→ go to c
ii. NO→ parol does not apply
c. Does the outside agreement contradict the writing
i. YES → evidence out
ii. NO → go to d
d. Is the K complete- see approaches
i. YES → evidence out
ii. NO → evidence in
3. Approaches to decide whether a K is complete
a. Four corners- look at the document in writing itself and see the intent of
parties
b. Traditional-MAJORITY—looks at the parties objective intent- what
would parties naturally do
c. Modern- MINORITY— subjective intent- more likely to allow evidence
in
d. UCC 2-202-requires that the K be in writing, that it be final and that the
evidence of the prior agreement does not contradict the written K but only
explain or supplement it by:
i. (a) by course of dealing /or usage of trade /or by course of
performance
ii. (b) By evidence of consistent additional terms unless the K is
complete- to decide whether the K is complete the UCC looks at

15
whether the parties would certainly put it on writing. This lets a lot
of stuff in, b/c we must be CERTAIN that they people would have
put it on writing
c. The Parol Evidence Rule: provides that to the extent that the parties execute a writing that is and
is intended to be a final expression of their agreement, no parol evidence may be admitted to
supplement, explain, or contradict it. However, to the extent that the writing is not a final and
complete expression of agreement, consistent but not contradictory parol evidence may be
admitted to supplement or explain those parts of it which have not been finally expressed.
i. The rule deals with both written and oral terms allegedly agreed to prior to the execution
of the final agreement, but only terms agreed to orally at the time of the contract (no bar
of written contemporaneous evidence because a contract can consist of 2 writings so it
could result in a bar of a part of the actual contract).
ii. The fact that the written or oral term is not in the final agreement weighs heavily against
allowing its use, if the parties wanted it they would have included it.
iii. Parol Evidence Rule does not cover terms agreed to after the execution of the written
agreement – these are dealt with as modifications. Exception is when the subsequent
agreement occurred during the same “process of formation” like a subsequent oral
agreement during a closing that happened “contemporaneously.”
1. Contemporaneous Agreements-if another document is executed at the same time
the formal document was signed then that document is treated as part of the K and
will not be subject to the PER but if an oral agreement is made before or at the
time the formal document is signed then the it must meet the elements of PRE in
order to be admitted into evidence. Contemporaneous oral agreements are
NEVER allowed in.
iv. Restatement §213. Effect of Integrated Agreement on Prior Agreements (Parol Evidence
Rule)
1. A binding integrated agreement discharges prior agreements to the extent that it is
inconsistent with them.
2. A binding completely integrated agreement discharges prior agreements to the
extent that they are within its scope.
a. Comments:
i. (a) Parol evidence rule. This Section states what is commonly
known as the parol evidence rule.... It renders inoperative prior
written agreements as well as prior oral agreements. Where
writings relating to the same subject matter are assented to as parts
of one transaction, both form part of the integrated agreement.
Where an agreement is partly oral and partly written, the writing is
at most a partially integrated agreement. See §209.
ii. (b) Inconsistent terms. Whether a binding agreement is completely
integrated or partially integrated, it supersedes inconsistent terms
of prior agreements. To apply this rule, the court must make
preliminary determinations that there is an integrated agreement
and that it is inconsistent with the term in question. See §209.
Those determinations are made in accordance with all relevant
evidence, and require interpretation both of the integrated
agreement and of the prior agreement. The existence of the prior

16
agreement may be a circumstance which sheds light on the
meaning of the integrated agreement, but the integrated agreement
must be given a meaning to which its language is reasonably
susceptible when read in the light of all the circumstances. See
§§212, 214.
iii. (c) Scope of a completely integrated agreement. Where the parties
have adopted a writing as a complete and exclusive statement of
the terms of the agreement, even consistent additional terms are
superseded. See §216. But there may still be a separate agreement
between the same parties which is not affected. To apply the rule
of Subsection (2) the court in addition to determining that there is
an integrated agreement and that it is completely integrated, must
determine that the asserted prior agreement is within the scope of
the integrated agreement. Those determinations are made in
accordance with all relevant evidence....
v. Restatement § 214 – Evidence to prior or contemporaneous agreements and negotiations
1. Agreements and negotiations prior or contemporaneous with the adoption of a
writing are admissible evidence to establish
a. That the writing is or is not an integrated agreement
b. That the integrated agreement, if any, is completely or partly integrated
c. The meaning of the writing, whether or not integrated
d. Illegality, fraud, duress, mistake, lack of consideration, or other
invalidating cause.
e. Ground for granting or denying rescission, reformation, specific
performance, or other remedy
vi. Restatement § 216: Consistent Additional Terms
1. Evidence of a consistent additional term is admissible to supplement an integrated
agreement unless the court finds that the agreement was completely integrated.
2. An agreement is not completely integrated if the writing omits a consistant
additional agreed term which is
a. Agreed to for separate consideration
b. Such a term as in the circumstances might naturally be omitted from the
writing
vii. UCC § 2-202. Final Written Expression: Parol or Extrinsic Evidence - Terms with respect
to which the confirmatory memoranda of the parties agree or which are otherwise set
forth in a writing intended by the parties as a final expression of their agreement with
respect to such terms as are included therein may not be contradicted by evidence of any
prior agreement or of a contemporaneous oral agreement but may be explained or
supplemented
1. by course of dealing or usage of trade (Section 1-205) or by course of
performance (Section 2-208); and
2. by evidence of consistent additional terms unless the court finds the writing to
have been intended also as a complete and exclusive statement of the terms of the
agreement .
d. Just as Review: Additional Terms (Battle of the Forms)
i. At common law the mirror image rule was followed - acceptance must be a mirror image

17
of offer, other wise they are considered counter offers
ii. UCC 2-207
1. Was the additional term a condition of the acceptance?
a. Yes
i. Did the offeror assent to new terms?
1. Yes – contract
2. No – No K under 2-207 (1) but maybe an implied in fact
contract based on new terms and the UCC gap fillers
b. No
i. Conflicting Terms – Use the knockout rule
ii. Additional Terms – In the contract unless they materially alter the
contract
e. Merger Clauses - a clause stating that the writing constitutes the sole and final agreement b/en
the parties
i. Although merger clause may make the court more likely to say the K is final- or totally
integrated- if the court finds that there is a disparity of bargaining power or the clause
was hidden, or if there was a condition* to the entire K the merger clause may not
preclude the evidence from being admitted.
1. Restatement §217- where parties agreed orally that the performance of the
agreement is subject to a condition, the agreement is not final/integrated with
respect to that condition UNLESS the oral evidence SPECIFICALLY contradicts
the writing- Williams v. Johnson

X. Interpretation
a. The relationship between parol evidence and interpretation
i. Unless there is no evidence of context available, the meaning of the language used in the
contract is not determined purely by reference to the dictionary meaning of the words, but
by reading the words in the entire context of the transaction.
ii. This context includes discussions between the parties in forming the contract, their
previous course of dealings in prior contracts of the same kind, trade usage, and their
post-formation course of perfomance.
iii. A written agreement serves to limit the extent to which some contextual evidence may be
considered in deciding what the parties intended in entering the contract.
iv. The clearer and more comprehensive the writing the higher the barrier to admitting
extrinsic evidence.
b. If the plain meaning is of the contract is ambiguous then evidence can be admitted
i. Read K→ No ambiguity→ apply the plain meaning rule
ii. Ambiguous→ admit extrinsic evidence to determine parties intent in order to interpret the
K
1. Patent ambiguity→ apparent on the face of the contract
2. Latent ambiguity→ cannot determine if the contract is ambiguous until parties
begin performing
iii. Approaches to Interpretation
1. The Plain Meaning- (majority)— follow the plain meaning approach in which
they only let the evidence in if the document is ambiguous, but if the meaning is
clear they will not even let the evidence in

18
2. Reasonably Susceptible Test (minority)— the court will hear extrinsic evidence to
determine if a party could have reasonably interpreted a terms as having a
particular meaning. If the evidence shows that the K is reasonably susceptible to
that interpretation the court will admit the evidence
3. UCC §2-202—the code encourages the use of extrinsic evidence by allowing
trade usage, course of dealings and course of performance even if the K is totally
integrated as long as the evidence does not contradict the written K- explain or
supplement. The court in interpreting the K will consider: ( in order of
importance)
a. Express terms- that is the best evidence if it says middle of the month and
then it says the 15th of each month then terms are express, must follow
ALWAYS
b. Course of performance- what have we done on this K, the even must have
happen more than once- you have received merchandise for 6 mth on the
20th
c. Course dealing- normal way of doing business b/en those two parties-
assuming that they have deal w/ each other before- on previous K it
always meant the 5 middle days of the month
d. Trade usage- what ever is the usage of that word in the trade
4. Restatement § 201(2)- Whose meaning Prevails
a. Both parties understand the terms k- then the K is interpreted as is-Plain
meaning
b. If A knew, or had reason to know both meanings and B only knew one
then B’s interpretation will prevail. If A can show that B should have
known through trade usage or common knowlegde then A can rebut
presumption in favor of B
c. When neither party knows nor had reason to know what the other party
meant then there is no K b/c there was never a meeting of the minds
5. Restatement § 202- Rules in Aid for Interpretation
a. The intent of the parties is giving great weight
b. Words and conduct are to be interpreted in light of all the circumstances-
(course dealings and course performance, trade usage.)
c. the K should be interpreted w/ PP in mind
d. a writing interpreted as a whole and all writing are interpreted together
e. unless a different intention is manifested
i. words are interpreted w/in their prevailing meaning
ii. technical words or words of art are given their technical meaning
f. interpretation is usually against the drafter, b/c the drafter has more
advantage
g. interpretation should favor specific over general terms
c. Interpreting Deceptive/Hidden/Surprise Terms in standardized agreements
i. Restatement §211(3)- surprise terms- we are only agreeing to the expectable term
ii. UCC § 2-206- if a consumer manifest assent to a standard form, a term contained in the
form which the consumer would not have reasonably expected is not part of the k unless
the consumer expressly agrees to it

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XI. Duty of Good Faith
a. Restatement §205. Duty of Good Faith and Fair Dealing - Every contract imposes upon each
party a duty of good faith and fair dealing in its performance and its enforcement.
i. Comment:
1. a. Meanings of "good faith." Good faith is defined in Uniform Commercial Code
§ 1-201(19) as "honesty in fact in the conduct or transaction concerned." "In the
case of a merchant" Uniform Commercial Code §2-103(1)(b) provides that good
faith means "honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade." The phrase "good faith" is used in a variety
of contexts, and its meaning varies somewhat with the context. Good faith
performance or enforcement of a contract emphasizes faithfulness to an agreed
common purpose and consistency with the justified expectations of the other
party; it excludes a variety of types of conduct characterized as involving "bad
faith" because they violate community standards of decency, fairness or
reasonableness. The appropriate remedy for a breach of the duty of good faith also
varies with the circumstances. Good faith in negotiation. This Section, like
Uniform Commercial Code §1- 203, does not deal with good faith in the
formation of a contract. Bad faith in negotiation, although not within the scope of
this Section, may be subject to sanctions....
ii. UCC § 1-203. Obligation of good faith.
1. Every contract or duty within this Act imposes an obligation of good faith in its
performance or enforcement.
iii. Prevention, Cooperation, and the Duty of Good Faith
1. Prevention & Cooperation: all courts read all contracts as containing an implied
condition that the parties will act in good faith and will not hinder or prevent the
other party from performing. There must be a K in order for there to be a duty of
good faith
2. Wrongfulness: the prevention or hindrance must be wrongful; however, this does
not require a showing of bad faith or malice; just a showing that the other party
would not have reasonably anticipated such conduct, whatever its motivation.
3. Must act in good faith when rejecting goods and satisfying conditions
a. Nuemiller Farms was rejecting potatoes in bad faith b/c he found them at a
better price from another dealer.
i. The court requires expressions of dissatisfaction to be made in
good faith
ii. Courts use an objective test to decide whether a reasonable person
would have been satisfied with the goods. They do this because
there are set standard, and there is ma more utilitarian approach.
The clarity of the parties as to subjectivity will also come in to
show intent, when the parties explicitly make it a subjective test if
both parties agree to it
b. Billman v Hensel
i. Must also make a good faith effort to secure a loan when this is a
condition precedent to a party's performance. This applies to all
conditions proceedings the party must make a reasonable and good

20
faith effort to satisfy the condition
4. Some instances require subjective test: matters of personal taste or fancy. self
portraits are an example; the other party must know it is a subjective decision
based on personal taste.
a. Although these contracts look like illusory the parties both have an
obligation under the K, he must at least look at the portrait and in good
faith say he doesn't like it.
5. UCC: under the UCC, it is an objective test using "reasonable commercial
standards" (UCC 2-103)- good faith of a merchant is honesty in fact and the
observance of reasonable commercial standards of fair dealing in the trade
6. Employment at will: in at will employment contracts a person could get fired for
no reason at all, but the legislature has limited at will discharges by protecting
employers form discrimination firings. Many states say that the resumption of at
will contracts can be altered by stmt in employee handbooks or manuals, or by
other K theories such as promissory estoppel, or implied covenant of good faith or
policies established by the employer
a. Seubert
i. Although he did not meet the quotas it was the employee who
prevented him from performing thus his non-performance is
excused
ii. He still could have a cause an action not for the termination but for
the performance b/c seller misrepresented that the items were good
b. Satisfying 3rd parties
i. This happens often in construction k- engineers or architects
ii. The purpose of having a 3rd party decide is to get their subjective
view on the decision. So it is a subjective test; but, if there is
evidence of bad faith, then we will bring in others, to see if it meets
an objective standard.
7. Implicit agreement not to interfere with other party
a. There is a duty to perform in good faith, that also means that one will
exercise best efforts to sell or try to perform- service stations across the
street
b. In all contracts there is an implicit agreement by each party to not interfere
with the other party's ability to perform the contract.
c. A party can not intentionally and purposefully do any thing to prevent the
other party from performing, and he then may not recover damages for the
breach
d. This case was different b/c he did not know that when he bought from
other party he was diminishing the supply of the market that is why he
could still recover, so they were not acting in good faith
8. Conduct that makes the other party's performance more difficult
a. one parties makes performance more difficult by making other purchases
that decreased the supplied of those goods available
b. A party's action that only makes the other party's performance more
difficult will not release the party that must perform from doing so, when
the party causing the difficulty does so in good faith and does not intend to

21
interfere then no release. If in bad faith, then this would amount to a
breach due to interference

XII. Warranties, Express Conditions


a. Definitions
i. Restatement § 224. Condition Defined A condition is an event, not certain to occur,
which must occur, unless its non-occurrence is excused, before performance under a
contract becomes due.
ii. Condition Precedent- condition that must be satisfied before a duty comes into existence.
Burden of proof- on the Π- to prove that the condition was fulfilled Most conditions are
of this kind
iii. Condition Subsequent- event that terminates a duty. Burden on the Δ-condition not
fulfilled. i.e.-insurance requires damage and notice before they pay, that is the condition
precedent. If the policy holder after the notice don’t make a claim to be paid then at some
point the duty to pay is terminated, that is the condition subsequent
iv. Negative Conditions- things that must not occurred for the other party to perform, but
there must also be a time frame. If it has not happen by the 10th then…
v. Express condition- clearly explicit and stated in the K and are always strictly enforced, a
condition is an express condition if the language of the contract, on its face and without
reference to extrinsic evidence, articulates the intent to make performance contingent on
that event. The court will generally apply the condition strictly, even if results of this are
sometimes harsh (see below case)
1. Dove v Rose Acre Farms: In this case the law student was working during the
summer and he wanted to participate in the bonus program. He had to work ten
weeks everyday and could not miss any day for any reason. This is a perfect
example of a condition that must be met by him before his boss must perform the
act of giving him his bonus. He did not meet the condition, so there was not
contract. He did not get the 5,000 b/c he missed 2 days.
vi. Implied Conditions – can be of two kinds
1. Condition implied in fact- is the real agreement of the parties, this conditions are
treated like express conditions - this is a condition that we know the parties really
intended to be a part of the contract (look at the contextual evidence to determine
if one exists or not). Such as the notice that we know the parties intended to be
given in the Wal-noon Case. We know this b/c no one would have written the
contract without the notice, b/c it would not have made sense.
a. Wal-Noon Case: If notice of the damaged roof was found to be an implied
condition then the contract would not make sense. How could the
landlord inspect the roof to make sure no negligence existed on part of
tenant if he was not made aware of damage before the roof was repaired.
Therefore, he is not held to pay for the roof b/c the tenant did not meet the
condition of giving the landlord notice, which was a condition of the duty
of landlord to pay for the repairs. (notice was implied in fact condition)
2. Condition implied in Law/Constructive - is not on the K and is not necessarily
what the parties agreed on. The law will construe a condition, they are not very

22
strictly enforced - - this is a condition that the court will find was implied in the
contract b/c it will reach a favorable and just outcome. It reaches an appropraiate
decision by saying that the implied condition is one that reasonable parties would
have intended in a contract of this type.
vii. Warranties -
1. Implied warranties- to exclude or modify the implied warranty of merchantability
the language must mention merchantability by using specific language
2. Warranties v Disclaimers- if k gives both disclaimer and warranty, then the
disclaimer is invalid. This applies when the disclaimer is in writing or given
orally BUT if the disclaimer in is in the K and the warranty is oral the warranty
contradicts the K and the disclaimer stands b/c parol evidence bars the oral
warranty
b. Distinction between conditions and promises: If the act is a condition on the other party’s duty,
and the act fails to occur, the other party won’t have to perform. If the act is a promise, and it
doesn’t occur, the other party can sue for damages.
i. Distinguishing: To determine whether a particular act is a condition, a promise, or both,
the main factor is the intent of the parties. Words like “upon condition that” indicate an
intent that the act be a condition; words like “I promise” or “I warrant” indicates a
promise and failure to keep the promise will also generally constitute the failure of a
constructive condition.)
ii. The Court will treat condition as promises in order to avoid forfeiture where the default is
grossly out of proportion to the forfeiture b/c where a condition has failed, the promisor
has a defense and may be discharged from the contract without ANY obligation to
compensate the promisee for part-performance
iii. RULE- where two parties have freely fairly and voluntarily bargained for certain benefits
in exchange for undertaking certain obligations, it would be unfair to imply a different
result and to w/draw from one party benefits for which he has bargain and to which he is
entitled- the right to control over repairs as they see fit
c. Restatement § 227- Standards of Preference with regard to conditions - helps decide whether a
promise or a condition
i. In resolving doubts as to whether an event is made a condition of an obligor's duty, and
as to the nature of such an event, an interpretation is preferred that will reduce the
obligee's risk of forfeiture, unless the event is within the obligee's control or the
circumstances indicate that he has assumed the risk.
ii. Unless the contract is of a type under which only one party generally undertakes duties,
when it is doubtful whether
1. a duty is imposed on an obligee that an event occur, or
2. the event is made a condition of the obligor's duty, or
3. the event is made a condition of the obligor's duty, and a duty is imposed on the
obligee that the event can occur. The first interpretation is preferred if the event is
within the obligee's control.
iii. Notes
1. if the event is in the person's control then we can presume that it is a promise
2. a condition not met = no contract at all
3. a promise not met = other party can sue for breach, but usually does not relieve
them from their duty to perform if the other party performs their duty (they

23
performed, just not when the agreement said they would)
iv. Example:
1. A painter agrees to start painting your house on Monday. He does not start until
Tuesday. This is in his control so it is likely a promise. He still has a contract to
paint your house, but you can sue for the damages caused by his starting one day
late, which are likely to be none.
a. SO, IF EVENT IS IN PERSON'S CONTROL = USUALLY A PROMISE
b. BUT, IF EVENT IS NOT IN THEIR CONTROL = USUALLY A
CONDITION
d. Standards of performance with regard to conditions
i. In resolving doubts as to whether an event is made a condition of an obligor’s duty, and
as to the nature of such an event, an interpretation is preferred that will reduce the
obligee’s risk of forfeiture, unless the event is within the obligee’s control or the
circumstances indicate that he has assumed the risk
ii. Unless the contract is of a type under which only one party generally undertakes duties,
when it is doubtful whether
1. A duty is imposed on an obligee that an event occur or;
2. The event is made a condition of the obligor’s duty or;
3. The event is made a condition of the obligor’s duty and a duty is imposed on the
obligee that the event occurs.
e. The first interpretation is preferred if the event is within the obligee’s control
i. Summary- when a particular event is under the control of the obligor, the court tends to
interpret it to be a promise. However when the even is not in the control of either party
the court will interpret as a condition. In any even the court will seek and interpretation
that will not cause forfeiture
f. Hypo-If you mow the lawn by 5pm on Friday I’ll pay you.
i. If he does not finish mowing by 5pm and 5pm was a condition then no pay
ii. If it is a promise then he will get pay but the other can sue for damages for not being
finished

XIII. Excuse of Express Conditions


a. Reasons for Excusing a Condition
i. Reasons for Excusing Conditions:
1. an agreement by both parties modifying the contract to discharge the condition
2. conduct, by the party that is benefiting from the condition, that waives the
condition (Clark v West: he represented waiver of drinking condition)
3. changed circumstances that make compliance by the promisee with the condition
impracticable
4. condition can be discharged by the court
5. foreiture; see restatement § 84 & Aetna Casualty Insurance case
b. A party can excuse a condition in several different ways
i. Restatement § 229 – Excuse of Condition to Avoid forfeiture
1. To the extent that the non-occurrence of a condition would cause disproportionate
forfeiture, a court may excuse the non-occurrence of that condition unless its
occurrence was a material part of the agreed exchange.
a. The courts look at ways to waiver provision of K because the court deems

24
that the provision is too harsh. The court may excuse the non-occurrence
of that condition unless its occurrence was a material part of the agreed
exchange
ii. Estoppel waiver Whenever a party indicates that she is waiving a condition before it is
to happen, or some performance before it is to be rendered, and the person addressed
detrimentally relies upon such an indication, the courts will hold this to be an binding
(estoppel) waiver. Note that the promise to waive a condition may be retracted at any
time before the other party has changed his position to his determent.
iii. Election waiver- When a condition or a duty of performance is broken, the beneficiary of
the condition or duty has an election she may; (1) terminate her liability, or (2) continue
under the contract. If she chooses to continue she will be deemed to have waived the
condition or duty. This election waiver requires neither consideration nor estoppel.
iv. Implied waiver- A waiver evidenced by a party’s decisive, unequivocal conduct
reasonably inferring the intent to waive
v. Express waiver- a voluntary and intentional waives a known right
1. Anti waiver clause- clause in the K to prevent waiver’s but can still be waived if
the waiver happens very often, and party does not cancel the K then the he has
probably waived the right to cancel, b/c gave false sense of reliance
vi. If the court finds circumstances that makes compliance with the condition impractical
c. UCC § 2-313. Express Warranties by Affirmation, Promise, Description, Sample; Remedial
Promise.
i. (1) In this section, “immediate buyer” means a buyer that enters into a contract with the
seller.
ii. (2) Express warranties by the seller to the immediate buyer are created as follows:
1. (a) Any affirmation of fact or promise made by the seller which relates to the
goods and becomes part of the basis of the bargain creates an express warranty
that the goods shall conform to the affirmation or promise.
2. (b) Any description of the goods which is made part of the basis of the bargain
creates an express warranty that the goods shall conform to the description.
3. (c) Any sample or model that is made part of the basis of the bargain creates an
express warranty that the whole of the goods shall conform to the sample or
model.
iii. (3) It is not necessary to the creation of an express warranty that the seller use formal
words such as “warrant” or “guarantee” or that the seller have a specific intention to
make a warranty, but an affirmation merely of the value of the goods or a statement
purporting to be merely the seller's opinion or commendation of the goods does not create
a warranty.
iv. (4) Any remedial promise made by the seller to the immediate buyer creates an obligation
that the promise will be performed upon the happening of the specified event.
d. UCC § 2-314. Implied Warranty: Merchantability; Usage of Trade.
i. (1) Unless excluded or modified (Section 2- 316), a warranty that the goods shall be
merchantable is implied in a contract for their sale if the seller is a merchant with respect
to goods of that kind. Under this section the serving for value of food or drink to be
consumed either on the premises or elsewhere is a sale.
ii. (2) Goods to be merchantable must be at least such as:
1. (a) pass without objection in the trade under the contract description;

25
2. (b) in the case of fungible goods, are of fair average quality within the
description;
3. (c) are fit for the ordinary purposes for which goods of that description are used;
4. (d) run, within the variations permitted by the agreement, of even kind, quality
and quantity within each unit and among all units involved;
5. (e) are adequately contained, packaged, and labeled as the agreement may require;
and
6. (f) conform to the promise or affirmations of fact made on the container or label if
any.
iii. (3) Unless excluded or modified (Section 2- 316) other implied warranties may arise
from course of dealing or usage of trade.
e. UCC § 2-104. Definitions: "Merchant”. (UCC 2-314 Only Applies to Merchants)
i. (1) "Merchant" means a person who deals in goods of the kind or otherwise by his
occupation holds himself out as having knowledge or skill peculiar to the practices or
goods involved in the transaction or to whom such knowledge or skill may be attributed
by his employment of an agent or broker or other intermediary who by his occupation
holds himself out as having such knowledge or skill.
f. UCC § 2-315. Implied Warranty: Fitness for Particular Purpose.
i. Where the seller at the time of contracting has reason to know any particular purpose for
which the goods are required and that the buyer is relying on the seller's skill or judgment
to select or furnish suitable goods, there is unless excluded or modified under the next
section an implied warranty that the goods shall be fit for such purpose.
g. UCC § 2-316. Exclusion or Modification of Warranties.
i. (1) Words or conduct relevant to the creation of an express warranty and words or
conduct tending to negate or limit warranty shall be construed wherever reasonable as
consistent with each other; but subject to Section 2- 202, negation or limitation is
inoperative to the extent that such construction is unreasonable.
ii. (2) Subject to subsection (3), to exclude or modify the implied warranty of
merchantability or any part of it in a consumer contract the language must be in a record,
be conspicuous, and state “The seller undertakes no responsibility for the quality of the
goods except as otherwise provided in this contract,” and in any other contract the
language must mention merchantability and in case of a record must be conspicuous.
Subject to subsection (3), to exclude or modify the implied warranty of fitness, the
exclusion must be in a record and be conspicuous. Language to exclude all implied
warranties of fitness in a consumer contract must state “The seller assumes no
responsibility that the goods will be fit for any particular purpose for which you may be
buying these goods, except as otherwise provided in the contract,” and in any other
contract the language is sufficient if it states, for example, that “There are no warranties
that extend beyond the description on the face hereof.” Language that satisfies the
requirements of this subsection for the exclusion or modification of a warranty in a
consumer contract also satisfies the requirements for any other contract.
iii. (3) Notwithstanding subsection (2):
1. (a) unless the circumstances indicate otherwise, all implied warranties are
excluded by expressions like “as is”, “with all faults” or other language that in
common understanding calls the buyer's attention to the exclusion of warranties,
makes plain that there is no implied warranty, and, in a consumer contract

26
evidenced by a record, is set forth conspicuously in the record;
2. (b) if the buyer before entering into the contract has examined the goods or the
sample or model as fully as desired or has refused to examine the goods after a
demand by the seller there is no implied warranty with regard to defects that an
examination in the circumstances should have revealed to the buyer; and
3. (c) an implied warranty may also be excluded or modified by course of dealing or
course of performance or usage of trade.
iv. (4) Remedies for breach of warranty may be limited in accordance with Sections 2- 718
and 2- 719.
h. Waivers – a relinquishment of a known right by one of the parties. Waiver – unilateral – happens
when one party waives a condition of the contract – you don’t have to perform that’s ok im not
gonna sue you, even if its material you can waive it. Differs from a modification – bilateral, both
parties agree to a change in the contract – doesn’t need consideration
i. Restatement § 84(1) - a waiver is enforceable if it is given in exchange for separate
consideration; It is enforceable without consideration if:
1. the waived condition was not a material part of the agreed exchange &
2. uncertainty of the occurrence of the condition was not an element of the risk
assumed by the party who gave the waiver
3. because there is not consideration for waivers they can be receded until the other
party relies on the waiver to their detriment then, the party making the waiver will
be estopped from rescission of the waiver.
4. No waiver clauses can be waived
ii. Clark v. West
1. Write books for $2 and will pay $6 if abstained from drinking during k
2. RULE- A waiver is a voluntary relinquishment of a known right. A party can
waive a non-material part of a K any time during the executory portion of the K
w/out consideration, if the part waived is a material part of the K there must be
consideration and that is really a modification.
a. A waiver given w/o consideration can be can reestablish as long as he
gives fair notice to the other party
b. Equitable Estoppel- in this case party waive condition and refuses to pay
party is bound to waiver b/c of reliance
c. Continuation of performance: If a promisor continues his own
performance after learning that a condition of duty has failed to occur, his
conduct is likely to be found to operate as a waiver of the condition
i. Disproportionate Forfeiture
i. Aetna Casualty Insurance Case (murphy & chubb)
1. this case gave us a situation in which murphy did not give his insurance company
adequate notice (this was the condition that he failed to meet). He would have
suffered great loss by not being able to get his claim and this was considered
disproportionate forfeiture. So, the court asks the question of whether or not the
notice requirement was a "material part of the agreed exchange". It was not
found to be a "material part", so murphy had a chance to show that his failing to
meet the condition did not prejudice the insurance company. If he could prove
this then he would get his claim and not suffer the disproportionate forfeiture; he
does not meet his burden of proof though.

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2. Π failed to timely notify issuance co. of a claim
a. RULE- Under appropriate circumstances a party, despite his owns default
may be entitled to relief from the rigorous enforcement of K provisions
that would otherwise deny him recovery. But for this rule to apply the
moving party must prove: 1) unfairness if performance of the condition is
executed 2) that the condition is not material so that it would not prejudice
the other party
b. Disproportionate forfeiture- forfeiture is the denial of compensation, it is
kind of the unconsionability concept but it focuses on the performance of
the K as being unfair v the written k as is, the court also looks at the
importance of the condition
c. Considerations-
i. Contract of adhesion- one party had little choice as to the
terms of the K- there was no bargaining process
ii. Π will lose insurance money even though he pays his premiums
iii. there was no prejudice to the insurance co. b/c of the late notice
d. Notice is a condition, it is not a material part of the K

XIV. Constructive conditions -A constructive condition is a condition which is not agreed upon by the
parties, but which is supplied by the court for fairness. The principal use of constructive conditions is
in bilateral contracts. Constructive conditions are normally satisfied by substantial performance
while express conditions must be fully performed
a. Material Breaches
i. Restatement § 229
ii. Restatement § 234
1. whenever performances may be rendered simultaneously they re to be performed
simultaneously unless the language or the circumstances indicate otherwise
2. except as to number (1) where the performance of only one party requires a period
of time his performance is due at an earlier time than that of the other party unless
the language or circumstances indicate otherwise- so usually performance is due
b/f pay, performance must be fully or substantially completed but there are some
exemptions
a. if the K is divisible
b. if the parties have agreed upon installment payments
c. trade usage is to the contrary
3. REMEMBER: Substantial performance is not perfect performance though; that is
why the party must pay the performer for the substantial performance and then
sue them for any damages caused by the breach of contract. So, the worker gets $
for the substantial performance, minus any amount assessed for damages caused
to the other party. (ie wrong plumbing pipe)
a. RULE: Damages are measured by the difference in what you were
supposed to get and what you actually got. (difference in value)
b. Example: Jacob &Young v Kent case: (wrong plumbing pipe)
i. Good pipe worth = $5,000 (pipe you wanted)
ii. Bad pipe worth = $4,000 (pipe you got)
iii. Damages worth = $1,000 (you get bad pipe + $1,000)

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iii. Restatement § 237 - Effect on other party's duties of a failure to render performance
1. Except as stated in section 240, it is a condition of each party's remaining duties
to render performances to be exchanged under an exchange of promises that there
be no uncured material failure by the other party to render any such performance
due at an earlier time.
a. This basically means that if one party does not render his performance
then the other party is discharged of his duties, at least temporarily. (so in
the note case above, this is why the other party was able to quit paying for
the land, b/c the other party did not make the agreed upon improvements.)
2. Goodison v Nunn
a. this was the case where the parties contract for the buy/sell of land and
there was a 21lb. Penalty for backing out. One party backed out and the
court said that since the other party did not tender the performance to the
non-tendering party he could not bring suit. (must at least tender
performance to bring a suit for breach of contract against other party)
iv. Restatement § 240. Part Performances As Agreed Equivalents - If the performances to be
exchanged under an exchange of promises can be apportioned into corresponding pairs of
part performances so that the parts of each pair are properly regarded as agreed
equivalents, a party's performance of his part of such a pair has the same effect on the
other's duties to render performance of the agreed equivalent as it would have if only that
pair of performances had been promised.
v. Restatement § 241. Circumstances Significant In Determining Whether A Failure Is
Material
1. In determining whether a failure to render or to offer performance is material, the
following circumstances are significant:
a. The extent to which the injured party will be deprived of the benefit which
he reasonably expected;
b. The extent to which the injured party can be adequately compensated for
the part of that benefit of which he will be deprived;
c. The extent to which the party failing to perform or to offer to perform will
suffer forfeiture;
d. The likelihood that the party failing to perform or to offer to perform will
cure his failure, taking account of all the circumstances including any
reasonable assurances;
e. The extent to which the behavior of the party failing to perform or to offer
to perform comports with standards of good faith and fair dealing.
vi. Palmer v Fox
1. Δ Bought property Π promise to put gravel on the street Π did not, Δ refused to
pay the rest of the payments.
a. Where the acts or promises of the parties are concurrent and to be done or
performed at the same time the K is dependent and neither party can
maintained an action against the other without providing performance on
his part
b. When there is a K that requires mutual concurrent conditional
performance and one of them has breached a material part of then the

29
condition is not met and the other may get out of the k and sue for total
breach
c. A delay in performance is not a total breached unless time was of the
essence
b. Substantial Performance
i. TEST- Ask Whether the K purpose has essentially been fulfilled
ii. Substantial performance does not apply to the sale of goods, the UCC uses the perfect
tender rule
iii. Jacob v Kent
1. Π Promise to build a house with pipes of a certain kind, Π did not use the special
pipe, Δ realized and he refused to pay. In the K there was a express condition that
said that if Π did not get the certificate from the architect then no money.
a. The requirement of using reading pipes is not a condition, but a promise
b/c the payment was not conditioned on the using the reading pipes, the
only condition was that the house be build
2. RULE- if a party has completed substantial performance on his promise but has
committed a minor omission due to inadvertence he should be able to recover the
money due to him less the amount necessary to fully compensate the other party
for the damages caused by the omission
3. How do we determine if the work is substantial?
a. look at the k in comparison to the breach- hired to pay one room or to pain
building
b. the party must performed but just a small mistake
4. Since the Π breach his promises by not putting reading pipes, then he has to pay
damages either by paying the cost of replacement OR the difference in values
b/en the 2 pipes, normally the courts go with the difference in value b/c the other
option is economically disproportionate where there is no gain from replacing.
c. Substantial Performance and Material Breach
i. OW Grun Roofing v Cope
1. Δ Promise to install a roof, he did but the roof was not uniform in color. The
court said that there is a material breached, because the way the house looks is
very important, so the Π did not recover, and had to pay the house owner extra
money so that she could replace her ugly roof.
2. RULE- if the party has breached a material part of the K then they have not
substantially perform, if the part that was breached was immaterial and the rest of
the performance is complete then the other party has substantially performed and
he may recover
3. Substantial performance- the contractor must have in good faith intended to
comply with the K and should have substantially done so , in the sense that the
defects are not pervasive nor do they constitute a deviation from the general plan
contemplated and that the K and its purpose can not without difficulty be
accomplish by remedying them-basically not material
4. Doctrine of Substantial Performance- A promissory who has substantially
performed is entitle to recover although he has failed in some particular way to
comply with his agreement
5. Restitution argument- the Δ did not receive a benefit, because she is going to have

30
to get a new roof
6. There are some factors that helps decide whether a parties performance amounts
to substantial performance, they are:
a. What purpose does the performance serves
b. The excuse for deviating from the K
c. The cruelty of enforcing strict adherence or compelling the promisee to
receive less than what he bargained for
d. The difference b/en the tendered performance and the performance of the
promisee
e. Restatement § 241(e)-whether the party performed in good faith and in
accordance with fair dealings
d. Material Breach and Substantial Performance UCC
i. UCC 2-601: Buyer's Rights on Improper Delivery: subject to the provisions of this
article on breach in installment contracts (2-612) and unless otherwise agreed under the
sections on contractual limitations of remedy (2-718,719), if the goods or the tender of
delivery fail in any respect to conform to the contract, the buyer may
1. reject the whole, or
2. accept the whole, or
3. accept any commercial unit or units and reject the rest.
ii. Problem p 685- valve tester that needs to be 95% accurate, machine not good only 93% is
this substantial performance?
iii. This is controlled by the UCC- sale of goods
1. Perfect tendered rule §2-601- if the product does not conform to the K and it is
not a perfect tendered then you may reject the product or keep it but the other has
the choice.
2. The difference between goods and performance is that the other party can keep
the good and can sell to others, but you cant take back a performance
3. The good must not be perfect, it must only adhere to what you agreed to sell other
wise the buyer has the right to reject
4. Commercial unit- does not mean parts, it must be the whole unit- oven example
5. the seller generally has the right to “cure” the defect
e. Divisibility and Restitution - If a contract is severable, the doctrine of substantial performance
can be applied to a portion of it. A contract is only divisible if it is expressly made so (ie
stipulating a payment for each separate installment to be performed) or if a reasonable
interpretation indicates that a failure to perform one installment would not constitute a failure of
the basic consideration bargained for.
i. Definition of Divisibility
1. A K is divisible where by its terms
a. performance of each party is divided into two or more parts
b. the number of parts due from each party is the same- consideration for
each part
c. and the intent of the parties on whether they intended the k to be divisible-
kitchen remodeling, a lot of things for remodeling but you only wanted
one job
2. Compare the following two examples:
a. contract to build 50 houses @ $100,000 for each house built; builder only

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builds 35 houses and then stops work = this is divisible and he will likely
be paid for the 35 houses
b. contract to build 50 houses for a total of $5,000,000. Worker builds 35
and then stops work. Divisible? Probably not due to the fact that the
building of each house may not be worth the same amount, and therefore,
the contract is not as easily divisible. (look at the intent of the parties)
ii. Definition of Restitution
1. a Π who has committed a material breach and has not substantially performed can
still recover the reasonable value of the work he has done up to the breach , b/c
the Δ has received a benefit
a. (benefit) – (damages caused by the breached) = RESTITUTION
b. the party in breach is never allowed to recover more than the K’s price and
he will always get pay the lowest amount possible
c. if the person seeking restitution has breach a fiduciary duty- doctors,
lawyers…etc. then they have breach their right to fees
iii. Rule
1. Whether a k is divisible depends on the intent of the parties, and the intent can be
inferred by the ease with which the agreed consideration can be apportioned to
separate performances
a. Restatement §240- if the performance can be exchanged can be
apportioning into corresponding pairs so that the part of each pair are
properly regarded as agreed equivalents, a parties performance of his part
has the same effect on the other party to performed as it would have if
only that pair of performance had been promised
b. UCC § 2-307- Unless otherwise agreed all sale of goods must be tendered
in a single delivery and payment is due only on the goods tendered but
where the circumstances gives one party the right to make or demand
delivery in lots, the prize if it can be apportioned may be demanded for
each lot
2. If the K is entire- meaning not divisible then the party who breached the k is not
entitled to recovery unless he has substantially performed
3. The court will not find a K divisible if it would be unfair to the non breaching
party
4. Under both theories of restitution and divisibility the Πs award is always reduced
by the damages caused to the non-breaching party
iv. Lowy
1. This was a divisible K that had to parts 1)grade, 2) was to make improvement to
the streets, BUT in general construction K are not divisible
v. Britton
1. RULE: employment k are normally divisible
2. RULE: when a party has not substantially performed and has materially breach a
k he may still recover even if the k is not divisible as long as the other party has
received a benefit – the court tries to prevent unjust enrichment and allows him t
recover for the benefit he conferred
3. A hired laborer is entitled to compensation for his services though he does not
continued to work for the entire duration of the K, b/c the other party is

32
continuously receiving a benefit and the worker is working under the expectation
that he will get pay, the contractor cannot refuse to receive what he has already
received
vi. Problem p. 700: A was to build a pool for B for 15,000. A intentionally built used an
inferior product in the construction of the pool so he would make more money. The pool
he built was worth 10,000. This was considered a material breach, so no substantial
performance doctrine applies here. How do we compensate builder under a restitution
theory?
1. Some courts say nothing b/c he breached in bad faith, others say yes. The court
applies to different theories
a. The reasonable value to the other party of what he receive in terms of what
it would have cost him to replicate the benefit from another person
b. The extend to which the other party’s property has been increased in value
or his other interest advanced
c. The Π will recover the lowest amount because they have breached
2. Others would compensate as follows:
a. cost to obtain the pool he got from another builder = 10,000
b. increase in value to his property due to adding the pool = 5,000

XV. Impracticability
a. Existing Impracticability
i. This doctrine as well as frustration of purpose excuses performance but does not excuses
a condition, unless the conditions are really minor or just technical
ii. Restatement § 266 – Existing Impracticability or Frustration
1. where at the time a K is made, a parties performance under it is impracticable w/o
his fault b/c of the fact of which he had no reason to know and the none existence
of which is a basic assumption on which the K is made no duty to render that
performance arises unless the language or circumstances indicate to the contrary-
assumption of the risk.
iii. UCC 2-615- Applies to both impracticalities and frustration- excuse for the seller
1. (a)Delay in delivery or non delivery in whole or in part by a seller who complies
with paragraphs b and c is not a breach of his duty if performance as agreed has
been made impracticable by the occurrence of the contingency the non occurrence
of which was an assumption on which the K was made
2. (b) The buyer then has an option to receive the goods or not but they have no
claim
3. (c) Where the caused mentioned in paragraph a affects only a part of the seller’
capacity to perform he must allocate production and delivery among his
customers but may at his option include regular customers not then under k as
well as his own requirements by further manufacture. He may also allocate in any
manner which is fair and reasonable
iv. Elements of existing impracticability
1. at time K is made performance is impracticable
2. without the fault of the party seeking to be excused
3. not foreseeable by the party seeking to be excuse
4. event is the basic assumption of K

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5. UNLESS the party assumed the risk
v. Mineral v Howard
1. A thing is impossible in legal contemplation when it is impractical and a thing is
impractical when it can only be done at an excessive and unreasonable cost
2. Where performance depends upon the existence of a given thing and such
existence was assumed as the basis of the agreement performance is excuse to the
extend that the thing ceases to exist or turns out to be non-existence. – cows being
pasture
3. Normally increase in cost in performance is NOT an impracticable event
UNLESS the cost was considerable increased due to the necessity of performing
in a manner radically different from what was originally contemplated
vi. Wegematic - Assumption of the Risk
1. The Δ try to used the UCC, to excuse non delivery b/c of impossibility to deliver
but the court said that when a party assumes a risk that they may not be able to
perform, then they should be subject to the penalties
2. Follows restatement- (1) a party has no duty to render a performance, which was
impracticable at the time of contracting, (2) if the parties did not know at the time
that it was impracticable (3) Unless there was an assumption of the risk
b. Supervening Impracticability (after the parties have entered into the K)
i. Restatement § 261 Discharge by Supervening Impracticability– where, after the contract
is made, a party’s performance is made impracticable without his fault by the occurrence
of an event the non-occurrence of which was a basic assumption on which the contract
was made, his duty to render that performance is discharged, unless the language of the
circumstances indicate contrary.
1. Must Meet all 5 Requirements
a. Where after a K is made:
i. a parties performance is made impracticable- the performance must
be that exactly what is specified in the K, and it must be absolutely
impossible to perform, if no source specific then seller can go to
another source
ii. W/o the Δs fault
iii. by the occurrence of an event
iv. the non occurrence of which was a basic assumption on which the
k was made-this goes to “foreseeability, which party should have
foreseen the event and thus protect himself against it
v. UNLESS the language or the circumstances indicate to the
contrary.- Assumption of the risk
ii. Restatement § 262 Death or Incapacity of Person Necessary for Performance- if the
existence of a particular person is necessary for the performance of a duty his death or
such incapacity as makes performance impractical, is an event the non occurrence of
which was a basic assumption on which the K was made.
1. Is the person necessary for the duty?
2. The services involved must be personal. The best test for whether services are
“personal” is whether they could be validly delegated to a third person.
iii. Restatement § 263 Destruction Deterioration or Failure to come into existence of a thing
necessary for Performance- if the existence of an specific thing is necessary for the

34
performance of a duty, its failure to come into existence, destruction or deterioration that
makes performance impracticable will discharge performance
iv. UCC 2-613-
1. Applies only when the goods are identifiable when the K is made, the seller has
suffered a casualty w/o fault then he is excuse from performance. Whether the
risk has pass is a factor- meaning who has possession and control of the goods id
buyer then the risk has passed. The seller is excuse and free of liability the buyer
then has the choice to either walk away from the K or stick to the K and he may
then receive a reduce price caused by the casualty
v. UCC—Two possibilities
1. K does not identified source- it does not said where he is going to get the goods
from, then we will examine how difficult it is to get them, but in general the court
will not find impracticability b/c can get the goods from any where
2. if you have a specific source named in the K- then if impracticable to get from
them you do not have to go find other sellers
vi. Restatement § 269-Temporary Impossibility or Frustration - Impossibility, that is
temporary merely,
1. Suspends (rather than discharges) the promisor’ s duty while the impossibility
continues.
2. After the impossibility ceases, the duty reattaches, UNLESS
3. It appears that performance thereafter would be materially more burdensome had
there been no impracticability or frustration.
vii. Taylor v Caldwell - music hall burns down
1. If there is a reasonable alternative performance is then not impractical, if the Δ
had another hall then he should provide Π with it but it depends on the intent of
the parties and whether the K called for a specific thing then Δ need not provide
another
viii. Canadian Alcohol v Dumbar Molasses
1. A party may not by its own conduct create the event causing the impracticability
of performance, in fact he must make all reasonable efforts to avoid the
impossibility and once the even occurs he must employ all possible efforts to
fulfill the K even if it had originally been expected to meet it obligation in a
particular way
2. The Δ must show that there were circumstances outside of their control that did
not allowed them to perform. Δ must show that he intended to comply but was
unable
c. Impracticability v. Mistake: Impracticability under Restatement 266 sounds like Mistake under
Restatement 152. The difference is that mistake allows a party to void the contract (get a
recession of the entire contract) and impracticability excuses the party’s performance.
d. Impracticability v. Impossibility: You may often here the doctrine of impracticability referred to
as impossibility. The doctrine of impracticability is more modern and includes everything that
will be covered under impossibility but also extends to include things beyond those that are
impossible.

XVI. Frustration of Purpose


a. Definition

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i. Frustration- applied where the bargained for performance is still possible but the purpose
or value of the K has been totally destroy by some superseding event, such frustration
will discharge the K. BUT normally where the seller’s cost has increased that will not be
enough to frustrate the K.
ii. UCC does not provide an specific code for frustration, it is with impracticability under §
615, and it always protect the seller. Buyers are said to always assume a risk when they
order goods so, there is really no frustration of purpose for buyers.
iii. The ability to perform is there, but there is no present consideration and the K has been
frustrated, he cant get what he bargain for
1. Subjective- I can not do it
2. Objective- It can be done- that is the only time frustration applies
b. Elements
i. Restatement § 265 – Discharge by Supervening Frustration - where a party is made a
party’s principal purpose is substantially frustrated w/o his fault by the occurrence of an
event the non-occurrence of which was a basic assumption on which the K was made, his
reminded duties to render performance are discharged unless the circumstances indicate
the contrary
1. After the K was made,
2. Occurrence some superseding act or event occurred, the non-occurrence of which
was a basic assumption of the contract
3. The purpose of the contract is substantially frustrated due to this event
4. The party seeking relief was not at fault in causing the event to occur
5. The party seeking relief must not have born the risk of the event occurring. (By
language of contract or circumstances)
c. Paradine v. Jane
i. Old Rule- there is an absolute duty to pay rent regardless of allege frustrating events
ii. Modern- now lessees may be discharged but they are hardly ever granted
1. To say I don’t have the money is not an excuse b/c you have assume he risk that
you may not have money
2. Leases are seen as contractual obligation and one is not very likely to be excuse
d. Krell v Farms
i. Follows Restatement § 265- to find frustration of purpose must ask three questions
1. Was the event or situation the foundation of the contract?
a. Yes, the room was rented b/c of its position. Cab ride to the Derby race is
different b/c the cab had no special qualification that led to its selection
and that was not the foundation of the K
2. Was the purpose of the K frustrated?
a. Yes coronation was canceled
3. Was the event so severe that cannot reasonably have said to be in the
contemplation of the parties at the time of entering into the contract?
a. Yes, the parties had no reason to believe that the coronation will get
canceled
e. Goschie Farms Inc.
i. Comment (a) R2K §265- frustration deals with the problem that arises when a change in
circumstances makes ones parties’ performance virtually worthless to the other.
ii. Commentary states that the frustration must be substantial and that it is not enough that

36
the transaction has become less profitable for the affected party or that he will sustain a
lost. BUT where the value of the performance is totally or nearly totally destroy by
superseding events the court may find frustration if other circumstances beside the money
exist- in this case there was no reason to purchase the goods any more b/c they were
outdated so useless
iii. The frustration must be severe that it is not fair to be regarded as w/in the risk parties
assumed under the contract.
iv. Foreseeability of the event is a factor in determining if a party should be excused, but the
mere fact that even was foreseeable does NOT compel the conclusion of frustration.
f. Lloyd
i. There must be substantial frustration – purpose frustrated and loss of total commercial
value
ii. The court held in this case that the land though it could not be used for what it was rented
it could still be used and taken advantage of. Some courts do this but it is not the norm
g. Designer Case
i. She is going to design for model to wear to the Grammies awards, she has appendicitis
and can go to the awards, the buyer has assumed a risk, and we do not penalize the seller
1. Question: If a party has partially performed, and then the contract purpose has
been found to have been frustrated, how do we compensate the party for their part
performance?
2. Answer: There are 2 possible ways to compensate the party for the performance:
a. if the contract is divisible, use Doctrine of Divisibility
b. if not, use restitution to compensate the party

XVII. Anticipatory Repudiation


a. Repudiation
i. Definitions
1. Restatement § 250 - When a Statement or an Act is a Repudiation
a. A repudiation is:
i. statement to the obligor to the obligee indicating that the obligor
will commit a breach that would of itself give the obligee a claim
for damages for total breach under Restatement § 243 OR
ii. a voluntary affirmative act which makes performance impossible
or apparently impossible
b. Essentially a statement that the party will not perform (may not perform is
not good enough)
2. Restatement § 251 - when a failure to give assurance may be treated as
repudiation
a. Where reasonable grounds arise to believe that the obligor will commit a
breach that would in itself give the obligee a claim for damages for total
breach. The obligee may demand adequate assurance of due performance
and may if reasonable suspend any performance for which he has not
already receive the agreed exchange until he receives such assurance.
b. The obligee may treat as a repudiation the obligors failure to provide w/in
a reasonable time such assurance of due performance as it is adequate
under the circumstances

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i. NOTE-under common law can demand assurance orally and no
time limitations for reply

3. Breach of Contract - is the legal conclusion that a party has failed to perform,
without justification or excuse that which she was under an absolute duty to
perform
4. Efficient breach - every one wins, the person breaches and pays damages for the
breach, but it must be efficient, person who breach must make more money
5. Rule - the repudiation must occurred before performance is due under the K; They
may be express or implied
a. Express- is a clear, positive, unequivocal, refusal to perform
b. Implied- results from conduct where the promissor puts it out of his power
to perform so as to make substantial performance of his promise
impossible
ii. Effect of repudiation
1. If a party repudiates or appears unwilling or unable to perform, the other party
may possibly
a. continue performance;
b. suspend or withhold performance;
c. change position or cancel the contract.
2. After Repudiation, Plaintiff has three options of what he can do:
a. wait it out and try to convince the breaching party to perform at the due
date, and see what the breacher does(remember: the breaching party can
retract his repudiation during this time), or
b. cancel the contract and bring suit for breach of contract against the party
that gave the repudiation; once cancelled, the breaching party cannot
retract the repudiation.
c. act in reliance on the repudiation, which is basically an acceptance of the
repudiation, making it impossible for the breacher to retract the
repudiation. (breacher cannot retract)
i. If takes another job or something of this nature, his taking the job
will be reliance on the repudiation and this will be his acceptance
of the repudiation; but, the damages awarded to him will be
mitigated due to his taking another job. (b/c he will be
compensated at new job)
b. UCC and repudiation
i. UCC 2-610- Anticipatory Repudiation
1. When either party repudiates the K w/ respect to a performance not yet due the
loss of which will substantially impair the value of the K to the other, the injured
party may
a. for a commercially reasonable time await performance by the repudiating
party OR
b. revert for any remedy for breach even though he has notified the
repudiating party that he would await performance and has urged
retraction AND
c. in either case suspend his own performance or proceed

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ii. UCC 2-609- Right to Adequate Assurance of Performance
1. A contract for sale creates an obligation of each party to maintain the other party's
expectations of due performance.
2. A party will be excused from performing any contractual obligation if:
a. the party had reasonable grounds for insecurity as to whether the other
party will perform according to the contract, AND
b. the party sends a written notice to the other party demanding adequate
assurance of due performance, AND
c. the other party did not yet respond to the demand, AND
d. it is commercially reasonable to suspend such performance, AND
e. the party did not receive payment (or other return) for the obligations it
plans to suspend.
3. Standards: reasonable grounds for insecurity and the adequacy of assurance will
both be determined by commercial standards.
4. Installments: an aggrieved party is not precluded from demanding adequate
assurance of future performance even if he has already accepted an improper
delivery or payment of earlier obligations.
5. Time before Repudiation is assumed: A party who fails to provide adequate
assurance under the circumstances of the contract (demand must be justified)
within a reasonable time (NEVER MORE THAN 30 DAYS) will have repudiated
the contract.
iii. UCC 2-711- Buyers Remedies in General
1. Where the seller fails to make delivery or repudiates or the buyer rightfully rejects
or revokes acceptance the buyer may cancel the K
c. Retraction of Repudiation
i. A repudiation may be retracted and a prospective unwilling or inability to perform can be
cured unless the injured party:
1. Has canceled the K
2. Has materially change position or
3. otherwise indicate the K is canceled- by getting another job
4. the K has reached performance time
5. UCC 2-611- follows the rule above and adds that the retraction reinstates the
repudiating party’s rights under the K with due excuse and allowance to the
aggrieved party of any delay occasioned by the repudiation
ii. UCC 2-611: Retraction of Anticipatory Repudiation
1. Time for Retraction: repudiating party can retract if,
a. his next performance is not yet due, AND
b. the aggrieved party has not:
i. cancelled the contract, or
ii. materially changed its position, or
iii. otherwise indicated that it considers the repudiation final.
2. Request for Retraction: a valid retraction of a repudiation must,
a. clearly indicate to the aggrieved party that the repudiating party intends to
perform, AND
b. include any adequate assurance justifiably demanded (2-609)
3. Effect of Retraction:

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a. the repudiating party's rights under the contract are reinstated, and
b. the aggrieved party is excused for any delay due to the repudiation.
iii. Restatement § 256: Nullification of Repudiation or Basis for Repudiation
1. the effect of a statement as constituting a repudiation under § 250 or the basis for
a repudiation is nullified by a retraction of the statement if notification of
retraction comes to the attention of the injured party before he materially changes
his position in reliance of the repudiation or indicates to the other party that he
considers the repudiation to be final.
2. The effect of events other than a statement (ie. Voluntary, affirmative act) that
constitutes a repudiation under § 250 or the basis for a repudiation under §251 is
nullified if, to the knowledge of the injured party, those events ceased to exist
before he materially changed his position in reliance on the repudiation or
indicates to the other party that he considers the repudiation to be final.
d. Effects of Apparent Insolvency
i. Restatement § 252- Effects of Insolvency
1. where the obligors insolvency gives the obligee reasonable grounds to believe that
the obligor will commit a breach the obligee may suspend any performance form
which he has not received the agreed exchanged until he receives assurance in the
form of performance itself and offer of performance or adequate security
2. a person is insolvent who either has ceased to pay his debt as they become due or
is bankrupt
ii. Restatement § 254- Effect on Subsequent Events on duty to pay Damages
1. a parties duty to pay damages for total breach for repudiation is discharged if it
appears after the breach that there would have been a total failure by the injured
party t perform his return promise
2. if the duty that he repudiated has been discharged by impracticability or
frustration before any breach by non-performance
a. this applies to the UCC as well
iii. UCC 2-702 - Sellers Remedy on Discovery of Buyer’s Insolvency
1. When the seller discovers the buyer’s insolvency he may refuse delivery except
for cash only. The seller may reclaim goods already delivered on credit within 10
days after receipt.
iv. De La Tour
1. If a party deliberately enter into a k to do an act in the future day and he
wrongfully renounces the other party need not wait till the day of performance
arrives before seeking remedy that renunciation may be treated as a breach of the
K
2. The court does not require the party to wait till the other party had a duty to
perform the court says that repudiations are treated like a breach b/c 1) there is a
K relationship that has been broken 2) Π’s dilemma- should he wait or should he
try to get another K
v. Taylor
1. If the injured party does not cancel the K but disregards the repudiation and treats
the k as still in force and the repudiation is retreated prior to the time of
performance then the repudiation is nullified and the injured party is left with his
remedies, if any invocable at the time of performance

40
vi. McDonald’s Corp.
1. Before the buyer ask for assurance of performance he must have reasonable
grounds for insecurities that the other party is not going to be able to performed as
bargained
2. UCC written demand- the code is to be liberally construe and a court may waived
the requirement if both parties had a clear understanding that a party is
suspending performance until adequate assurance of due performance is received
vii. Plotnick - Installments K
1. UCC 2-612- Breach of Installment K
a. An installment K is one which requires the delivery of goods in separate
lots to be separately accepted
b. the buyer may refuse any installment which is non conforming, if that non
conformity substantially impairs (so no perfect tender rule) the value of
that installment AND the installment can not be cure- if the other party
makes an offer to cure then the buyer must accept the installment
c. if the non-conformity or default impairs the value of the whole K there is a
breach of K, but if the injured party accepts a non performing installment
w/o timely notification of cancellation or if he brings an action regarding
ONLY past installments the injure party is said to have reinstated the K
(waived his right)
2. The buyer refuses or neglects to pay for one or more installments it depends on
the circumstances of each case whether the breach of K is so material that it
would be justifiable for the injured party to cancel the K or whether the injure
party only has a claim for damages
3. Circumstances to consider for the SELLER to find a breach of the whole K
a. is it impossible or unreasonably burdensome from a financial point of
view to make the seller supply the future installments
b. the fact that the buyer did not pay creates a reasonable apprehension on
the sellers mind that the buyer will not pay for the future installments
either- if you are insecure then ask for assurance
4. if whole K is not impaired (from the point view of the buyer just being insecure
that the rest of the shipments will also be bad is not a substantial impaired the
value of the whole K) the party may request adequate assurance under § 2-609
and if not satisfy then cancel
a. to determine if breach to the BUYER is substantial to impaired the whole
K- look at the size of the breach, look at whether the shipments are
interrelated – brick wall
b. Person sues for breach on a K for a non-material there was also a material
but he did not raised till later, has he waived? If depends whether the Δ
could had cure if had known

XVIII. Remedies – Basics


a. Restatement § 344 – Purpose of Remedies
i. Judicial remedies under the rules stated in this Restatement serve to protect one or more

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of the following interests of a promisee:
1. (a) his "expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the
contract been performed,
2. (b) his "reliance interest," which is his interest in being reimbursed for loss caused
by reliance on the contract by being put in as good a position as he would have
been in had the contract not been made, or
3. (c) his "restitution interest," which is his interest in having restored to him any
benefit that he has conferred on the other party.
b. Restatement § 345 - Judicial Remedies Available
i. The judicial remedies available for the protection of the interests stated in §344 include a
judgment or order
1. (a) awarding a sum of money due under the contract or as damages,
2. (b) requiring specific performance of a contract or enjoining its non-performance,
3. (c) requiring restoration of a specific thing to prevent unjust enrichment,
4. (d) awarding a sum of money to prevent unjust enrichment,
5. (e) declaring the rights of the parties, and
6. (f) enforcing an arbitration award.
c. Restatement § 346 – Availability of Damages
i. The injured party has a right to damages for any breach by a party against who the
contract is enforceable unless the claim for damages has been suspended or discharged
ii. If the breach caused no loss or if the amount of the loss is not proved under the rules
stated in the chapter, a small sum fixed without regard to the amount of loss will be
awarded as nominal damages.
d. Common Law – restatement
i. K damages usually have limitations an a party hardly ever gets all its true damages paid
ii. Usually there are not attorney fees

XIX. Remedies – Compensatory Damages Illustrations


a. Restatement 352 – Uncertainty as a Limitation on Damages
i. Damages are not recoverable for loss beyond an amound that the evidence permits to be
established with reasonable certainty.
b. Restatement § 347- Measure of Damages in General
i. Expectation damages are measured by
1. (a) the lost in valued or expectations caused by the other party breach PLUS
2. (b) any other lost, including incidental or consequential loss (foreseeable, certain,
calculable) caused by the breach LESS
3. (c) any cost that he has avoided b/c of the breach
ii. Expectation Damages = (LOST VALUE(K price) + OTHER LOSS) – COST AVOIDED
c. Restatement § 349 – Damages based on reliance interest
i. Definition- damages, including the money expend in preparation for the performance or
in the performance less any cost the party in breach can prove with reasonable certainty
the injured party would have suffered had the K been performed
ii. Reliance Damages = (money spend in performing the breached K) – money would had
spend or lost had the K not been breached
1. use if losing k → You only have to prove what you spend and the other side will

42
have to prove that you would have lost money- shifting the burden of proof
2. is good when you can prove that you were going to earn profits- business ventures
3. does not give you profits, but does subtract any damages that the other party can
prove that you would have suffered had there not been a breach
4. the burden is on the moving party so use when it is though to prove lost value-
(lost profit)
d. Restatement § 371- Restitution Interest
i. Restitution can be measure by either
1. (a) The reasonable value to the other party of what he received in terms of what it
would have cost him to get it from someone else in the same position of theΠ. →
if the NON-BREACHING party sues
a. Good for loosing Ks also
b. If you non-breaching party then give them the higher value
2. (b) The extend to which the others parties property has been increased in value or
his other interest advanced → if the BREACHING party sues remember 2 ways
and always gets the lowest value
ii. Restitution Damages = benefit conferred or increased value of the property
1. Most jurisdictions don’t let you recover for more than the restatement price but
others do
e. Sullivan –Nose job
i. Doctor guaranteed the girl a certain result (normally doctors cannot be sued under
contract theory, but we don't want them making promises to get patients in the office, so
they hold doctor in this case accountable.
1. Expectancy Damages:
a. "loss in value": would be the difference b/w the value of the nose she had
before operation, and the value of the nose she expected to get from the
surgery.
b. "consequential or incidental loss": She is worse off now than when she
began, so add in the consequential or incidental damage caused by the new
nose. (difference in the value of the nose she had from the one she ended
up with due to the breach)
c. "cost avoided": you subtract any cost that the injured party avoided by the
breacher's breach of contract. So it would be any Dr.'s bills she has not
paid yet.
d. So, the formula looks like this: (Nose expected - nose she had) + nose she
had - nose she has now (worse nose than the original) + 3rd operation
(other losses/ pain and suffering) - any unpaid doctor's bills = damage

2. Reliance Damages:
a. Nose she had - nose she has now (this puts her back where she was) + pain
& suffering for all 3 operations (b/c if you put her back to where she was
before then she would not have to go thru any surgery. + any dr. bills she
paid up to this point = damages
3. Restitution Damages:
a. only gives her back any dr. bills she has paid up to date.
4. NOTE: in this case it seems that reliance may be better b/c it gives her pain and

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suffering for all three operations. Usually expectancy is best result though.

XX. Remedies – Mental Anguish and Punitive Damages


a. Damages for Mental Distress
i. Restatement § 353- emotional disturbance-
1. you may get damages for mental distress if
a. the breached caused the bodily harm
b. the harm was especially foreseeable from the breach of the K
ii. Allan v Jones
1. when a K is of the kind that puts the Δ on notice that a failure on their part will
probably produce mental suffering mental damages are allowed- foreseeable
result of the breached
2. there is no need to show physical consequences of the mental distress
3. usually you don’t get damages for mental anguish or pain and suffering for a
breach of K b/c there is usually none, but you can get them when they are the
direct result of the breach- like in the nose case
b. Punitive Damages
i. Restatement § 355- punitive damages
1. not recoverable for the breach of K unless the conduct constituting the breach is
also a tort for which punitive damages are recoverable
ii. Punitive damages→ To punish and deter
1. If you can prove that the other party engaged in intentional wrongful acts-
independent tortuous act- fraud→ rolling back the odometer, not building good to
save money…etc.
2. punitive damages must bear a “reasonable relation to the amount of actual
damages” – the court will examine how malicious was the conduct, look to deter
so that it is not profitable to do it again, and they look to punish so it will hurt
particular Δ (actual damages=$350, punitive=$12,500 the court said this was
reasonable)
iii. Duty of good faith- when a party refuses to pay or negotiate in bad faith you can get
punitive, but applies more when insurance Co. refuses to pay or when the K involves
fiduciary duties
iv. Boise Dodge v. Clark:
1. this case the dealership rolled back the mileage on the vehicle. It was done in bad
faith with the intent to defraud the consumer. The independent tort is fraud.
2. Punitive damages must be "reasonably related" to the actual damages suffered by
the
3. In this case the punitives were 12,500 and the actual damage was 350. The court
said these were ok b/c of policy of consumer protection.
v. Four things to look to when considering Punitive Damages:
1. must look to see if the amount will be enough to deter the from doing the act
again. (takes more $ to deter big corp. like McDonald's)
2. look to see if D's conduct was calculated; did he plan or have a scheme to do the
act. (as in the Dodge case)
3. look at the motives behind the D's conduct
4. extent of D's disregard of the rights of others

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vi. Some areas where punitive damages are awarded in contract cases:
1. breach of fiduciary duty
2. bad faith failure to pay by an insurance company
3. contract cases involving an independent tort (see above)
vii. Trials are usually bifurcated to separate the punitive damages from liability.
viii. There are 2 ways to bifurcate a trial:
1. allow the worth of in at beginning stage of punitive damage question
2. only allow the worth of D after the jury has decided if punitive damages are
proper in the case

XXI. Remedies – Equitable Relief


a. Restatement § 357 – Availability of Specific Performance and Injunction
i. Subject to the rules stated in §§ 359-69, specific performance of a contract duty will be
granted in the discretion of the court against the party who has committed the breach of
the duty
ii. Subject to the rules stated in §§ 359-69, an injunction against a breach of contract duty
will be granted in the discretion of the court against the party who has committed or is
threatening to commit a breach of duty if
1. The duty is one of forbearance
2. The duty is one to act and specific performance would be denied only for reasons
that are inapplicable to an injunction
b. Specific Performance
i. When can a party get specific performance?
1. When the legal damages for the breach are inadequate
2. This is discretionary by the trial judge, there is no jury,
3. Burden to prove that deserve equitable damages is on the party seeking it
ii. Factors used in determining if specific performance should be granted
1. (1) THRESHOLD Adequate: Specific Performance can only be obtained if the
another remedy cannot be obtained except at considerable expense, trouble or
loss, which cannot be estimated in advance. Damages must be estimated with
certainty and if the court cannot do that then they will grant SP. The R2K- says
that adequacy is relative and that the modern approach is to compare remedies
and decide which is more effective in serving the ends of justice.
2. (2) Mutuality: there is no requirement in the law that the parties be mutually
entitled to the remedies of specific performance in order that one of them be given
that remedy by the court, but there must be mutuality of performance, meaning
that if the court ask on party to perform the other must also must be willing to
perform too
3. (3) Supervision: the court may refuse to grant SP if that would require constant
court supervision, but this is a discretionary rule that is frequently ignored
specially when there a re public interest involved
4. (4) Certainty: the terms of the K must be so express that the court must determine
with reasonable certainty what is the duty of each party and the condition under
which performance is due.
iii. Defenses to Specific Performance:
1. Hard ship: SP will be refused if the relief is too burdensome and unfair b/c the

45
exchange is grossly inadequate. This can be on the defendant or on 3rd parties
2. Clean hands: if a party seeks equitable relief then they must come in with clean
hands (act in good faith). They look at the appropriateness of the consideration…
etc.
3. Laches: If there was a delay in making the claim and whether such a delay caused
prejudice to the other party, then the court will evaluate whether b/c of the delay
the plaintiff has waived his right to specific performance
4. Damages are not collectable- if it is going to be very hard for the plaintiff to
collect damages
iv. When are damages inadequate?
1. When damages are unascertainable- tough to calculate w/ certainty
2. When the subject of the contract is unique
3. Real property- there is a presumption real property is unique, this is for buyers
mostly, the seller has a hard time proving but the law is nice and it allows either
party to get SP, this is the mutuality argument, though in most jurisdictions this
requirement has been defeated
a. Examples-Hope diamond, Marilyn Monroe dress, personalized property
such as art, jewelry, antiques
v. Injunctive Relief
1. Advantages: Outcome will protect the parties reliance interests b/c they will
receive the benefit of the bargain.
2. Disadvantages: Supervision by the court - must make sure they do it
3. RULE-an injunction may be granted if
a. Terms of the K have not expire the court can enjoin the performer from
performing elsewhere during the time of the contract 1) he was an
employee providing unique services, 2) breaching party has some other
reasonable means to make a living 3) the employer is exposed to
irreparable injury— this boils down to economic pressure
b. Terms of the K have expiredIf the employment contract has terminated
equitable relief is potentially available only to prevent injury from unfair
competition or similar tortious behavior or to enforce an express and valid
anticompetitive covenant
4. Temporary Injunctions: only granted if
a. irreparable harm AND
b. there must be a likelihood of success on the merits OR there are questions
on the merits and the balance of harm is in favor of the plaintiff
vi. UCC—Goods
1. UCC - § 2-508. Cure by Seller of Improper Tender or Delivery; Replacement.
a. (1) Where any tender or delivery by the seller is rejected because non-
conforming and the time for performance has not yet expired, the seller
may seasonably notify the buyer of his intention to cure and may then
within the contract time make a conforming delivery.
b. (2) Where the buyer rejects a non-conforming tender which the seller had
reasonable grounds to believe would be acceptable with or without money
allowance the seller may if he seasonably notifies the buyer have a further
reasonable time to substitute a conforming tender.

46
2. UCC - § 2-708. Seller's Damages for Non-acceptance or Repudiation.
a. (1) Subject to subsection (2) and to the provisions of this Article with
respect to proof of market price (Section 2-723), the measure of damages
for non-acceptance or repudiation by the buyer is the difference between
the market price at the time and place for tender and the unpaid contract
price together with any incidental damages provided in this Article
(Section 2-710), but less expenses saved in consequence of the buyer's
breach.
b. (2) If the measure of damages provided in subsection (1) is inadequate to
put the seller in as good a position as performance would have done then
the measure of damages is the profit (including reasonable overhead)
which the seller would have made from full performance by the buyer,
together with any incidental damages provided in this Article (Section 2-
710), due allowance for costs reasonably incurred and due credit for
payments or proceeds of resale.
3. UCC - § 2-709. Action for the Price.
a. (1) When the buyer fails to pay the price as it becomes due the seller may
recover, together with any incidental damages under the next section, the
price
i. (a) of goods accepted or of conforming goods lost or damaged
within a commercially reasonable time after risk of their loss has
passed to the buyer; and
ii. (b) of goods identified to the contract if the seller is unable after
reasonable effort to resell them at a reasonable price or the
circumstances reasonably indicate that such effort will be
unavailing.
b. (2) Where the seller sues for the price he must hold for the buyer any
goods which have been identified to the contract and are still in his control
except that if resale becomes possible he may resell them at any time prior
to the collection of the judgment. The net proceeds of any such resale must
be credited to the buyer and payment of the judgment entitles him to any
goods not resold.
c. (3) After the buyer has wrongfully rejected or revoked acceptance of the
goods or has failed to make a payment due or has repudiated (Section 2-
610), a seller who is held not entitled to the price under this section shall
nevertheless be awarded damages for non-acceptance under the preceding
section.
4. UCC - § 2-710. Seller's Incidental Damages.
a. Incidental damages to an aggrieved seller include any commercially
reasonable charges, expenses or commissions incurred in stopping
delivery, in the transportation, care and custody of goods after the buyer's
breach, in connection with return or resale of the goods or otherwise
resulting from the breach.
5. UCC - § 2-711. Buyer's Remedies in General; Buyer's Security Interest in
Rejected Goods.
a. (1) Where the seller fails to make delivery or repudiates or the buyer

47
rightfully rejects or justifiably revokes acceptance then with respect to any
goods involved, and with respect to the whole if the breach goes to the
whole contract (Section 2-612), the buyer may cancel and whether or not
he has done so may in addition to recovering so much of the price as has
been paid
i. (a) "cover" and have damages under the next section as to all the
goods affected whether or not they have been identified to the
contract; or
ii. (b) recover damages for non-delivery as provided in this Article
(Section 2-713).
b. (2) Where the seller fails to deliver or repudiates the buyer may also
i. (a) if the goods have been identified recover them as provided in
this Article (Section 2-502); or
ii. (b) in a proper case obtain specific performance or replevy the
goods as provided in this Article (Section 2-716).
c. (3) On rightful rejection or justifiable revocation of acceptance a buyer has
a security interest in goods in his possession or control for any payments
made on their price and any expenses reasonably incurred in their
inspection, receipt, transportation, care and custody and may hold such
goods and resell them in like manner as an aggrieved seller (Section 2-
706).
6. UCC - § 2-712. "Cover"; Buyer's Procurement of Substitute Goods.
a. (1) After a breach within the preceding section the buyer may "cover" by
making in good faith and without unreasonable delay any reasonable
purchase of or contract to purchase goods in substitution for those due
from the seller.
b. (2) The buyer may recover from the seller as damages the difference
between the cost of cover and the contract price together with any
incidental or consequential damages as hereinafter defined (Section 2-
715), but less expenses saved in consequence of the seller's breach.
c. (3) Failure of the buyer to effect cover within this section does not bar him
from any other remedy.
7. UCC - § 2-713. Buyer's Damages for Non-delivery or Repudiation.
a. (1) Subject to the provisions of this Article with respect to proof of market
price (Section 2-723), the measure of damages for non-delivery or
repudiation by the seller is the difference between the market price at the
time when the buyer learned of the breach and the contract price together
with any incidental and consequential damages provided in this Article
(Section 2-715), but less expenses saved in consequence of the seller's
breach.
b. (2) Market price is to be determined as of the place for tender or, in cases
of rejection after arrival or revocation of acceptance, as of the place of
arrival.
8. UCC - § 2-715. Buyer's Incidental and Consequential Damages.
a. (1) Incidental damages resulting from the seller's breach include expenses
reasonably incurred in inspection, receipt, transportation and care and

48
custody of goods rightfully rejected, any commercially reasonable
charges, expenses or commissions in connection with effecting cover and
any other reasonable expense incident to the delay or other breach.
b. (2) Consequential damages resulting from the seller's breach include
i. (a) any loss resulting from general or particular requirements and
needs of which the seller at the time of contracting had reason to
know and which could not reasonably be prevented by cover or
otherwise; and
ii. (b) injury to person or property proximately resulting from any
breach of warranty.
9. UCC – 2-716 - Buyer's Right to Specific Performance or Replevin.
a. (1) Specific performance may be decreed where the goods are unique or in
other proper circumstances.
b. (2) The decree for specific performance may include such terms and
conditions as to payment of the price, damages, or other relief as the court
may deem just.
c. (3) The buyer has a right of replevin for goods identified to the contract if
after reasonable effort he is unable to effect cover for such goods or the
circumstances reasonably indicate that such effort will be unavailing or if
the goods have been shipped under reservation and satisfaction of the
security interest in them has been made or tendered.
10. Buyer— 2-716—goods are unique or other circumstances: if the goods are
necessary for buyer's business and cannot be obtained elsewhere or something
like that.
a. Output contracts are usually given Specific Performance when the K
requires a particular available source
11. Seller— may get specific performance also if dealing with real estate b/c of the
concept of mutuality; if we allow buyers to have this remedy, then we must also
allow the seller to have this remedy.
c. Northern Indiana v Coal Mine
i. The mine wants the defendant to keep buying from them, the court refused, damages
were adequate
ii. 3rd party beneficiaries-are not allowed to claim SP b/c they are not parties of the K, but
this may be a factor that can be weight, the impact on others, on deciding whether or not
to grant SP
iii. We do not grant SP if the result is not right, unjust enrichment…or over recovering
d. Walgreens
i. Plaintiff wants injunction to force defendant not to lease to another pharmacy
ii. the court granted SP b/c damages hard to estimate, and no much court supervision needed
from the court to enforce
iii. the court also reviews the economic advantages and disadvantages in deciding on
whether to grant the SP
iv. the court also grants SP b/c this will force the parties to negotiate and settle for a deal that
would be beneficial to both parties, court will do this sometimes if negotiation is feasible,
ideal, and not too expensive
e. Personal Services and Employment contracts:

49
i. Personal Services/ Employment K-the court NEVER grants specific performance when
there is a personal service involved for 3 main reasons.
1. It is undesirable to compel continuation of a personal relationship after a dispute-
lose trust
2. it amounts to involuntary servitude
3. It is hard to supervise the performance of the contract. (hard to enforce the
quality of their performance)
ii. SP is almost never granted for construction Ks
f. Covenant Not to Compete
i. Occurs mostly on the sale of business, employment Ks
ii. Courts will enforce these and grant injunction as long as they are not unreasonable in
terms of time and geographic location, or subject matter
iii. If you get injunction you don’t get the injunction and vice versa unless there was some
competition b/f trial
g. Construction Contracts
i. If the OWNER breaches Forster
1. Unless the K is divisible or the contractor has substantially performed an action
for the agreed price for he job will not lie but Construction Ks are hardly ever
divisible
2. If the owner refuses to pay then the contractor is entitled to either (a) or (b)
a. K price
i. + Other lost incurred
ii. — Cost avoided for not having to build
b. The total cost the builder incurred in building the house
i. + The profits that he was going to make (could be negative, if a
loosing K)
ii. — Whatever payments he has already received
ii. If the CONTACTOR breaches Rivers and American
1. Contractor materially breached→ the owner will get:
a. difference in value
b. Cost to replicate or replace- Safety, esthetic defects always get cost of
replace
2. Contractor non-material breached→If the constructor has substantially perform in
good faith and has not intentionally breached the K and only trivial defects exist
— using the wrong pipe—then the owners damages may be measure by
a. the difference b/en the value of the property as constructed minus the
value if performance had been properly completed
b. the constructor will still recover b/c he has substantially perform he has
conferred a benefit
h. Employment Contracts
i. A person who is wrongfully discharged will recover the amount of salary agreed, for the
K period agreed upon, minus the amount the employer can affirmatively prove that the
employee has earned or with reasonable efforts would have earned from other
employment
ii. The employee has to make a reasonable effort to mitigate the damages then, but he only
needs to take those jobs that are comparable or substantially similar to the one she was

50
deprived- she does not have to take another job, but if could of taken the jobthen they will
not get damages for something to which they could have mitigated for
iii. You don’t have to relocate
iv. There is no deduction from collateral sources such as unemployment benefits,
moonlighting, welfare, employee is usually not allow to recover punitive damages

XXII. Remedies – Liquidated Damages


a. Restatement § 356 – Liquidated Damages and Penalties
i. Damages for breach by either party may be liquidated in the agreement but only at an
amount that is reasonable in the light of the anticipate or actual loss caused by the breach
and the difficulties of proof of loss. A term fixing an unreasonably large liquidated
damage is unenforceable on the grounds of public policy as a penalty
ii. A term in a bond providing for an amount of money as a penalty for non occurrence of
the condition of the bond is unenforceable on grounds of public policy to the extent that
the amount exceeds the loss caused by such non occurrence
b. UCC – § 2-718(1) Liquidation or Limitation of Damages; Deposits.
i. (1) Damages for breach by either party may be liquidated in the agreement but only at an
amount which is reasonable in the light of the anticipated or actual harm caused by the
breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of
otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated
damages is void as a penalty.
c. UCC - § 2-719. Contractual Modification or Limitation of Remedy.
i. (1) Subject to the provisions of subsections (2) and (3) of this section and of the
preceding section on liquidation and limitation of damages,
1. (a) the agreement may provide for remedies in addition to or in substitution for
those provided in this Article and may limit or alter the measure of damages
recoverable under this Article, as by limiting the buyer's remedies to return of the
goods and repayment of the price or to repair and replacement of non-conforming
goods or parts; and
2. (b) resort to a remedy as provided is optional unless the remedy is expressly
agreed to be exclusive, in which case it is the sole remedy.
ii. (2) Where circumstances cause an exclusive or limited remedy to fail of its essential
purpose, remedy may be had as provided in this Act.
iii. (3) Consequential damages may be limited or excluded unless the limitation or exclusion
is unconscionable. Limitation of consequential damages for injury to the person in the
case of consumer goods is prima facie unconscionable but limitation of damages where
the loss is commercial is not.
d. Liquidated damages- clauses that specified the amount to be paid in case of a breach - the party
invoking the clause has the burden of proof that: (the test is one or two but some jurisdictions
examine 2 and 3)
i. The clause must be a reasonable forecast of the actual damages the reasonable forecast is
measured at the time the contract was made. The amount of liquidated damages must
bear a reasonable proportion to the probable loss
ii. The damages have to be difficult to determine- the amount of actual could not or was
very difficult to be determine by the parties at the time of the K was made.
iii. Intent- only some jurisdictions will focus on the intent of the parties

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iv. Clause was not intended as a penalty for breach- amount in the clause can not be grossly
disproportionate to the probable loss
e. Under the UCC: liquidated damages are allowed under the same conditions of the CL, but any
limitation of damages when personal injury is involved is prima facie unconscionable. The UCC
also allows you to limit the damages recoverable to return the goods or to replace or repair…etc.
UCC looks also at either the reasonable forecast OR the actual lost.
f. Notes
i. No Damages- CL→Claiming that there was no harm done by the breach will not excuse a
party from liquidated damages
ii. If the liquidation damages provided for too little, meaning way lower than the actual
losses were, then we look at whether the liquidation clause was unconscionable- unequal
bargaining power
iii. Restatement § 356: follows the CL BUT it takes the view that if the actual damages are
zero the liquidation clause is not valid, they do this b/c there is no harm, some
jurisdictions follow this but on deciding look at the control of the parties had. The R2K
will look at either the forecast OR the actual lost
iv. Alternative Performance: He can perform in two different ways, by choosing to
performed what he promised or by paying the money agreed for not performing, this is
not really a liquidation clause
v. Liquidated Damages as a limitation/cap on damages: (2-719) liquidated damages may
serve as a cap to liability if the parties agreed to it and they are not unconscionable.

XXIII. Third Party Interests – Assignment & Delegation


a. Assignment of Rights
i. Restatement § 317: Assignment of a Right
1. An assignment of a right is a manifestation of the assignor's intention to transfer it
by virtue of which the assignor's right to performance by the obligor is
extinguished in whole or in part and the assignee acquires a right to such
performance.
2. A contractual right can be assigned unless
a. the substitution of a right of the assignee for the right of the assignor
would materially change the duty of the obligor, or materially increase the
burden or risk imposed on him by his contract, or materially impair his
chance of obtaining return performance, or materially reduce its value to
him, OR
b. the assignment is forbidden by stature or is against public policy, OR
c. the assignment is validly precluded by the terms of the contract
ii. UCC 2-210: Delegation of performance; Assignment of Rights
1. A party may perform his duty through a delegate unless otherwise agreed or
unless the other party has a substantial interest in having his original promisor
perform or control the acts required by the contract. No delegation of performance
relieves the delegator of any duty to perform or any liability for breach.
2. If you are merely assigning a right to payment, then the contract cannot prohibit
this.

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iii. Novation- Only way the delegator can be relieved is through a novation. This is when
the parties get together and decide that a new contract is formed with the new person now
liable for performance and breach.
1. 1. Standby Liability- when the assignor retains liability after delegating his duties
to someone else. He can only get rid of this liability by a novation. If no
novation, then the delegator retains liability for breach.
b. Contracting Around the Right to Assign
i. Restatement § 322: Contractual Prohibition of Assignment
1. Unless the circumstances indicate otherwise, a term prohibiting assignment of the
contract only bars the delegation of the performance or condition to an assignee.
2. A contract term prohibiting assignment of rights under the contract, unless a
different intention is manifested,
a. does not forbid assignment of a right to damages for breach of the whole
contract or a right arising out of the assignor's due performance of his
entire obligation.
b. Gives the obligor a right to damages for breach of the terms forbidding
assignment but does not render the assignment ineffective,
c. Is for the benefit of the obligor, and does not prevent the assignee from
acquiring rights against the assignor or the obligor from discharging his
duty as if there were no such prohibition.
ii. Definitions and Rules
1. a manifestation of a parties intention to transfer a right by virtue of which that
parties right to performance by the obligator is extinguished in whole and another
party acquires a right to such performance
2. when ever there is an assignment all duties and rights are given up completely
3. Govt. contracts can NEVER be assigned
4. If a debtor wants a discharge from his debt he must get the discharge from the
assignee,
5. Original parties can not modify the K
6. DEFENSES- both the obligor and the assignee can bring any defense that was
available to the original parties under the K
7. The assignee is said to “stand on the shoes of the assignor” so that is the assignor
has no rights (to the money) neither does the assignee
8. WARRANTIES OF ASSIGMENTS - when an assignor assigns a right the is only
warranting that he has a right not that it is collectable, you are also warranty that
you don’t do anything to interfere
9. RULE: As a matter of law, rights can be assigned, there is a presumption for
assignability and there are two limitations that will make an assignment invalid:
a. the assignment cannot change the K in any way→duties or rights or
increase the risks or burdens on the other party
b. the assignment cannot violate a statute or public policy- in some
jurisdictions assignment of wages to pay debts is against PP
c. if the K prohibits assignment— when a K contains clear and plain
language limiting the freedom of alienation of rights and parties agree no
to assign such stmts are valid a the parties can not assign their rights under
the K- Allhusen

53
10. Fitzroy v Cave
a. Π Took over the 's debt for some creditors in Ireland. The Ireland
creditors assigned the right to collect the debt. So, became the assignee.
b. Argues this is maintenance, which is the buying and selling of legal
actions, this is against PP (professional litigators that take on other peoples
suits) AND that Π’s motive of was to drive Δ into bankruptcy. This was
not really a COA but a debt, the motive of the Π are irrelevant b/c it has
nothing to do with whether the assignment is valid or not
iii. Notice
1. The rights vest at the time the notice is given
2. A debtor is not affected by an assignment until he has CLEAR notice.
3. If he pays to the assignor in ignorance of the assignment he is relieved form
liability and he may set up against the assignee any defense acquired prior to
notice which he would have available against the assignor had there been no
assignment.
4. After notice he is liable for paying to the assignor what is due to the assignee.
5. The UCC also requires a notice.
6. A party can set off- discount – money due to him when the other party owes him
money but if the second party assigns his rights then if the first party was given
notice before the money was due then he can not set off that the 2nd party owes
him
7. Continental Purchasing
a. The obligor must be given notice by the assignor or the assignee that the
rights of the obligee/assignor have been assigned to the assignee. Once
the notice has been given, the obligor is liable for any damages caused by
him paying the wrong person. Once notice is given, the rights vest in the
assignee
iv. Gratuitous Assignments
1. These can be made as long as the assignment is in writing or is accompanied by
delivery of a something that is customarily accepted as a symbol or as evidence of
the right assigned. (Any instrument that shows the assignee has the right to
collect). But the person can always take the assignment back if not in writing
v. Assignment of Future Rights
1. Can only be assigned if you have a job or a K and have not earned the money yet
but have a right to it. If you have no job or not contract you have nothing to
assign
2. But, you could contract with the bank to give you money and then the first job
you get you will pay them back. This is different b/c you are NOT making an
assignment, rather you are making a contract. You don’t have any thing, you
don’t have any thing to assign. Assignment gives ownership, and it is a better
right, contract does not.
3. UCC- allows you to assign although there is no K of any type as long as you have
people who owes you money like accounts receivable, inventories... etc.
vi. UCC § 2-210- Delegation of Performance and Assignments of Rights
1. A party may perform his duty through a delegate unless otherwise agreed or
unless the other party has a substantial interest in having his original promisor

54
perform or control the acts required by the contract. **NO delegation of
performance relieves the delegator of any duty to perform or any liability for
breach.
a. The UCC also requires that the K not be alter in a way that may change
the duties of the parties or create burdens.
b. If an assignment that delegates performance creates reasonable grounds
for insecurity, the obligee can request assurance under §2-609
2. *** UCC is different from CL in that you can NOT prohibit assignments of a
right to future payments of money $
a. under UCC assignment really means that duties can not be delegated
rather than rights can not be assigned
vii. UCC 9-318: same as 2-210 it says that an "accounts general" is always assignable even if
stated otherwise. This means payments under Ks. Also allows good faith modification of
contracts once assignments have been made as long as they keep the corresponding rights
of the assignees. You also have a right to ask for verification by documentation when
notified about an assignment.
c. Delegation of Duties
i. Restatement §318- follows the UCC delegation language, delegation permissible unless
substantial interest in having original person perform, and it does not release the assignor
of any duties unless agreed by the parties that it will.
1. Personal services— A party can NEVER delegate a personal service contract
2. Question: If a contract is assigned does this mean that both the rights under the
contract are assigned, and the duties under the contract are delegated? Yes;
presumption that when a contract is assigned, both the rights and duties are
transferred
ii. Sally Beauty Case
1. Rule: in general there is a presumption that duties can be delegated UNLESS
there is a reason why the non-assigning party would find performance by another
substantially different from what he bargained for.
2. There was a conflict of interest b/c the delegatee is the competitor of the obligee.
The obligor was under a contract to used their best efforts, and not the best efforts
of some third party)

XXIV. Third Party Interests - Third Party Beneficiaries


a. Generally
i. We are giving 3rd party beneficiaries the ability to enforce the contract
ii. You can contract around 3rd party beneficiaries
iii. Restatement § 302 - Intended And Incidental Beneficiaries
1. (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a
promise is an intended beneficiary if recognition of a right to performance in the
beneficiary is appropriate to effectuate the intention of the parties and either
a. (a) the performance of the promise will satisfy an obligation of the
promisee to pay money to the beneficiary; or
b. (b) the circumstances indicate that the promisee intends to give the
beneficiary the benefit of the promised performance.
2. (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.

55
b. How do we know which type of beneficiary we are dealing with?
i. Restatement § 308. Identification Of Beneficiaries
1. It is not essential to the creation of a right in an intended beneficiary that he be
identified when a contract containing the promise is made.
c. Intended Beneficiaries
i. Creditor under Restatement § 302(a) – contract is to pay a debt
1. Restatement § 310. Remedies Of The Beneficiary Of A Promise To Pay The
Promisee's Debt; Reimbursement Of Promisee
a. (1) Where an intended beneficiary has an enforceable claim against the
promisee, he can obtain a judgment or judgments against either the
promisee or the promisor or both based on their respective duties to him.
Satisfaction in whole or in part of either of these duties, or of a judgment
thereon, satisfies to that extent the other duty or judgment, subject to the
promisee's right of subrogation.
2. Creditor can sue both the promisor and promisee; both the buyer, he could always
sue the seller because they were in privity
a.
ii. Donee under Restatement § 302(b) – contract is to confer a benefit on benefitiary
1. 3rd party in a donee beneficiary cant sue the promisor and the promisee, only the
promisor
a. Cant sue the promisee because it is an unenforceable gift promise
d. Incidental Beneficiaries (cant sue) – Railroad goes on strike, by ending it we all benefit – we
don’t have the power to sue on this – unintended 3rd party beneficiary, look to whether
e. What happens if we change the 3rd party? Can we make a 3rd partys rights irrevocable?
i. Restatement § 311. Variation Of A Duty To A Beneficiary
1. (1) Discharge or modification of a duty to an intended beneficiary by conduct of
the promisee or by a subsequent agreement between promisor and promisee is
ineffective if a term of the promise creating the duty so provides.
2. (2) In the absence of such a term, the promisor and promisee retain power to
discharge or modify the duty by subsequent agreement.
3. (3) Such a power terminates when the beneficiary, before he receives notification
of the discharge or modification, materially changes his position in justifiable
reliance on the promise or brings suit on it or manifests assent to it at the request
of the promisor or promisee.
4. (4) If the promisee receives consideration for an attempted discharge or
modification of the promisor's duty which is ineffective against the beneficiary,
the beneficiary can assert a right to the consideration so received. The promisor's
duty is discharged to the extent of the amount received by the beneficiary.
ii. The power to modify a 3rd partys rights terminates when they reasonably relied on the
benefit
1. It vests when the 3rd party acts in reliance
2. Can agree to require 3rd party consent for modification
3. Can contract to make the 3rd party benefit irrevocable
f. Kmart v. Balfour Beaty, Inc –
i. Balfour Beatty Inc. (Defendant), entered into a contract with Tutu Park Ltd. (TPL) to
build a shopping center. KMART Corporation (Plaintiff), is a tenant of TPL. When the

56
shopping center where Plaintiff had a store was damaged in a hurricane, Plaintiff sued
Defendant for negligence. Defendant entered into a contract with TPL to build a
shopping center where Plaintiff would be a tenant. During the planning, Defendant’s
construction schedules were required to comply with Plaintiff’s schedule and the
drawings made in the design phase of performance were to be submitted Plaintiff. In
September of 1995, the roof of the shopping center was damaged by the winds from
Hurricane Marilyn. If Plaintiff is an intended beneficiary of the contract between TPI and
Defendant, Plaintiff will have to adhere to the arbitration clause in the contract.
1. Is Plaintiff an intended beneficiary of the contract between Defendant and TPI?
a. Yes, Court finds that Kmart is a 3rd party beneficiary, but this means that
they must arbitrate
i. There are two ways in which the courts determine whether a party
is an intended beneficiary to a contact: (1) they attempt to
determine if the performance of the contract runs to the part or, the
modern approach; and (2) they determine whether the promisor
understood that premises had intent to benefit the third party.
ii. Due to the involvement Plaintiff had in the building of the
shopping center, Plaintiff is an intended third party beneficiary
under either approach.
ii. Prove 3 party intended status, then prove the contract
rd

g. Johnson v. Holmes Tuttle Lincoln-Mercury, Inc.


i. Car buyers get into a car accident with the Johnsons, Johnsons argue that the car dealer
by not getting insurance policy filed breached the contract that they are 3rd party
beneficiaries too.
ii. The car buyer could definitely sue, but can the 3rd party?
1. Was there a meeting of the minds? Did the dealer know the terms of the contract –
ie, what full coverage meant?
a. The two parties seem to have different ideas of what full coverage was
i. Expert witness called to show that Defendant car company should
have provided what the plaintiff expected.
2. Only way out of the Contract for car salesman is to contract around 3rd party
beneficiaries
h. Zigas v. Supreme Court
i. Can tenants, as 3rd partys, enforce contract between landlord and Dept. of Housing and
Urban Development which determines maximum rent?
i. Vesting
i. When can a 3rd party count on their rights? When do they vest?
1. Tweeddale v. Tweeddale
a. Essentially become 3rd party, creditor beneficiary

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