NEGOTIATIONS 1. Do the parties intend to be bound? (objective theory of K) a. Do we have a manifestation of assent to conclude K? Or, Prelim Agreements?

RST 27 i. Do parties view final doc as formality or last opportunity to actually commit? ii. Either party know or have reason to know that other party regards agreement as incomplete? iii. Test for completeness: RST 27, Cmt C. b. You may not be, if(Empro) i. Did the person binding you really have authority? ii. Final, binding agreement contemplated; but never finalized 1. Clause in MoA to that effect? iii. Conditions/restrictions in MoA dont come to pass (shareholder approval, etc) 1. Contra Fuqua tho, but there the Apparent Authority was Fuqua himself; board was a sham. iv. Is the agreement of a class that usually is written down? v. Not obligated to negotiate in good faith (Racine ..but New England) 1. Unlike Culpa in Contrahendo, why not? a. Chilling/accelerating effect b. Aleatory viewbad faith just part of the game c. You could be bound if i. Long history of doing business together (SMS) ii. Outside manifestations of intent to K (Arnold Palmer v. Fuqua) iii. Partial performance/start of performance 1. Do you start taking other actions to get ready to start performance (Lucy v. Zehmer) iv. Most key conditions outlined 1. UCC- Even if terms are left open a K does not fail for indefiniteness if parties have intended to make a K and reasonably certain basis for giving an appropriate remedy. . (2-204) 2. RST- Common Law, still hesitant to impose tons of terms a. See Sun Printing v. Remington Paper- no specific dates, so K not enforced b. RST 33 requires that "terms of the K be reasonably certain" c. Although see Kenai where court found K though missing rental term. d. Note: FORK: 2 Very different starting points for judges: i. Except in clearest cases, intention is factual one best determined by the jury (subjective) Fuqua ii. Except in the most extreme cases, intention can be determined by the judge (objective) Empro e. Policy: i. Better understand each other. ii. Get initial ideas down to show respective leadership (boards, shareholders, etc) iii. Come to a binding agreement on some terms, leaving others open for future negotiations: "Approaching agreements in stages is a valuable method of doing business, allowing parties to approach agreement without fear that by reaching a preliminary understanding they have bargained away their privilege to disagree on specifics. iv. Exclusivity - agree for some period of time to only negotiate with one another f. Agreements to Agree: (especially rental agreements) i. Any reliance? ii. Is agreement just element within larger K/lease? iii. Look to fill open terms with reasonable market rate through: 1. Arbitration, Escalators (CoL, Inflation, etc), Fair Market Value (rental, if rental space, not "best use.")

iv. Damages can be awarded for failure to make good-faith efforts to reach agreement g. Good Faith: i. RST 205: Every K imposes an obligation of good faith in its performance ii. 1-201: Honesty in fact and the observance of reasonable commercial standards iii. If have clause in K to renegotiate at later time (such as in long term contracts, commercial leases, etc), then must include a clause for what happens if renegotiations fail. (Sun Printing) iv. Can create implied K: (New England Insulation) 1. Invitation to bid under certain conditions followed by submission of a bid on those conditions creates implied K. Can recover only preparation costs if breached though.

2. OFFER

a. Is this an actual offer or invitation to make an offer? i. Offer is manifestation of willingness to enter bargain made to justify another person in understanding that his assent to bargain is invited and will conclude K (RST 24) 1. Does offeree know of the offer? ii. Is this just an invitation to make an offer? 1. Does offeree have a reasonable belief this is a real offer (RST 26)? a. See Cmt C; Quote usually just invitation. Also b. going to sell my car for $500 is not an offer, just talk of future acts 2. Or is it an ad? a. Not: clear, definite, explicit, and leave nothing open to negotiation b. First Come, First Served might turn ad to offer 3. NB: the broader the class of offerees the more likely courts will see as invitation for offers b. Is this a revocable offer or an option K? i. Offeror not bound to hold offer open, can revoke at any time, unless ii. Option contract: promise to hold offer open until certain time (RST 25) 1. Need purported consideration to hold offer open (RST 87), or reliance. 2. Construction bids: reliance by general for sub to hold open bid 3. Rejection by offeree does NOT terminate the offer, unless offeror relied on rejection. iii. Firm offer: made by signed writing, no consideration, then limited to 3 months (2-205) c. Is the offer dead (RST 36) i. Rejection or Counteroffer (qualified acceptance) 1. Response that says accept but conditioned on offerors assent to added/diff terms is counteroffer and treated like rejection(RST 59) 2. However, acceptance can request change or addition, as long as it is not dependent on assent to changes (RST 61) 3. Inquiry is not a rejection of the offer (RST 39) ii. Expired: a reasonable period of time has passed (RST 41, 2-206) or after time listed in K iii. Terms of offer contain condition that fails to occur (Financing, spousal approval, etc) iv. Retracted: can be revoked any time before acceptance 1. except option K (RST 87); cant be revoked once performance has started 2. Also, note RST 43, if offeror takes definite action inconsistent with intention to enter K, and offeree learns of it, K is revoked. v. Offeror dead or incapacitated?

3. ACCEPTANCE

a. Is this a real acceptance or a counteroffer? i. Only offeree has power of acceptance and must know of the offer 1. No rewards then, identical cross-offers are just thatoffers RST 23 2. However, subsequent performance can create K under 2-207(3) ii. Must be a meeting of the minds (unqualified and absolute acceptance) iii. Mirror image rule: assent to all terms required, no new terms (RST 59/61) (Ardente v. Horan) 1. Request to change terms though doesnt reject offer unless acceptance contingent 2. Last shot: whoever sent the last count-offer controls on terms 3. NB: Big shift between Common Law and 2-207 acceptance requirements 4. CISG still largely follows mirror image rule b. Master of offer, can control method of acceptance (RST 30(1)) i. If no method stated, reasonable methods are ok (RST 30(2)) c. Acceptance by performance or promise (RST 30/50, 2-206) i. NB: Starting performance is a promise to finish (unless unilateral/option K) 1. Mere preparations do not count, must be part of the actual performance invited ii. Silence is not acceptance (RST 50(1)), unless 1. Course of dealing, received the benefit of service, option to return goods (dominion), etc (RST 69) d. Mailbox Rule: Acceptances are effective once sent (RST 63) i. Except for option Ks: acceptances not operative until recd (Also CISG) ii. Offeror must take reasonable precautions to assure delivery though iii. Also, as Master of Offer, offeror can require receipt before acceptance becomes effective, but default is Mailbox Rule if not stated. iv. Rejections, etc effective once recd e. Mutual Assent/meeting of the mindsdetermined objectively (RST 20) (Merced) i. No assent (no K) if parties have different meanings (equally at fault) and: 1. neither party knows meaning attached by others (firefighters) 2. or should know the meaning attached by other ii. Manifestation of parties operative in accordance to meaning attached by one of them if that party does not (or has no reason to) know of diff meaning attached by other and the other knows (or has reason to know) the meaning attached by first party (sherrifs) iii. Misunderstanding v. Mistake: 1. Mutual mistake of fact- both sides believe same thing, which is wrong = K 2. Misunderstanding both sides believe different things = no K 3. Conflicts with Objective theory; asks what parties actually thought

4. CONSIDERATION (RST 71)

a. Mutual, promise for a (RST 71(2)) i. Promise ii. Act/Performance iii. Forbearance of right or detriment (Hamer v. Sidway) b. Bargained for (Fisher v. Jackson) (RST 71(1)) i. No consideration for gifts ii. Moral consideration is typically not enough. Benefit must be: (RST 86) 1. Exceptions: minor renewing promise after reaching majority 2. Promise made to creditor before bankruptcy 3. Charitable promises iii. Pretense of Bargain wont suffice: 1. Nominal consideration is dangerous, might go either way. Though RST 79 iv. Watch out for Illusory promises. RST 77 v. At-Will employment: 1. K to work 3 years with no notice required to fire = no consideration 2. K to work 3 years with 30 days forbearance = consideration c. Substitutes for Consideration i. Reliance/Promissory Estoppel (RST 90) (also sep. cause of action) 1. Promise, foreseeable reliance, actual reliance, injustice absent enforcement 2. Remedy may be limited as justice requires 3. Applications: a. Promises of gifts b. Negotiations (franchisees/franchisors) c. Sub-Contractors (implicit promise to hold offer open) d. New Job (move but havent started yet) ii. Quasi-K (Restitution, Impled-in-Law)? 1. Elements: a. Benefit conferred b. Appreciation of benefit c. Retention of such benefit under circumstances that it would be inequitable to retain the benefit without payment d. No payment 2. The obligation is imposed despite, and frequently in frustration of, their intention. Frequently based on doctrine of Unjust Enrichment. 3. Ex. Doctor saving life of unconscious person, where transaction costs are prohibitive, and we can reasonable assume that a person would have bargained for services. Contrary to - someone mowing your lawn without asking for it.

5. Statute of Frauds (RST 110 & 2-201, NO CISG)

a. Does the agreement need to be in writing? Is the SoF applicable? i. Land ii. One year (starts at formation of K, not start of performance) 1. Is it remotely possible to finish in one year? (C.R. Klewin v. Flagship Properties) 2. No express term about time? 3. Rationale for 1 Year limitation in SoF: a. Poor Memory i. If K cannot be performed within 1 year and is broken the day after its making, the provision applies though the terms of the K are fresh in minds ii. If K can be performed within a year is broken and suit not brought for 6 years after breach, provision does not govern b. Long Duration Ks i. If oral K for 1 day of work, 13 months from now, is broken, the provision applies ii. If oral K to work for a year, beginning today is broken, the provision does not iii. Goods over $500 (not services that make use of goods) 1. Oral modifications countlook to total value of K as modified b. Is the SoF satisfied by the writing? i. Signed by party against whom enforcement is sought (RST 131/2-201(1))? ii. Identify subject matter, sufficient to K has been made, state with certainty essential terms (Common Law)? iii. Specifies quantity (UCC)? Court can supply other terms iv. Multiple writings can be combined, need to reference one another (RST 132) (Migerobe) v. SignatureNeed not be manual. Letterhead suffices. UETA legislation has facilitated recognition of electronic signatures. Electronic form must still be retrievable. c. Is the SoF satisfied in other ways? i. Goods specially manufactured for the buyer and arent suitable for others ii. Admission of K (2-201(3)) iii. Performance (2-606): only w/ respect to goods accepted/recd iv. Reliance? 1. Courts split on if promissory estoppel can replace SoF (Liege Dickson says it cant) in UCC, but RST 139 allows. a. Arguments for/against in UCC: i. For: 1-103: Unless displaced by the particular provision of this chapter, estoppel and other validating or invalidating doctrines shall supplement the UCC. ii. Against: 2-201(1): Except as otherwise provided in this section" excludes all exceptions (including promissory estoppel) other than those listed. 2. Courts did allow where one party promised to reduce oral agreement to writing, but didn't, and other party relied on that promise. a. What sense does this make? Can relying party really be said to have "reasonably" relied? Absent a signed K, why would we assume party justified in moving forward? 3. Modern View (Traynor): With infusion of reliance thinking into Common Law, some courts (CA) are not shy about using promissory estoppel to overcome SoF a. It is the promise that the K will be performed that a party relies upon when he changes his position because of it and this promise, when so relied on, should be enforced v. Merchants: written confirmation of agmt sent in reasonable time, other party has 10 days

to reject (Conagra v. Nierenberg) 1. Look to merchants standard practices and industry practices 2. Public Policy: a. SoF is being used by big guys to get out of Ks on loopholes so it's a cutting back on that ability b. Underlying assumption: If you DO NOT object, then you must have had a K. People who have no idea about a K would definitely object right away.

BATTLE OF THE FORMS (2-207) 1. Is this for the sale of goods? 2. If so, is acceptance clear (i.e. definite agreement to main elements), timely (i.e. seasonable), and refrain for demanding assent to additional or different terms (i.e. not expressly conditional; unwilling to proceed

unless you agree)? a. If no, reply = counteroffer/rejection 3. Are there different (conflicting) or additional terms? a. Different? i. Knock out (Cmt 6) 1. Policy: UCC was meant to avoid common law result that gave last shot advantage to party sending final form, but, dont want to give advantage to the party sending first form either. What to do? Look to default UCC terms at least we know theyre neutral! b. Additional? i. Where Merchants (2-207(2)) 1. Additional Terms in, unless: a. Offer expressly limits acceptance to the terms of the offer (e.g. mine and mine only clause) b. They materially alter (see Cmt 4) c. Notification of objection to them has already been given or is given within a reasonable time after notice of them is received ii. Where Consumers 1. Additional terms mere proposals 4. If no K from writings, do we have performance? a. If so, 2-207(3) i. Terms agreed upon in ii. All else filled by UCC gap fillers / or terms from parties course of performance iii. NB: 2-207(3) presumes that there have been writing of the parties in which they failed to reach an agreement. Absent such writings, 2-207(3) is inapplicable and the proper analysis focuses on 2-204. 5. Only one form? Are we dealing with Rolling Contracts? a. terms and conditions known ONLY AFTER purchase. b. Courts are SPLIT turns on when contract is formed i. Option 1: Vendor is master of offer, gets his terms [ProCD; Hill] 1. Contract is NOT FORMED when product is ordered and purchased, even if money changes hands; instead, vendor says NO CONTRACT until you inspect item and termswhich buyer either accepts or rejects (keeps the product or not) 2. There is only one form, the VENDORs terms themselves, there is no contract until they are accepted 3. No question of additional or different termsdoesnt apply to 2-207 (JJ disagrees) ii. Option 2: Buyer gets terms known at formation 1. Contract exists when product is ordered or purchased 2. Vendors performance = acceptance of buyers offer [Step-Saver] 3. Terms shipped with product are additional terms [UCC 2-207 applies] a. Between merchants, terms only get in unless2-207(2) b. A non-merchant buyer must expressly agree. iii. Policy Implications: Consequences of requiring full up-front disclosure. D Argument Outrageous Inefficiencies (e.g. K read over phone/while in line; high transaction costs) P ArgumentIf D really wanted this term he should have bargained for it/adjusted price to represent risk assumed by its exclusion at time of sale. iv. Policy Conclusion: Consumers in the aggregate appear willing to accept blanket lower prices in exchange for inconvenience of being occasionally victimized by a rolling contract- created term (e.g. Bad Terms w/ Good Prices preferred to Good Terms w/ Bad Prices). Alsostate and federal governmental regulators will intervene in instances egregious fraud.

c. Under RST? i. Where clause is reasonable, done in good faith, and doesnt unconscionably limit exercise of Ds legal right to sue, it will be upheld. Carnival Lines Common UCC 2-207 Scenarios
1) Additional or Different Terms found in Both 1ST and 2ND Form Run in through 2-207! Example: Buyer sends P.O. calling for arbitration. Seller accepts with term prohibiting arbitration. If they proceed with shipment and goods acceptance, does arbitration agreement get into the K or not? Buyers Argument #1: Its term came first, Sellers was not additionalrather differentso it doesnt get in under 2-207(2), so buyers term controls. Sellers Response #1: We didnt have a Kmy term differed so substantially (not a great argument since 2-207(2) assumes the existence of a K despite a material alteration. Sellers Response #2: Our Acceptance was expressly made conditional on assent to additional or different terms. But this would undercut 2-207s intent to minimize this type of Ardente v. Horan repeat. So K exists. Sellers Response #3: Acceptance only exists according to those terms agreed upon (per Comment 6). Where they conflict, knock-out. Plus, UCCs lack of arbitration gap-filler prevents Buyers term from getting in. (Whitetwo terms would cancel each other out; otherwise sender of first form has an unearned advantage; SummersBuyers gets in; As different termwhich 2-207(2) does not rescue as AdditionalSellers falls out; Whites approach relatively more unfair to offeror than Summers approach is to offeree, Offerors have more reason to think their clauses will control); o Example: When competing warranty terms exchanged, cancel out butb/c UCC provides gap-filler warranty terms they enter K as implied terms (favorable to Buyer) 2) Acceptance discusses an issue on which the offer is silent (i.e. additional term) Additional term does not prevent the offerees response from giving rise to a contract. If both parties are merchants, the addition automatically becomes part of K unless 1) offeror rejects in a reasonable time, 2) term materially alters offer, 3) original offer limits acceptance to its terms o Warranty disclaimers in offerees acceptance constitute material alterations (OUT) o Force majeure clause, Requirement of Timely Complaints, Remedy Limitations are all considered non-material alterations (GET IN) Acceptors rarely win argument that their additional terms are immaterial. Principal reason for losing record is their non verbal acts contradict their verbal agreements. Who goes to appellate court with lawyers hired at hundreds an hour to dispute a term that is not material? Buyer can also argue where silent, the standard gap-filler from the code is implicit. If so, then where different the two competing terms knock each other out, leaving the Code term to fill void. If one party not a merchant, the offeror must explicitly assent to addition for terms inclusion in K. 3) Offer discusses an issue on which the acceptance is silent (Both agree that it gets in) 4) 2nd Contains Term Absent From Offer and is Expressly Conditional (Counteroffer) Expressly conditional language must state counteroffer very clearly. Term in hypothetical is a Sellers arbitration agreement. If Buyer expressly assents, accepts goods, and uses them Sellers ARBIT term clearly governs. But what if Buyer does not clearly assent and simply uses goods? No K is formed under 2-207(1) [acceptance by conduct does not constitute assent under 2207(1)] ARBIT term drops out Move to formation under 2-207(3) Gap-Fillers (incidentally lacking with regard to ARBIT so Sellers term drops out there too), Unlike Common Law approach vis a vis Roto-Lith where subsequent performance constitutes acceptance and binds 1st party to 2nd partys terms 5) One of the Forms has a MINE AND MINE ONLY Terms Clause If term in acceptance, then formation barred under 2-207(1) as expressly conditional If in offer, two ways to read it: o I agree to K only if acceptance contains all my terms and I object to additional terms responding document that contains all above terms plus additional ones would still be acceptance under 2207(1); however, additional terms would be viewed as proposals and would not get in under 2-207(2)(a) and (c). Offeror preemptively been objected to them. o can only be accepted by a document that contains neither additional nor different terms Any response with additional/different terms would not constitute acceptance and would fall entirely outside 2-207(1) and 2-202(2) K could be formed under 2-207(3) and supplied with UCC terms

6) Prior Oral/Informal K, then confirmation(s) which add / conflict with K are sent Additional terms in confirmation are treated just as acceptance containing additional terms (run them through 2-207(2)). Trade usage and course of dealings would enter where party/parties have Oral K where parties have disputed confirming memoranda. Ex. If trade usage of arbitration exists, would be considered part of the oral K and binding notwithstanding cases holding arbitration clauses are always material alterations. Different termsthe court will almost certainly say that different term in confirmation does not enter the contract. The Knockout Rule Will Not be applied/UCC terms Fill unless both parties submit confirmations with different terms. Adding a different term to an already created oral contract is clear attempt to securevia last shot rulesomething unbargained for (always judged against oral K, not other parties confirming memoranda). [2-207(3) Never Applicable for already formed K] No expressly conditional- A party should not be able to break an oral K through a confirmation. 7) The parties dont use forms, but exchange differing custom-drafted documents No contract is formedCustom forms would suggest an intentional decision not to avoid assent. Would constitute competing counteroffers. 2-207 relevance stems from very notioni.e. prevalence of standard forms as essential to economic convenience that customary forms undermine. Custom forms would be judged according to prevailing offer/acceptance norms for bargained not standard form agreements/2-207 wrong place for them! 8) Acceptance recites terms that diverge considerably from dickered terms in the offer No contract is formed In usual purchase order-acknowledgement context, forms give rise to contract so long as they do not diverge as to price, quality, quantity, or delivery terms. Usually, only evident with regard to unbargained terms on reverse side concerning remedies, arbitration, etc. Rare that even significant divergence with regard to these terms invalidates Ki.e. material alteration must be apparent.

Final Observations: 1. Prior Conduct Occasionally Trumps Language: If seller habitually includes different warranty disclaiming term and never conditions acceptance upon their inclusionunlikely theyll be recognized when actually insisting upon their validity during litigation 2. Materially Altering Term = Produces Surprise or Hardship 2-207 Comment 4 3. Adding Different terms keeps other side from getting what they want; If lucky, their form would have none of these and theyd be Additional

Standard Form Contract 1. Reasonable Expectations: RST 211 a. Where the drafters contract includes a term that he has reason to believe: i. The signer WOULD NOT accept if he knew the K contained it ii. The term is NOT part of the K C & J Fertilizer iii. Cmt F: Reason to believe may be inferred from 1. The term is bizarre or oppressive 2. Or it eliminates the dominant purpose of the transaction 3. Or it eliminates an expressly agreed upon term

INTERPRETATION

1. Will court read in additional terms? Are there open terms? a. Read K as whole, each portion as part of whole with reference to core purpose b. Whose meaning prevails? i. Party oriented approach: look to what parties said or intended (RST 201) ii. If both attach the same meaning, that is the meaning 1. They can use code (RST 212, comment b/illustration 3) iii. Interpretation favors the non-drafter contra proferentum (RST 206) c. What rights are specifically assigned? i. Look to context? What is said? What is not said? Noscitur a sosciis. ii. How are those terms used elsewhere? Expressio unios es exclusio alterius. iii. Expression of one term = exclusion of another iv. Dickered terms weighted more heavily than standard form terms d. Outside elements (2-202, 2-208) and specific hierarchy (1-303, RST 203) can supplement, explain or qualify terms in a K i. Express terms 1. Give reasonable and effective meaning to all express terms (203) ii. Course of performance: interactions after K is executed iii. Course of dealing: interactions prior to K (Nanakuli) 1. Repeated waiver of obligation supersedes course of performance iv. Usage of trade: general industry practice, binding on members of that trade e. Implied term i. When parties havent agreed to a term, court can supply reasonable term (RST 204) ii. 2-309(2): indefinite duration means reasonable time (Haines) iii. Price can be unsettled, 2-305: price is reasonable at delivery if 1. Nothing is said to price 2. Price is left to be agreed and parties fail to agree 3. Price is fixed by some market standard 4. No K if parties did not intend to be bound absent agreed price and no agreed price (2-305(4)) f. Implied covenant of good faith i. Requirement/Output Ks 2-306 1. Reasonable effort to need requirements, produce output 2. UCC 2-306(1): no unreasonable quantity disproportionate to comparable prior agmts ii. Exclusive Dealing iii. Definitions: 1. Summers: Anything not bad faith. (i.e. those behaviors inconsistent with fair dealing of standards and contrary to parties expectations RST 205 2. Burton: Bad faith is attempt to recapture opportunities forgone or bargained away at time of contracting. a. How does one know what was bargained away? iv. Cooperative antagonist may still perform in good faith v. 4 Question test: 1. Does K give one party gross discretion to deprive the other of substantial part of the agreements value? 2. Is there evidence to suggest parties truly intended to be bound? 3. Has exercise of discretion exceeded the limits of reasonableness? 4. Is grievance a result of such exercise or events beyond both parties control? 2. Parol Evidence (RST 209-216 and 2-202) a. Is the agreement integrated? i. Does the document represent a final expression of the agmt?

b. c.

d.

e.

f.

Look to four corners? Are K obligations fully set out? Or are there missing terms? Merger clause (one condition, not sufficient) Look to prior or contemporaneous agreements? (see d) (RST 214) UCC: would additional terms certainly been included in the K? If yes, not in. 1. Would a sep agmt be naturally omitted? (collateral K, Masterson; 216(b)(2)) -if yes, evidence that not fully integrated. Traynor: look to actual intent of parties, use parol evidence to determine integration; result = Integration as a function of the quality of parol evidence and not written K Is the agmt completely/fully integrated? (Does it include all details of agmt)? i. Agmt itself cannot prove completeness, need to look into circumstances and intent of parties (RST 210, Comment b) ii. Discharges prior agmts in scope (RST 213) iii. No that would contradict (RST 215) iv. No evidence that would add consistent additional terms (RST 216) v. Can have other agmts outside scope of this agmt (RST 213) vi. 2-202: agmt cant be contradicted or added to, but can be explained/interpreted by course of performance, course of dealing, or trade usage. Is the agreement partially integrated? i. Discharges prior inconsistent agmts within scope of integrated terms (RST 215) ii. No evidence that contradicts (RST 215) iii. Can add consistent additional terms (if term was agreed to for sep. consideration or would naturally be omitted from writing) (RST 216) (K not fully integrated 216(2)(b) iv. Parol evidence to explain/interpret v. 2-202: cant contradict, can explain/interpret, can show evidence of consistent additional terms Did the agmt occur at the same time as the writing? Or is it a subsequent agmt? i. Is this agmt separate? Does it stand on its own, with additional consideration? 1. These types of agmts can be introduced as evidence ii. (Corbin: this shows that agmt isnt fully integrated, allow contemporaneous agmt to supplement (not contradict) (RST 214)) NB: Court held that notwithstanding the integration clause, parol evidence rule does not prevent the introduction of parol evidence that the written instrument was not to become effective as an instrument, until a prior condition or event occurred. See also RST 217

ii. iii. iv. v.

MODIFICATIONS

1. Is the modification supported by consideration? a. Performance of a legal duty owed is not consideration (RST 73) i. Modifications with consideration on both sides are valid 1. Dual consideration not necessary for unilateral Ks (Asmus - reasonableness test) 2. If the handbook agreement has no fixed duration, the employer may terminate or modify after a reasonable time period, if it provide employees with reasonable notice, and modification does not interfere with vested employee benefits. ii. UCC: 2-209 no consideration necessary, just good faith and a legitimate commercial reason. Kills preexisting duty rule. 1. Market shift, making performance a loss for one party, is a legit good faith reason b. Did the parties mutually, willingly modify b/c of a change in circumstances? i. Modification is binding if fair and equitable in view of circumstances not anticipated by parties when K was made (RST 89; Angel) c. Was there duress? i. If assent is induced by an improper threat the K is voidable (RST 175) 1. Improper threat: crime, tort, resulting exchange is not on fair terms (RST 176) 2. Threat of breaking K (alone) is not improper; threat plus other circumstances could be proper. (Angel) ii. Look to motive of party seeking modification (is there a legit reason)? iii. Does the party accepting modification have no other choice? (Alaska Fishermen) 1. Did this party protest? (Mama Rizzo) 2. If dont protest, you have acquiesced and waived right to protest. (id) d. Was there accord and satisfaction? i. Did you accept in satisfaction payment in full? (Wong) 1. If there is a dispute as to price/modification if you accept diff payment then the duty is discharged (RST 278) ii. If no dispute on price (liquidated) one party cant just send less and claim accord and satisfaction (3-313) e. Is the modification oral? Was there a no oral modifications clause? i. Was the NOM clause waived? (Can be waived orally; Mama Rizzo) 1. Did the other party rely on this waiver? (Mama Rizzos) (RST 150) ii. Did the parties create separate subsequent oral agmts? (RST 149) iii. Does K as modified now fall within Statute of Frauds?

WARRANTIES

1. Express (2-313): oral/written promises on quality/content of goods (any description is basis of bargain) a. Any affirmation of fact or promise made by seller as to quality, description of the goods or sample/mode that serves as basis of bargain creates an express warranty b. No magic words needed (such as warrant or guarantee) i. no intent needed on part of seller, no reliance needed on part of buyer c. Was the statement just puffery? (take into account reasonable reliance Carpenter v. Chrysler) d. Can not be disclaimed under 2-316 if written warranty (Magnusson Moss) 2. Implied Warranty of Merchantability (2-314): warranty that goods shall be merchantable is implied if seller is a merchant a. Goods pass without objection, are of fair average quality, fit for ordinary purposes, etc (2 (a)-(f)) b. Can arise from course of dealing or usage of trade c. Seller bears risk, seller does not need to know about defect (Vlases) 3. Implied Warranty of Fitness for Particular Purpose (2-315): goods shall be fit for particular purpose a. If seller has reason to know of buyers specific purpose and if buyer is relying on sellers skill and judgment to select suitable goods 4. Limitation of Warranties (2-316) a. Consumer Products: cannot disclaim implied warranties if a) offers express warranty or b) Seller enters into service K with buyer within 90 days of purchase (Magnusson Moss) b. Can disclaim or limit implied i. Merchantability: must mention MERCHANTABILITY; must be conspicuous if writing ii. Fitness: General language, but must be in writing, must be conspicuous 1. Can be excluded by statements such as as is or with all faults iii. Can be disclaimed by course of dealing, course of performance or usage of trade c. Warranties apply to assignee if there is a close relationship (assignee is seller)

RECISSION/REFORMATION

1. Risk allocation (RST 154) a. Can be allocated by agreement b. A party acts on limited knowledge treating it as sufficient knowledge (Lenawee) c. Court can allocate the risk if its reasonable under the circumstances i. Look to trade usage; infer from other K terms. 2. Mistake: belief not in accord with the facts (RST 151) must exist at time making K (RST 151 cmt. a) a. Unilateral? (RST 153) i. Mistake by one party as to basic assumption, that has a material affect on K is voidable by him, if he doesnt bear the risk (under RST 154) and if 1. Effect of enforcement would be unconscionable, or 2. The other party has reason to know of the mistake or his fault caused the mistake 3. Must meet 152 requirements (below) b. Mutual? i. K can be voided by affected party, if (RST 152) 1. Mistake as to basic assumption (not hope, prediction or expectation) 2. Has a material affect on K: is the deal now less desirable to him and more advantageous to the other 3. Did not bear the risk of the mistake ii. Cannot be voided by one party if he has accepted the risk c. Did one party assume the risk? (RST 154) i. Risk allocated to him by agmt ii. He is aware that he has limited knowledge, but treats limited knowledge as sufficient iii. Risk is allocated to him by court b/c it is reasonable under circumstances iv. Mistake is not something that would have been discovered w/due diligence (Lenawee) d. Can bring in Parol Evidence to illustrate mistake when seeking to reform or rescind K. i. Reformation elements: RST 155 ii. Need Clear and Convincing evidence; very tough standard 3. Misrepresentation a. An assertion not in accord with the facts (RST 159) b. Was this an induced mistake? (Weintraub) i. Need mutual assent, no mutual assent if there is a misstatement inducing the other partys promise therefore K is voidable (RST 164) c. Statements v. silence i. Cant tell lies, but can keep silent in some situations (Swinton (Prosser) termite house, but compare with Weintraub largely depends on the court). ii. Silence can be a misrepresentation if it is relevant to a basic assumption, and is in bad faith and is unknown and unobservable by the buyer (Weintraub) d. Non-disclosure = saying fact doesnt exist when (RST 161) i. Party knows disclosure is necessary to prevent a previous assertion from being a misrepresentation ii. Disclosure would prevent a mistake as to a basic and material assumption iii. Party knows disclosure would correct mistake as to writing iv. Other party is entitled to know b/c of relation, trust, confidence (ie real estate brokers) 4. Public Policy/Illegality (Unclean hands) a. Courts wont enforce Ks that enforce/further illegal action/activity i. Gambling, alcohol, guns, sex, etc b. Courts wary of imposing familial relationships (A.Z.) c. Covenants not to compete: employers burden to show (Hopper): i. No greater than required for protection of employer (Hopper; RST 188) ii. Does not impose undue hardship on employee (Hopper; RST 188) iii. Promisors need outweighed by injury to the public (RST 188) d. Restitution damages generally unavailable (RST 197)

5. Unconscionability a. Parties free to K, fairness is normally irrelevant i. Presumption of conscionability in K btwn merchants and sophisticated parties (Batfilm) ii. Parties not reading K do so at their own peril iii. Look to practical outcome 1. Higher priced furniture for poor people (Walker Thomas) b. Procedural unconscionability (absence of meaningful choice, bargain didnt proceed fairly)? i. Look to manner of negotiation 1. Monopoly? Advantage in bargaining power? ii. Does each party understand terms? Did they knowingly assent? 1. Look to education, sophistication (Batfilm) 2. Was this provision hidden from view? c. Substantive unconscionability? i. Unreasonable K terms ii. Favor one party iii. Mutuality esp wrt arbitration clauses and if employee must pay (Armendariz KFC) d. More procedural, less substantive needed (and visa versa) e. 2-302: if court finds K or any part unconscionable, then i. Can refuse to enforce entire K, can enforce remainder of K, can limit application of unconscionable clause ii. Parties can present evidence as to commercial setting, purpose, effect to demonstrate conscionability (hard to do) iii. A legal realism part of the code CT doesnt have to tweak language (UCC 2-302 cmt 1) BREACH 1. Condition? a. Condition: Event not certain to occur, which must occur, before performance comes due (RST 224) i. Failure to meet condition does not give rise to dmgs, but frees of contractual duties. ii. Satisfaction as a condition: when it is a condition that buyer is satisfied, the standard of a reasonable person will be used to determine if there is satisfaction for commercial goods (RST 228; Morin). But 1. For things like paintings use honest belief must actually examine before reject b. Non-occurrence discharges duty, but is not a breach, no damages (RST 225(2-3)) c. When in doubt: Preference for promises i. Interpretation is preferred that will reduce obligees risk of forfeiture, unless event is w/in obligees control or hes assumed risk (RST 227; Howard v. Federal Crop Insurance) d. Condition waived? (RST 84) permitted unless. i. Occurrence of condition was material part of agreed exchange and promisee under no duty that it occur ii. Uncertainty of occurrence of condition was element of risk assumed by promisor iii. Cant be retracted after condition waived if other party relied on waiver (Mama Rizzo) 2. Immaterial Breach? a. Is it immaterial (e.g. substantial performance) i. Trivial or incidental (Reading pipe) b. If it is immaterial, then i. Cant stop payment or performance ii. Can collect damages for breach (set off what is due to counterparty Reading Pipe) c. Perfect tender rule for goods (see below) 3. Material Breach of promise? a. Is it material? (RST 241) Does it go to the essence of the K? (Balancing test)

i. Extent to which injured party: will be deprived of benefit ii. Extent to which injured party can be compensated iii. Extent to which failing party will suffer forfeiture iv. Likelihood that failing party will cure (K&G bulldozer) v. Extend to which failing partys behavior doesnt conform to good faith and fair dealing b. If it is material, then i. Other party doesnt have to pay/performance ii. Can seek damages for breach iii. Gives rise to sellers right to cure, not right to cancel. c. Always question whether or not it is material if the other party stops performance, if not material, then one counterparty stops performance they are in breach. 4. Total Breach? a. If it is total, then i. Can stop payment ii. Can cancel K and sue for expectation damages |Balancing test for materiality MB No Cure Total Breach| 5. Right to Rejection/Revocation (Perfect Tender Rule subject to substantial performance in UCC) a. Buyer has a legal right to accept or reject all or part (2-601) Triggers right to cure (2-508) i. Acceptance of non-conforming tender does not limit buyer from pursuing other remedies ii. If goods fail to conform exactly (no perfect tender) buyer can reject in seasonable time after delivery. b. Buyer has to give reasonable notice (2-605) and within a reasonable time after delivery (2-602) i. Seller can respond with notice of intention to cure if seller had reasonable belief that goods were okay (2-508) ii. Seller can make conforming performance under 2-605 aggrieved party must particularize the complaint so as to allow seller to cure, otherwise is waiver c. Buyers options as to salvage of rightfully rejected goods (2-604): storing, reselling, shipping back.. i. Beware of the issue that arose in Fertico double recovery possible if sell for profit under lost volume theory! d. Seller can cure (2-508) i. (1) If buyer has rejected, but time for performance has not expired, seller can notify buyer of intent to cure and can make conforming delivery ii. (2) If buyer rejects, and seller had reasonable grounds to believe tender would be acceptable, seller may notify buyer and have time to substitute a conforming tender with or without money allowance (can pay the other guy off) e. Buyer has accepted if (2-606) i. 2-606(1) Signifies goods are conforming after a reasonable opportunity to inspect ii. 2-606(1)(a) Fail to make effective rejection under 2-602, wont occur till had reasonable opportunity to inspect the goods. iii. 2-606(2) Fails to reject any part of unit is acceptance of the whole unit iv. Payment after tender tends to demonstrate acceptance, but not definitive (Comment 3) f. Buyer can revoke acceptance if non-conformity substantially impairs value to him (2-608), if i. Had reason to assume defect would be cured and it has not been (1a) ii. Defect couldnt be discovered on initial inspection or sellers assurances of quality induced acceptance (1b) iii. Must revoke w/in reasonable time (2) iv. Fail to revoke acceptance w/in reasonable time, warranty damages not blocked (2-714) 6. Anticipatory repudiation? (other party breached first) a. Repudiation: Statement (express, clear and unequivocal RST 250) or act (implied; incapable of performing bargain RST 243) that one party intends to breach the K (RST 250; 2-610) i. Can give rise to damages for total breach (RST 253(1))

ii. Discharge other parties duties (RST 253(1)) iii. Excuse the non-occurrence of a condition (RST 255) b. Injured party has election of remedies i. Treat as empty threat, await performance for a commercially reasonable time (Taylor) 1. But if aggrieved party waits beyond commercially reasonable time cannot recover damages which he should have avoided. (2-610 cmt 1; Taylor) 2. Can waive repudiation if act as if K is good for unreasonable time (Taylor) ii. Resort to any remedy for breach even if told other party hed wait (2-703;2-711; 253) 1. If treat as total breach (RST 243) send notice and mitigate/seek damages iii. Suspend his own performance 1. Repudiation can be retracted before reliance or statement from other party indicating repudiation is final (RST 256)(2-611) 7. Failure to Give Assurances a. If reasonably suspect repudiation, can demand assurances of performance (RST 251 & 2-609(1)) i. Reasonable grounds must have arisen to give rise to the insecurity 1. Look to commercial standards as to what is a reasonable ground (2-609(2)) ii. Request for assurance must be in writing and should track language of 2-609. iii. May suspend performance until receiving assurance (2-609(1)) b. Failure to Respond Adequately i. Failure to provide adequate assurances within a reasonable time is repudiation (RST 251(2)) ii. No response w/in 30 days is a repudiation (2-609(4)) Total Breach

DEFENSES 1. Impossibility

a. An unexpected contingency occurs b. The risk of which was not allotted to either party explicitly or by custom c. The contingency has made performance impossible 2. Impracticability (RST 261)(2-615) allows restitution and reliance (no such thing as buyer impracticability in UCC) a. Unexpected contingency, non-occurrence of which was a basic assumption, has made performance impracticable i. Death/incapacitation of person whose existence is key (RST 262) ii. Specific object destroyed (RST 263) iii. Gov regulation (RST 264) (2-615(a)) b. Market change (K is no longer profitable) not enough (Wendt v. IH) c. Did one party bear the risk of this? Who would have bore the risk if the parties bargained for this? Is there evidence the risk has been borne by a party? (2-615 cmt 4 fixed price K NIPSCO) 3. Frustration of purpose a. Partys principal purpose is frustrated due to the occurrence of an event, non-occurrence of which was basic assumption (RST 265) i. Must be frustrated as to principle purpose, K loses its entire point (Henry v. Krell) ii. Frustration must be substantial, not w/in risks assumed iii. Basic assumption

DAMAGES 1. What kind of harm

2.

3.

4.

5.

6.

a. Direct damages (finish building house after repudiation) b. Consequential damages (loss of product, loss of profit) i. Reasonably foreseeable and provable with reasonable certainty (Hadley) c. Incidental damages (com. reasonable dmgs for stop delivery or transporting/caring for goods) d. NB: Dont forget about Prejudgment Interest!! e. Actual loss cap: you cant recover more damages than your expectation damages RST and damages a. Loss in value caused by counterpartys failure or deficiency (RST 347) i. Damages = Loss in value + other loss costs avoided - loss avoided b. Subject to Hadleys Rule, provable w/reasonable certainty (RST 352) c. Cost of performance and diminution in value heart of the K, incidental to K? (RST 348(2)) d. Subject to mitigation unless: (a) undue risk (b) undue burden (Simeone) (c) humiliation (Bloomer Girl) (RST 350) Expectation damages (UCC) a. 1-106: liberally administered such that the P be in as good a position as if other party performed. b. How much would K have increased/decreased Ps wealth (profit)? c. D = loss in value + other losses costs avoided loss avoided d. If cover i. Buyer: Cover K price + incidental & consequential costs avoided 1. subj. to good faith in the replacement process (2-712) ii. Seller: K price cover + incidental costs avoided (2-706) 1. subj. to good faith in the reselling process iii. Buyers Incidental: result directly from breach, reasonably incurred expenses must be proven with certainty and be reasonably foreseeable (2-715/713); Hadley) risk alloc. iv. Consequential: loss from general or particular rqrmts and needs that seller has reason to know about and couldnt have prevented by cover or otherwise (Hadley) 715(2)(a) v. Sellers incidental: commercially reasonable charges for stopping delivery, transportation, care and custody after the breach in connect w/return or resale (2-710) vi. What if cover creates profit potential? Both 712 and e. If dont cover i. Buyer: market (at time breach) K + incidental & coincidental costs avoided (2-713) 1. Measured at time learned of breach at place of tender ii. Seller: market (at time and place of tender) K + incidental Costs avoided (2-708) iii. Lost volume: profit would have received + incidental + reasonable overhead (2-702(2)) 1. Subject to capacity to make sale and market to make sale (UOP & Wired) 2. Reasonable overhead: ignore fixed costs (Hopper) Reliance (RST 349, UCC per 1-103) a. Return to P his outlay in performing K; D can present evidence that it was a losing deal i. Expenses made in preparation for performance or in performance ii. Less any loss that party in breach can prove other party would have suffered b. Actual loss cap: you cant recover more damages than your expectation damages Restitution (RST 370-75 UCC per 1-103) a. Compensate P for benefit conferred upon D (D can argue no benefit) i. Reasonable value to other party in terms of what it would cost to have obtained it elsewhere or how much other partys property has been increased in value (RST 371) b. Can be claimed by breaching party i. Restitution of any benefit conferred in excess of loss caused by breach (RST 373) c. Actual loss cap: you cant recover more damages than your expectation damages Specific Performance a. Not ordered if damages are adequate (RST 359) i. Limited remedy, used for unique goods (land, rare objects) b. Determining adequacy of damages (RST 360)

i. Difficulty of proving damages w/ certainty ii. Difficulty of procuring substitute performance via damages iii. Likelihood that damages wont be collected iv. Is it easy to enforce performance or injunction (RST 366) v. Are third parties affected? 7. Mitigation? a. Cover or resell b. Commercially reasonable c. Will cap consequential damages, not (cover K) differential; the amount of loss that could have reasonably been avoided by stopping performance is subtracted from what would have otherwise been recoverable as damages. i. See illustration 5 on pg 471 (RST 350), see also 2-715(2)(a) 8. Damages limited by K? a. Liquidated damages (2-718) i. Liquidated damages or penalties? Must be reasonable in light of actual or anticipated loss and difficulty of proof of loss (RST 356) and inconvenience of otherwise obtaining adequate remedy (2-718) ii. Large damages unenforceable on grounds of public policy (RST 356) b. Limited damages (2-719) i. Remedies can be limited to 1. Return of goods 2. Repayment of price 3. Repair and replacement 4. No consequential damages (unless unconscionable, limitation for personal injury is unconscionable) ii. If remedy fails its essential purpose, remedy can be had under other UCC sections 1. Clause was fair at time of K, but not know in light of present circumstances Was a third party involved? Third-party beneficiaries a. Intended or incidental? b. The public are typically incidental beneficiaries to govt Ks Assignment of rights Rights can be assigned unless (317(2)): Specifically prohibited by K or public policy ii. Change the duty, impose more risk or impair the other partys chances of getting performance Can create insecurity and spark 2-609 assurances (Koch) c. Manifestation of assignors intention to (all or in part) extinguish its rights to performance and give them to the assignee (RST 317) Delegation of duties Can delegate unless: Prohibited by K or public policy Other party has substantial interest in having original party perform Term prohibiting assignment typically only bars delegation of duty (RST 322) Surety a. If debtor is discharged, surety is discharged unless release explicitly states that the creditor preserves a right against surety and then surety can go against debtor