The importance of a Promise

• Introduction
• A contract is promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law is some way recognized as a duty - Restatement of Contracts

• Promise is a manifestation of intention to act or refrain from acting in a specified way so made as to justify a promisee in understanding that a commitment had been made
• Default or gap-filling rules - govern when the contract is silent
The Basis for Contracts Liability
• 4 types of enforceable promises or contracts- each involves a transaction where something is added to the promise to make it legally binding of an antecedent benefit
• promise + consideration
• promise + recognition of an antecedent benefit
• promise + unbargained for reliance
• promise + form

The consideration requirement

• There must be a bargained for exchange between the parties
Bargained for and given an exchange
• Consideration – there must be a bargained for exchange between the parties and 2. That which is bargained for must be considered of legal value (it must constitute a benefit to the promisor OR a detriment to the promisee)

• For a promise to be enforced, it must be the product of a “bargain” – a negotiation resulting in the voluntary assumption of an obligation by one party upon condition of an act or forbearance by the other” The promise induce the detriment and the detriment induce the promise
• Promise induces a dertiment
• Legal Detriment – any relinquishment of a legal right
• Immediate act
• Forbearance (refraining form something)
• Or the partial or complete abandonment of an intangible right
• An act or forbearance by the promisee must be a benefit to the promisor- it is not enough that the promisee’s incurs detriment; the detriment must be the price of the exchange. If the promisor’s motive was to induce the detriment, it will be treated as consideration
•
Gift – Gratuitous Promise without consideration is not enforceable because there was no consideration (bargain for exchange)
• Gratuitous Promise- a voluntary and without any obligation – not enforceable

• Conditional gratuitous promise- there is a condition that must be met and that condition could be sufficient for the contract to be enforced depending on the two prone test stated below. If the promisor’s motive was to induce the detriment, it will be treated as consideration; If the motive was
no more than to state a condition of a promise to make a gift, there is no consideration

• Was there a bargained for exchange. If yes = consideration. If no go to # 2

• Was the condition sought for, sought by, or desired by the promise. If yes = consideration; if no = gratuitous promise.

• It is not enough for the promisee to incur detriment, but that detriment must somehow benefit the promisor.

• “Come to my house and I will give you money”- even though there is a detriment to the promisee, the promose did not induce the promisee to come to the promisor’s house

Kirksey v. Kirksey – brother in law offers home to widow, then kicks her out after she leaves her leased home. Thought there was detriment to promisee (giving up her land &move), her detriment gives nothing beneficial to the promisee, which is a condition for consideration
Rule: a gratuitous promise is not enforceable even if a party has reasonably relied on that promise and has suffered loss and inconveniences

Hammer v. Sidway – uncle wants nephew to stop drinking and smoking and if he refrains from the bad habits until he is 21, uncles will give him $$$ . The Uncles act induced newphew to forbear from doing things the had a legal right to do (surrendering one’s freedom of action is sufficient
consideration for a promise)
Rule- a waiver of a legal right at the request of someone else will function as a consideration
The court will not look at the “adequacy” –value of the exchange, but whether there was a bargained between the parties – did the promise induce the act of the promisee

Langer v. Superior Steel Corp. – the retired P received a letter from former employer stating that if do not work for anyone else, they will pay him money.
• Rule: if the condition was objectively important to the promisor, it is reasonable to infer that D request is a valid exchange. When the promiser did get something of value, then the court do not look if the P refrained something of legal right
Mixed Motives – even if other motives are present and real reason for exchange it is irrelevant other consideration exists. Both parties must know that the purported consideration is immaterial
Thomas v. Thomas – Widow is given house if she maintains upkeep and pays small fee rent each year.
• Motive is not enough but there was a nominal consideration and therefore it was enforceable
Limited of the consideration doctrine

• Adequacy of Values Exchanged – the court does not look to adequacy of the consideration, which is value of the promises and action exchanged as long as there is sufficient consideration which is met by a detriment incurred by the promisee or a benefit received by the promisor

• Browning v. Johnson- The D had the legal right to kept contract #1, but since he decided to give that right for an exchange of $$, the court stated that that was a consideration. A promise to surrender the right to enforce a contract is sufficient consideration to suppor
another binding contract, evenif the original contract was unenforceable. A consideration sufficient to support a promise is must not aways have an actual value.

• Exceptions to the adequacy rule

• Token consideration – where the consideration is only something entirely devoid of value, it will usually not be legally sufficient.

• Nominal-Sham consideration- parties to a written agreement often recite that it was made in consideration of $1 or some other insignificant sum. Normally the received sum is not in fact paid and, indeed it was never intended to be paid
• In Re: Green- the mistress entered into an agreement with the married man to get $ support in exchange of $1, and reliece him of all legal claims. Court said, not sufficient consideration
Pre-Existing Duty Rule – the promise to perform of an existing legal duty will not be sufficient consideration. If a detriment is the relinquishment of a right, it follows that one does not suffer a detriment by doing or promising to do something that one is already obligated to do or by forbearing to do
something that is already forbidden.
• Modification of contract – to modify a pre-existing contact, there must be new consideration. If there is not new consideration or any other part necessary to form a contract- the first contract will still be binding on the parties.

• Alaska Packers v. Domenico- the greedy fisherman that had a contract and wanted instead of the contracted $60, a $100, and once they did not get it, the court stated not a sufficient consideration.

• Mutuality of Obligation - Consideration must exist on both sides of the contract; that is, promises must be mutually obligatory. An agreement where one party has been bound but the other has not lacks mutuality, since at least one of the promises is “illusory.” Without mutuality of
obligation there is no consideration because consideration is a promise bargained for and given in exchange for a promise. Only applies to bilateral, not unilateral contracts.
• Illusory is when one of the parties promises nothing (A promises to buy B’s car for 100, and B promises to sell the car to Aunless B changes his mind), or on a condition that cannot occur. Completely unrestricted right to renege on his promise. No restriction ot back up

• Rehm-Zeiher Co. v. Walker Co. (whiskey, discretion) - K to sell goods (whiskey). Discretion up to P if for any “unforeseen reason” they couldn’t complete the K, & therefore not liable for breach. If one party is bound to the contract because of the terms of its
agreement, then the contract has no mutuality of obligation, and is therefore not enforceable.
Contracts with Personal Satisfaction clause are enforceable because the promisor has an implied obligation to exercise its personal satisfaction power in good faith.
Making a promise dependent on a condition does not necessarily make it illusory (unless discretion is absolutely reserved to promisor) because the promisor is assumed to be acting in good faith

• Omni Gorup Inc v. Seattle – First National Bank – contracts with a person satisfaction clauses are enforceable because the promisor has an implied obligation to exercise a personal satisfaction power in good faith. Although K conditional on P’s discretion, Omni is
acting in good faith (can only cancel K if not satisfactory- can be determined through evidence), if not will be in breach. Making a promise dependant on a condition does not necessarily make it illusory (unless discretion is absolutely reserved to promisor), because
the promisor is assumed to be acting in good faith.

Enforcing Contracts: Quasi-Contract Restitution

Express Contract- express by language, oral or written
Implied in Fact Contract – by manifestations of assent other than oral or written
• Elements
• The D requested the P to perform work
• The P expected the D to compensate him or her for those services
• The D knew or should have known that the P expected compensation
• Measurements of recover
• The amount the parties intended as the contract price
• If unexpressed- the court will infer that the parties indented the amount to be the reasonable mark value of P’s services

Quasi-Contract or Implied in law Contract

• Elements
• The D received a benefit
• An appreciation or knowledge by the D of the benefit
• Under circumstances that would make it unjust fort the D to retain the benefit without paying for it
• Measurements of recovery
• Is the value of the benefit conferred on the defendant and not the detriment incurred by the P
Moral Obligation enforced when
• There was a pre-existing equitable obligation
• Then it was followed by a removable of the impediment created by the law
• After the impediment you felt morally obligated to pay that debt and you promise to do so

• Mills v. Wyman – where P cared of D’s son without any obligations to do so, and in exchange the father gave promise to the P to pay him for the bills. Court held it was not enforceable because there was no prior consideration/contract.

• Webb v. McGowin (Worker save bosses life; boss offers to pay money each week as compensation)
• Saving life has pecuniary benefits; promise to pay later is acceptance of the benefit
• Consideration exists because defendant was injured; McGwoin benefited

• Harrington v. Taylor (Person had hand injured to save life; prmise to pay)
• Court does not enforce the promise to pay after injury, acting as humanitarian
Antecedent benefit will not be an enforceable contract
• Restatement
• 1. promise made in recognition of a benefit previously received by the promisor form the promisee is binding to the extent necessary to prevent injustice (Webb v. McGowin - if there was an opportunity was there, McGowin would have
made that agreement)
• 2. A promise is not binding under Subsection (1)
• (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched (look at the relationship between the promisor and the promisee - if family then most likely it will be a gift.
• (b) to the extent that its value is disproportionate to the benefit. (if McGowin stated I will give you all my earnings, then most likely it will not be just and)

• if the promisee suffered the detriment before the promise was made, there is no consideration. The promise is seen as gratuitous and non-binding

Promissory Estoppel: A promise + foreseeable reliance (from promisor) + actual reliance + avoidance of injustice
Restatement §90 –
(1) a promise is enforceable to the extent necessary to prevent injustice if:
• The promisor would reasonably expect to induce action or forbearance
• the promisee reasonably relied on the promise; and
• the promise induced such action or forbearance
(2) A charitable subscription or a marriage settlement is binding without proof that the promise induced action or forbearance.

• Ricketts v. Scothorn – the grandfather that promises his granddaughter to give her money so she does not have to work. The grandfather never required the GD to quit her job, and therefore there was no consideration. A promise can be enforceable without consideration, if the promisee
has acted in reliance to their detriment
 • Congregation Kadimah Toras –Moshe v. Deloe – the death guy that promise to the church 25,000 and the church only budgeted for the money, never took any steps to actually use the money. A hope or expectation, even though well founded, is not equivalent to either legal detriment or
reliance and will not be unjust if not enforced

• Blinn v. Beatrice Community Hospital and Health Center, Inc – P went to the supervisor who said that they have work for five more years and P relied upon that representation and did not take the other offer. Requires only that the promesee reliance on the reliance be reasonable and
foreseeable even if the promisor did not intent to be bound.

• Difference between Promissory Estopel and Quasi Contract – Quasi contract has an antecedent benefit, whereas Promissory Estoppel has only a promise to do something.

• Promissory estopple and consideration- with consideration there promisor requests some kind of detriment of the promisee, whereas PE does not request the promisee’s detriment

Bargain Relationship
Policy – Basic concept of contracts is that people should be held to the promises that they make we do not want to be enforcing things that a party did not agree to.
Elements of Bargain Relationship – mutual assent + Offer + acceptance
In the bargain relationship the two primary objectives of the parties are to reach an agreement on a proposed exchange of economic or other resource and they satisfactory to complete the exchange

Mutual Assent- the outward manifestations of the parties’ actions.

• In order to determine whether there is an agreement the court will look at the outward manifestations of the parties: there
• Manifestation of assent are interpreted not in light of what the promisor actually meant or the other party actually understand,
• We have objective test- what a REASONABLE PERSON would have understood in the promisee’s position
• Subjective Test- did the promisee actually understood

• Restatement § 18- Manifestation of mutual assent to an exchange requires that each party either makes a promise or begin or render a performance
Embry v. Hargadine, McKittrick Dry Goods Co. – P told employer that he will seek employment somewhere else if his contract is not renewed, and D told him “go head, you are all right. Get your men out and do not let that worry you.” If a man conducts himself such that a reasonable
person would believe that he was assenting to the terms proposed by another party, and that other party upon that belief enters into the contract, that man would be equally bound whether or not he had actual subjective intent.
Lucy v. Zehmer – Contract formed when parties were drunk and D states he did not intent to sell his farm. If the words or other acts of the one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches
to his manifestation is known to the other party.

Offer - Creation of Power of Acceptance

• Restatement § 24- An offer is a manifestation of the offeror’s willingness to enter into a bargain, and gives the offeree power to acceptance

• The offer must have a language of a promise (I offer, I promise), definiteness as to essential terms, and be communicated to offeree.

• In determining if there has been an offer, look to see if the communication is a promise- consider the language, circumstances, prior practices and relations of parties, method of communication, and industry custom.

• The offer needs to specify the quantity terms because without such there is no reasonably certain basis on give an appropriate remedy.

• Lefkowitz v. Great Minneapolis Surplus Store- the ad in the newspaper that sells coats fro $1 but when the P went two times in a role he did not receive it. The court found that the second ad was definite because of the “worth 139.00” whereas the first ad was indefinite “worth to 100.00”.
Where the offer is clear define and explicit and leaves nothing open for negotiation it constitutes an offer and acceptance of which will complete a contract
• usually ads are considered just a solicitation, but when the ad is so specific (quantity, price, stated to whom the offer was made) that only an acceptance is required, then it is considered an offer

• Lenard v. Pepsico – Ad for exchange of Pepsi point for a jet. Even if you have clear, denine and explicit ad, you will must look to reasonable standard to see if a reasonable person would believe the ad.

Acceptance – Exercise of Power of Acceptance

An acceptance is a manifestation of assent to the terms of an offer in the manner prescribed or authorized in the offer. Through this manifestation of assent, the offeree exercises the power given her by the offeror to crate a contract
• Acceptance by Promise

• La Salle National Bank – The trustee was suppose to sign the proposal for the purchase of a property, and the trustee never signed instead the purchasing agent signed on behave of the trustee. The offeror is the master of the offer and when the language of the offer governs
the mode of acceptance, no other mode may be used to accept the offer.

• Hendricks v. Behee- Behee offered to buy a real estate, Smith send notification, but before the acceptance was received by Behee, Behee told the agent of Smith that he withdraws the offer. Notice to Smith’s agent was sufficient to withdraw the offer. When an offer class for a
promise, the acceptance must be communicated directly to the offeror by notice. An offeror can withdraw his offer before the acceptance is communicated unless the offer is supported by consideration.
• Default Rule- If the offer does not specify if communication is needed, then it is implied that communication is necessary to accept the offer.

• Ever-Tite Roofing Corp. v. Green – D contracted P to fix the roof and before that could be done they were suppose to do a background check. By the time P went to the house, D had already contracted other company. General Rule of law is that an offer proposed may be withdrawn
before its acceptance and that no obligation is incurred thereby. Exceptions: the power to create a contract by acceptance of an offer terminates at the time specified in the offer, or if no time is specified, at the end of reasonable time.
• Default Rule- if no specified time, the reasonable time for acceptance
• If the offeree does not accept by the specified time or reasonable time, the offer laps

Acceptance by Performance

• Unilateral Acceptance – Acceptance begins when partial performance has begun. Law will not allow for revocation in the middle of a unilateral offer

• Bilateral Acceptance – when promise is received

• Carlill v. Carbolic Smoke Ball Co – ad for buying and using smoke balls that was very specific as to who can accept, and intent to be bound should by money place in bank. One who makes a unilateral offer (performance) for the sale of good by means of an ad impliedly waives
notification of acceptance if his purpose is to sell as much product as possible.

Acceptance by Conduct or Silence

Restatement § 69(1) - Where an offeree fails to reply to an offer, her silence and inaction operate as an acceptance in the following cases only;
a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject AND reason to know they were offered with the expectation of payment.
b) Where the offeror has stated.. that assent may be manifested by silence .. and the offeree in remaining silent… intends to accept the offer.
c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept

• Russell v. Texas Co. – P send an offer to D stating “your continued used of the roadway= acceptance” and D continued to work. Where the offeree exercised dominion over the things which are offered to the offeree, such exercise of dominion in the absence of other
circumstance showing a contrary intention is an acceptance. And if circumstances indicate that the exercise of dominion is tortious (trespass) the offeror may at his option treat it as an acceptance, though the offeree manifest an intention not to accept

Restatement – an offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by
him

• Ammons v. Wilson & Co. – ordering meat and never delivered. Silence + inference drawn from previous dealings = acceptance

Time when Acceptance is Effective: Mailbox Rule

• Acceptance by mail or similar means creates a contract at the moment of dispatch, EXCEPT
• Different for rejection/counteroffer- rejection is valid when it is received by offeree
• An option contract is involved (an acceptance under an option contract is effective only upon receipt)

• Note: Since revocation is effective only upon receipt, under the mailbox rule if the offeree dispatches an acceptance before he receives a revocation sent by the offeror, a contract if formed

• Summary of Mailbox Rule

• Offer- good when received
• Acceptance- good when it is send
• Counteroffer – good when received
• If counteroffer is send first and then an acceptance is sent, the mailbox rule does not apply
• Revocation – good when received
• Offeree send rejection, then acceptance – mailbox rule does not apply
• Offeree sends acceptance, then rejection – mailbox rule generally applies (however if the offeror receives the rejection first and relies upon that rejection, the offeree will be estopped from enforcing the contract)

• Adams v. Lindsell - – D mailed offer, but by D’s mistake got delayed. P mailed acceptance same day they rec’d offer. Because of the delay, D sold to someone else (but P mailed acceptance be4 this). The offer was accepted as soon as the acceptance was sent in the mail.

Nature and Effects of Couter Offer = Rejection

Common Law – Mirror Image Rule- there must be unconditional assent to the offer (no additional terms)
Counteroffer- an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but different in its terms
• Counteroffer combined with wxpress rejection
• Acceptance conditional upon additional terms
If it is an inquiry (I am still thinking, but can give you an answer right away if you want to lower the price now” will not terminate the offer when it is consitent with the idea that the offeree is stil keeping the original proposal under consideration.
• Minneapolis & St. Louis Railway v. Columbus Rolling-Mill – P accepts but with different quantity. D rejects counteroffer and P accepts original offer. (mirror-image) – Acceptance must be the mirror image of offer; if no they are considered conteroffers and destroys the prior offer.
Restatement Comment - Difference between acceptance with qualification (counter offer) and a genuine acceptance with mere "inquiries"
• § 59 - a reply which purports to be an acceptance but which adds qualifications or requires performance of conditions is not an acceptance but a counteroffer.
• § 61 - an acceptance which requests a change is not invalidated unless the acceptance is made to depend on an ascent to the changed or added terms.

Sprecht v. Netscape – downloads software with arbitration condition. The terms and conditions were after the DOWNLOAD click, and no reasonable person could have found it or expected to find it there. An offeree is not bound by inconspicuous contractual provision of which he is unaware
or that is not obvious
Terminating Offer by the offeror – REVOCATION
Restatement § 36
(1) An offeree's power may be terminated by;
• Rejection or counter-offer
• Lapse of time
• Revocation of offer
• Death or incapacity of the offeror or offeree
(2) In addition, offeree's power of acceptance is terminated by the non-occurrence of any condition of acceptance.

Restatement § 42 - Indirect Revocation

"Where an offer is for the sale of land or in other things, if the offeror, after making the offer, sells or contracts to sell the interest to another person, and the offeree acquires reliable information of that fact, before he has exercise his power of creating a contract by acceptance of the offer, the offer is
revoked."

Restatement § 41. Reasonable Time Lapse

An offer will be revoked after either time stipulated in offer; OR if no time is set, then after reasonable time.
• Handricks v. Behee- Behee mailed an offer to Smith. Smith signed the agreement but Behee notified an agent of Smith that he had withdrawn the offer before he received notice of the acceptance. An offeror can recoke his offer all the way up until acceptance, unless the offer is supported
by consideration (the consideration will make an option contract i.e $50 to keep a contract open, so there is consideration)

• Dickenson v. Dodds – Dodds send Dickenson a letter stating that he has until Friday to accept the offer. P found that D made a contract to sell the land to a third party, and before the time of acceptance laps, P gave his acceptance. When D sold the land it was an implicit withdraw of the
offer, there was no meeting of the minds at the time of acceptance and therefore no contract.
Restatement §43 An offeree’s power to accept is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract the offeree acquires reliable information to that effect.

Irrevocable Offer: Option Contract

Option contract – the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer
Restatement § 37. Revocation of Option Contract with Consideration.
The power of acceptance under an option contract is not terminated by rejection or counter-offer by revocation, or by incapacity, unless the requirements are met for the discharge of a contractual duty.
• Huble Oil v. Westside Investment – D agreed to sell property to P and P gave $50 as consideration to keep the contract open. Then P send a letter that he does accept the offer but added a term “provide that the seller install utilities lines.” After that letter, P send a second letter before the time
of acceptance has lapsed and accepted the prior offer. Court stated that the qualified or conditional acceptance that would have constituted a rejection if it was an offer, but it was not a rejection because there was an option contract. Under an option contract, the act necessary to raise a
binding promise to sell, is not, therefore, an acceptance of the offer, but rather the performance of the condition of the option contract.
Majority rule holds that party must actually receive consideration before it becomes irrevocable, minority rule finds that if option was not paid it does not void the contract.
Restetment § 87- An offer is binding as an option contract if (a) is in writing and signed by the offeror, recites a purported consideration for the making of theoffer, and proposes an exchange on fair terms within a reasonable time”
Effect of Rejection by Optionee- Where an offer is supported by a binding contract that the offeree’s power of acceptance shall continue for a state time, the option holder may complete a contract by communicating his acceptance despite the fact that he has previously rejected the offer. However, if
the offeror had received the rejection before the acceptance and has sold the property, the offeree might be estopped and his power to accept will be gone.

• Marchiondo v. Scheck - D in writing offer to sell property to a buyer and agreed to pay a % to the broker. D in writing revoked the offer and later that day the buyer sent his acceptance. The broker sued D to execute the contract between them based on the unilateral contract and the partial
performance. Once performance has begun in unilateral contract, the person has a right to finish the offer without the offer being revoked.

Part Performance – Only under Unilateral Contract- Traditionally, a unilateral contract could be revoked at any time before acceptance (before performance of the requested act was completed).
Restatement- An option contract is formed upon the start of performance by the offeree, making the offer irrevocable for a reasonable time. It is a the offeree had paid consideration to keep the offer open for a reasonable time
• Drennan v. Star Paving Co. – P used D’s calculations for the bid, and P won the bid. When P went to accept, D told him that they used the wrong numbers and they refused to accept the P’s acceptance. Merely acting in justifiable reliance on an offer may in some cases serve as
sufficient reason for making a promise binding.
Restatment § 87- an offer which the offeror should reasonably expect to induce action or forbearance of a substantial character by the offeree before acceptance and which dos induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice”
DEFENSES TO THE BARGAINING PROCESS
Avoidance of Contracts: Capacity
Courts will refuse to enforce contracts because of conditions existing at the time of contracting, such as lack of capacity to contract by one of the parties, defects in the bargaining process resulting from mistake, fraud, duress, or unconsciounability or terms in the agreement that make performance
illegal or against public policy
Capacity to Contract: Infancy, Mental Incompetence
• Restetment §12(1) No one can be bound by contract who has not legal capacity to incur at least voidable contractual duty
• (1) under what circumstances is a person so incapacitated that either no contract can arise from the bargain (contract “void”) or contract which does arise can be rescinded or avoided (contract “voidable”)
• (2) What must be done to effectively rescind a “voidable” contract?
• (3) What are the appropriate remedies available to both parties involved in the transaction?

• Infancy – a minor can enter into a contract, but the contract is voidable
• Voidable contract is not absolutely void, but may be annulled or affirmed at the instance of the party entitled to invoke that election
• A minor can disaffirm the contract at any time before reaching the age of majority, or within a reasonable time thereafter
• Even a fully performed contract can be disaffirmed within a reasonable time after majority
• If at the time of majority, the minor has not disaffirmed the contract, the minor can ratify it
• The ratification can be expressed or it could be by conduct if the minor takes a benefit under the contract after majority, or it could be implied if the minor fails to disaffirm the contract within a reasonable time
• Recovery for Necessaries Furnished –
• Whatever goods or services are needed for a minor’s livelihood, or appropriate to his standard of living and position. Does not include luxuries
• Depending on the totality of circumstances – even if a minor would have found a car useful as a means of tranport to his summer job, if the minor lived at home that could be considered a luxury
• Necessaries as an exception to the minority defense
• Enforce the contract
• Other courts avoid the contract even though it involved necessaries, but hold the minor liable for restitution on the theory of unjust enrichment- if the market value of the goods or service is less than the contract price, the minor is only liable for that lower value
• Restoration – Restitution
• If the contract is disaffirmed the major party must always restore in full the value of anything that he has received from the minor
• The minor is generally only liable to return to the major party whatever she still has on the major’s contract performance at the time of avoidance
• The minor does not have to pay the major the value of service or of property that has been consumed or lost
• Misrepresentation of Age-
• Acting reasonable was misled by the misrepresentation and gave value to the minor or otherwise suffered a detriment in reasonable reliance on it
• The courts can fully enforce the contract by estopping the minor from asserting minority
• The court may deny enforcement of the contract but hold the minor liable for the tort of fraud

• Mental Incompetence
• Restatment §15 (1) a person incurs only voidable contractal dueites by entering into a transaction if by reason of mental illness or defect
• (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction; or
• (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition
• (2) where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Section (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstance have so changed that
avoidance would be unjust. In such a case a court may grant relief as justice requires
• few courts have hold that contract with an incompetent will be enforced if the exchange is fair, unless the other party recognizes the other’s incapacity- if so the other party is guilty of fraud
• depends on good faith and was unaware of the incapacity
• Incapacity Due to Intoxication
• Voidable, it must be made to appear that the party was intoxicated to such a degree that he was, at the time of the contracting, incapable of exercising judgment, understanding the proposed engagement, and of knowing what he was about when he entered into the contract sought to be
avoided
• There must be some evidence of a resultant condition indicative of that extreme impairment of the faculties which amounts to contract incapacity
• The Contrasting Capacity Requirements for Different
Mutual Assent Part II
Restatement – Effect of misunderstanding
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestation and (a) neither party knows or has reason to know that meaning attached by the other; or (b) each party knows or each party has reason to know that meaning attached
by the other
(2) The manifestations of the parties are operative in accordance with meaning attached to them by one of the parties if (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 (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
• Raffles v. Wichelhaus – there were two ships named Peerless and each party thought of the other one. When the cotton was shipped in the second ship, the buyer refused to accept delivery.
• If a latent ambiguity arises that shows that there had been no meeting of the minds, there is no mutual assent to contract. Parol evidence is admissible to determine the meaning each party assigned regarding a latent ambiguity
• Contract void – when mutual mistake as to the subject matter and because therefore the parties did not consent to the same thing
• But not the actual partie’s mind, but the fact that there were two ships that were named the same. If there was only one ship and one said “Peri” then the person would have been bound by the contract
Unilateral and Mutual Mistake
• A mistake can provide the basis for rescinding a contract. Courts rarely void contracts due to mistake - b/c unlike intentional fraud, etc., the mistake may not be the defendant's fault.
§152. Mutual Mistake §153. Unilateral Mistake
Mistake by both parties Mistake by one party
Mistake made at time K is made Mistake made at time of K
Mistake as to the basic assumption on which the K was made Mistake as to the basic assumption on which he made the K
Has a material effect on the agreed exchange of performances Has a material effect on the agreed exchange of performances that is adverse to him
K voidable by adversely affected party K voidable by adversely affected party
Unless adversely affected party bears the risk Unless adversely affected party bears the risk
-AND (any of these) -
Unconscionable to enforce
 In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of -OR-
reformation, restitution, or otherwise. Non-mistaken party knew or had reason to know of the mistake,
-OR-
Non-mistaken party's fault caused the mistake

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
• Beachcomber Coins v. Boskett – the rare coins that were a fake. Mistake was mutual in that both parties were laboring under the same misapprehension as to essential fact, the price asked and paid was directly based on that assumption.
• A mistake regarding a fact assumed by them as the basis on which they entered into the transaction, it is voidable by either party if enforcement of it would be materially more onerous to him than it would have been had the fact been as the parties believed it to be.
• Negligent failure of a party to know or to discover the facts as to which both parties are under a mistake does not preclude rescission or reformation on account thereof
• Assumption the risk – the parties must be conscious that the pertinent fact may not be true and make their agreement at the risk of that possibility
Fraud, Duress, Undue Influence
Misrepresentation, Rescission and Restitution
Misrepresentation – an assertion that is not in accord with the facts (conduct or words)
• It must be an assertion or affirmation of an existing act – NOT an expression of opinion, a promise to do something in the future, or a prediction of future events
• Upon which the other party justifiably relies in entering the contract
• It may be fraudulent or innocent
• It might be of Half truth or consist of the concealment of fact or even the failure to disclose
• although a statement or assertion may be facially true, it may constitute an actionable misrepresentation if it causes a false impression as to the true state of affairs, and the actor fails to provide qualified info to cure the mistaken belief
• The contract is rendered voidable but the fraud must be in the execution (not inducement) which precludes the formation of any contract at all
• Remedies – rescission
• Return the parties to the status quo
• P- restore any benefit he received under the contract, including a return in specie of any property received and a reasonable rental value for the use of the property, plus damages for waste if any
• D- restore any money paid by the P under the contract plus interest, monetary reimbursement for reasonable repairs, expenditures and improvements made on the property by the P, and where a business has been sold a reasonable amount of compensation for the value of the P;s labor
and services rendered during the period of time which he operated and possessed the property
• Misrepresentation of Fact vs. Opinion
• 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.
• § 169. – Reliance on an opinion is not justified unless:
• When there is a special relationship of trust & confidence, that recipient reasonably relies
 • 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
• Recipient is for some other reason particularly susceptible to a misrep of the type involved.

• 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.
• Vokes v. Arthur Murray, Inc.
• Facts: 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.
• 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.
• § 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 knows enough facts to justify
in him forming the opinion.
• Silence as to a material fact does not in itself constitute fraud, unless there is a duty to disclose
• A confidential relationship may impose a duty to disclose (whom the confidence is reposed to exercise the utmost good faith and to refrain from obtaining any advantage at the expense of the confiding party)
• Special relationship of trust or confidence or an agreement, express misrepresentation
• Duty to disclose may also arise when it is necessary to correct a previous statement or false impression
• When correction of mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing
• Correct a mistake to the contents or effect of a writing, evidence or embodying an agreement in whole or in party
• Hill v. Jones – the infested house with the termite. The P asked the D, he obtained a infestation report that said everything was ok.
• Where the seller knows of facts materially affecting the value or desirability of the property which are know or accessible only to him and also knows that such facts are not know to, or within the reach of the diligent attention and observation of the buyer, the seller is
under a duty to disclose them to the buyer
• A matter is material if it is one to which a reasonable person would attach importance in determining his choise of action in the transaction in question. Unless reasonable minds could not differ, materiality is a factual matter which must be determined by a trier of facts
• When one conveys a false impression by the disclosure of some facts and the concealment of others, such concealment is in effect a false representation that what is disclosed is the whole truth
• Duress Generally – 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.
• § 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.
• 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.
• Economic Duress – 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.”
• Austin Instrument, Inc. v. Loral Corp.
• Facts: 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.
• To find economic duress in a business K:
• There is a wrongful threat to breach
• It overcomes free will
• There are no alternative sources of goods,
• Ordinary remedies doesn’t cover the loss

• Undue Influence – Unfair persuasion that may fall short of actual duress. Pressure that works on the mental, moral, or emotional weakness to such an extent that it approaches the boundaries of coercion
• Limited to situation that there is a relationship – wife and husband, child and parent
• Non relationship situation –
• Discussion of the transaction at an unusual or inappropriate time
• Consummation of the transaction in an unusual place
• Insistent demand that the business be finished at once
• Extreme emphasis on untoward consequences of delay
• The use of multiple persuaders by the dominant side against a single servient party
• Absence of third-party advisers to the servient party
• Statements that there is no time to consult financial advisers or attorneys
Unconscionability
• § 2-302. Unconscionable contract or Term.
• Provides that if the court as a matter of 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.
• No definition of unconscionability – this gives courts discretion
• Policy: to prevent oppression and unfair surprise
• Consumer Transactions - The defense of unconscionability is mainly used by consumers
• Williams v. Walker-Thomas Furniture Co.
• Facts: 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.
• 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?).
• Did each party to the contract, considering his obvious education or lack of it, have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive sales practices?
• “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.”
• Procedural and Substantive Unconscionability - 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).
• K can be procedurally (manner in which K was enacted) unconscionable if there is oppression or surprise (unequal bargaining power; lacks meaningful choice).
• Lack of knowledge – inconspicuous print or the use of complex, legalistic language, lack of opportunity to study the contract and inquire about the contract terms
• Lack of voluntariness – great imbalance in the parties’ relative bargaining power, the stronger parties terms are non-negotiable, timing or other pressures
• 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).

• Contracts of Adhesion - contracts that have a standardized form and are presented on a take it or leave it basis
• At common law these Ks have been "presumptively enforceable" - excuse only when P able to show that the drafter actively caused the misrepresentation.
• §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.
• Basically, they are enforceable, unless unconscionable
• Unconsciounability in Commercial Transactions (buy goods and services for personal, family or household purposes)
• Substantial unconscionability alone is usually insufficient to void a contract or clause. The court must also consider whether the contract formation procedure was procedurally unconsciounable
• The record must show a disparity in the parties’ bargaining position
• The customer could not have obtain equally effective between parties experienced in business, as oppose to rewrite contract between parties experienced in business
• Zapatha v. Dairy Mart, Inc- P was involved in a franchise agreement with D that provided that the agreement could be terminated without cause with 90 days notice. The court found that the words were neither obscurely worded, nor buried in fine print in the contracts; the P
knew and was even advise to review them with attorney before signing and therefore no unconscionability.
• Whether the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract
• The principle is one of prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power
Illegality
• Illegality: 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, performance or objectives that are "illegal" or against "public policy."
• Restatement § 178(1) unenforceable on ground of public policy if legislation provides that it is unenforceable. But if there is no clear legislative mandate, the promise or term is still unenforceable if the “interest in its enforcement is clearly outweighed in the circumstances by a public
policy against the enforcement of such terms”

• § 178(2) “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 I the enforcement of the particular term

• §178(3) “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
• If the promise is not enforceable the P should be denied restitution of any benefits conferred on the D by performance or part performance
• If arguments successful, the D will have avoided contractual liability and may be permitted to retain any benefits received on the grounds that the contract in which he or she was involved was against public policy
• Illegality: 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.
rd
• Sinnar v. Le Roy – P, a grocery store owner, filed for a beer license, but was denied. The parties then discussed and agreed to get the license through a 3 party and he does not get the business license, the $450 P had given him to procure it.
• If the legality is not serious, and neither public policy nor state clearly require denial of relief, courts refuse to give effect to facts showing illegality unless those facts are essential to establish a prima facie right of recovery
• Leave Party Where Stand - Court's will leave parties where they are; however, if it's tiny part of contract they might balance it a bit more.
• Restitution Exceptions: Courts may allow restitution in situations where (1) denial causes disproportionate forfeiture, (2) plaintiff was excusably ignorant of facts or legislation of a minor character , (3) plaintiff was not equally wrong, and (4) plaintiff did not engage in serious
misconduct and he withdraws from the transaction before the improper purpose has been achieved.
• Restitution also allowed where the P did not engage in serious misconduct and allowance of the claim would put an end to a continuing situation that is contrary to the public interest
• Non-Compete Agreements Unenforceable on grounds of public policy because overboard
• Data Management, Inc v. Greene
• Facts: when Greene was employed with Data he signed a contract containing a covenant not to compete with D for five years after termination. Shortly after Greene was terminated the company sued for breach of contract
• Court proposes three methods with approaching overbroad covenants:
• Strict Method – if overbroad, then it’s unconscionable & won’t be enforced
• Blue Pencil method – Just strike out certain words that make it unconscionable
• Rule of Reasonableness – If found to have been written in good faith, reasonably alter the covenants to make I enforceable. Court uses this method.
• If an overboard covenant not to compete can be reasonably altered to render it enforceable, then the court shall do so unless it determined the covenant was not drafted in good faith.
 • In general, courts focus upon 2 aspects of the covenant:
• Whether it protects some legitimate interest of the promisee,
• Whether it is reasonable in scope
Statute of Fraud-
• a general rule no rule that it has to be in writing to be enforceable for a contract. That are made and completely. Statute make contracts unenforceable that makes some kind of contracts unenforceable or just part of it. But they are all statutory rules. The evidence that is required is very very min.
It must be signed by the parties- that all that SOF requires. If you just did the min, The sale of real estate- you have to file it in the public office. Sale of goods – if you meet those circumstances, it has to have quantity enforceable up to the quantity identify, part performance by the buyer is a
substitute …, there is a threshold level – worth 500 or more. The latest amendment the UCC will increase to 5000. No state has adopted the latest amendments of UCC
• What is covered under the statute of frauds? (MYLEGS – Marriage, Year, Land, Executor, Goods, Surety)
• Marriage - promise in consideration of marriage (something more); something to do in addition to promise to marry
• Year - Service contract not being able to be performed one year from the making of the contract
• Land - Real estate transfer - lease/mortgage - usually that go on for more than 1 year
• Executor - executor paying expenses out of own pocket
• Goods - Sales of goods for $500 or more (changed to $5000, but no state has adopted this $5k threshold). (see also UCC §2-201 contracts for sale of goods)
• Surety - Promises to answer for debts of another (guarantor). Not just promise to pay, but promise to pay if someone else does not (exception: if promise benefits the promisor)

BASIC PRINCIPLES
• § 235. Effect Of Performance As Discharge And Of Non-Performance As Breach
• Full performance of a duty under a contract discharges the duty.
• When performance of a duty under a contract is due any non-performance is a breach.
• Breaches that trigger remedies
• Failure to perform w/o justification at time agreed upon
• Repudiation of the promise or bargain
• § 250. When A Statement Or An Act Is a Repudiation: (a) a statement indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach. (b) A voluntary affirmative act which renders the obligor unable or apparently unable
to perform without such a breach.
• Bad faith in the form of preventing or hindering the other party's performance or failing to cooperate
• Material and non-material breaches
• Material breach: non-breaching party given option to suspend its performance or cancel contract and sue for damages. However, problem might be if this action is taken and court subsequently decides it was not a material breach. Then that suspension of performance or cancellation is a
material breach.
• Factors to determine whether the breach was material § 275
• Deprivation of expected benefit- the more the non-breaching party is deprived of the benefit which he reasonably expected, the more likely the breach was materisl
• Part Performance- the greater the part o fthe performance which has been rendered, the less likely it is that a breach will be deemed material. (closer to the beginning more likely material)
• Likeliness of cure: if the breaching party seems likely to be able to willing to sure, the breach is less likely to be material than where cure seems impossible
• Willfulness: a willful/intentional breach is more likely to be regarded as material than a breach caused by negligence or other facts
• Delay: a delay, even a substantial one, will not necessarily constitute a lack of substantial performance. The presumption is that time is not of the essence unless the K so states, or other circumstnaces make the need for promptness apparent. (Even if the K does
contain “time of the essense” clause, a short delay will not be deemd material unless the cir. Show that the delay seriously damaged the other party)
• Non-material breach, no option to cancel, but aggrieved party can recover.
• Policies in getting breach remedies:
• P must prove that breach was substantial cause of the loss complained of and the amount of the loss caused with reasonable certainty
• Provable losses must have been reasonably foreseeable to D at time of contract formation
• Pl has “duty” to mitigate damages
• Interest - In addition to compensatory damages, P can also recover interest of $ withheld and maybe costs of litigation. P cannot recover transaction costs (like attorney's fees or costs of delay) unless in agreement, or if a statute, etc.

MEASURING & COMPENSATING LOSS RESULTING FROM BREACH

• Compensatory Damages - to put the nonbreaching party where she would have been had the promise been performed so far as money can do this. Since the nonbreaching party is under a duty to tender counterperformance, her claim is usually asserted as a setoff against her liability to the
obligor
• Expectation Damages –compensate the injured party for the benefit he would have received had the contract not been breached, minus any amount he would have spent in performance of the contract. Such damages must be proven with certainty, and may be measured by the contract
price, loss in value, or lost profits.
• Restitution Damages – compensates a party for the benefit conferred on the other party as a result of partial performance or reliance, and is aimed at preventing unjust enrichment.
• Restitution damages may be measured by:
• the reasonable value of the benefit received in terms of what it would have cost to obtain such benefit from another source
• the extent to which the value of the party's property has been increased or his other interests advanced.
• Reliance Damages - compensate the injured party for expenses or loss incurred in reasonable reliance on the contract that was breached. Reliance damages are only awarded when expectation damages cannot be proven, and may not exceed the anticipated benefit of the bargain.
• Sullivan v. O'Connor
• Facts: Plastic surgery gone bad. Dr. promised Pl she would look good (so able to bring breach of K claim). Dr. found not liable for negligence.
• Analysis: She is awarded reliance damages, including restitution and all other damages that flowed from the breach (including her psychological injuries). Goal is to put aggrieved party back into position as if no breach - and psychological damages are part of the equation.
• Restitution - Giving the plaintiff back what she gave the defendant – costs of surgery
• Reliance Damages - Putting the plaintiff in the position that she’d been in if she’d never entered the contract. The whole difference in value between the promised and present conditions.
• the difference between what she has and what she’d have had if she’d not had the surgery, and kept her average nose
• Pain/suffering/mental anguish – only awarded to the extent that it went beyond what was expected per the K. Here, Pl entitled to recover for worsened condition, and pain, etc. of additional procedure to correct it

PERFORMANCE
Parol Evidence – Whether one party may prove prior or contemporaneously agreed terms or conditions which alter or add to the written if its subject is closely related to the subject of the written agreemnt
• Parole evidence rule- determines the provability of a prior or contemporaneous oral agreement when the parties have assented to a written agreement
• First: Is the writing a full and final, record of the agreement as a whole or of the particular term in issue. If so, then the parol evidence will not be admitted
• Second: If the writing is neither a complete integration nor a partial integration covering the term in issue, consistent supplementary parol evidence is admissible. Then the inquiry turns to whether the proffered parol evidence is in fact consistent with and not contradictory to what has
been written
• The preliminary determination is made by the judge
• By “the four corners” rule- by which the judge decides whether there is an integration and whether it is total or partial by looking solely at the doc
• The Corbin view – by which these question are to be answered by looking at all available evidnce including testimony to determine the actual intention of the parties
• Collateral Agreements – if collateral it obviously must be an agreement that parties situated as are the parties to this contract would NATURALLY AND NORMALLY NOT INCLUDE in the apparently integrated writing. Evidence of extrinsic matter may beindorduced, it may characterize
that extrinsic agreement as collateral. Just a label
• Mitchell v. Lath – an oral agreemnt is not collateral to the written agreement
• Facts: Lath selling house to Mitchell. Before the sale, Mitchell promises to remove an icehouse. K did not specify this would be done. Mitchell buys house, but Lath does not remove it
• 3 part test –
• The agreement must in form be a collateral ne
• It must not contradict express or implied provision of the written contract
• It must be one that parties would not ordinarily be expected to embody in the writing; or put in another way, an inspection of the written contract, read in the light of surrounding circumstances must not indicated that the writing appears “to contain the engagements of the parties,
and to define the objet and measure the extent of such engagement
• Since K was completely integrated, would the removal of the icehouse be something that would be ordinarily expect to be included in the K? to be within the scope it must not be too closely connected to the principle transaction. Here, court decides that if parties had intended the
removal to have been part of the K, they would have put it in
• Masterson v. Sine - When determining that a collateral agreement is such that it might naturally be made as a separate agreement, the court must look to the actual experience and dealings between the parties as they view the status of such a collateral
agreement.
• Masterson and his wife sold a ranch to the Sines, an option to repurchase the ranch. Masterson lately became bankrupt and his trustee attempted to exercise the repurchase option to bring the property into Masterson’s estate. The parties had orally agreed at the time of the sale that the
option was personal to the Mastersons and could not be transferred to or exercised by anyone ele
• Restatement 1st Section 240 (1)(b) permits proof of a collateral agreement if such an agreement would be naturally made by parties similarly situated as were the parties to the written agreement. UCC 2-202 states that parol evidence is not
admissible if the additional terms are such that, if agreed upon, they would certainly have been included in the written contract. Thus they would exclude the evidence in still fewer instances. The option contract did not explicitly provide that it
contained the complete agreement. The deed does not address assignability. This was a deed and from the very nature of deeds, the formalized structure does not lend itself to the insertion of collateral agreements and makes it less likely that all the
terms of such an agreement were included.

Interpretation Basic Principles

• Pacific Gas & Electric Co. v. G.W Thmas Drayage – Extrinsic evidence is admissible to explain the meaning of a written insturmet if that evidence is relevant to prove a meaning to which the language is reasonably susceptible
• D entered into a contract with D and has an agreement to perform the work at its own risk and expense and to indemnify Pacific against all loss, damage, expense, and liability resulting from injury to property. Cover fell and damaged an exposed turbine rotor. T offered proof in the
form of admissions by Pacific’s agents in the court of contract negotiations to show that the indemnification clause applied to third parties only.
• Extrinsic evidence is not admissible to add to, detract from or vary the terms of a written contract; however the terms must first be determined in order to rule on whether extrinsic evidence is offered for a prohibited purpose. Rational interpretation
requires a preliminary consideration of all credible evidence offered to prove the intent of the parties. Such evidence includes the circumstances of the agreement. Extrinsic evidence to prove the contractual intent of the parties should only be
excluded when it is feasible to determine the meaning of the words from the instrument alone.
• If the court after looking at all the evidence and the court decides that the language of a contract, in the light of all the circumstances, is “fairly susceptible of either one of the two interpretations contended for extrinsic evidence relevant to prove
either of such meanings is admissible
• The hierarchy:
• KT language (oral or written)
 • Overall circumstances, negotiations and identifiable principal purpose of parties
• Writing as a whole, and other writings part of the transaction interpreted together
• General words are given general meaning, and technical words are given technical meaning (unless KT states otherwise).
• Course of performance (in this transaction)
• Course of dealing (all transactions between these parties)
• Trade usages
• Statutory default rules (implied terms)
• Judicial default rules (more specific before more general)
• General standards of reasonableness & good faith
• Reasonable under the circumstances
• Reasonable in light of community standards of fairness and policy or, more expansively, moral and social values of fairness, equity, decency, trust, golden rule, cooperation, good faith
• interpret ambiguities against the drafter
• Frigaliment Importing Co. v. B.N.S. International Sales Corp.
• Facts: K for sale of “chicken.” K didn’t specify whether chickens are old or young. Seller sent older chickens rather than young. Question on interpretation of the word “chicken” to mean boiler or fryer (young chickens), rather than older ones that are termed “fowl.”
• Court looks at different things to help in interpretation (see hierarchy of the rules). Since not clear from K, they look outside, to decide the meaning of “chicken.

The Duty of Good Faith

• 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
• What is Good faith?
• Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade
• It excludes a varity of types of conduct characterized as involving “bad faith” because they VIOLATE COMMUNITY STANDARD OF DECENCY< FAIRNESS OR REASONABLENESS
• Good faith is essentially contractual morality, and requires 1) honesty in fact, 2) faithfulness to the common purpose, 3) consistency to expectations, 4) adherence to community standards of decency, fairness, and reasonableness.
Prevention, Hindarance, Cooperation and the Duty of Cooperation
• In every K, there is an implicit understanding that neither party will intentionally do anything to prevent the other party from carrying out his part of the agreement. It is likewise implied in every K that there is a duty of cooperation on the part of both parties. Thus, whenever, the cooperation of
the promisee is necessary for the performance of the promise, there is a condition implied that the cooperation will be given.
• The doctrine of prospective inability to perform and anticipatory repudiation both emerge from the perception that D has done something to impair the P’s expectation of receiving due performance, and that the P interest whether expectation, reliance or restitutions should have some protection
• As with a repudiation or breach by a material nonperformance, breach by prevention or hindrance or a failure to cooperate both excuses the aggrieved party from any duty to continue performance and gives a cause of action for damages
• Patterson v. Meyerhofer – In every contract, there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, which means that in every K there exists an implied covenant of good
faith and fair dealing
• P agreed to sell and D agreed to buy four parcels of land. At the time the contract was executed, the Defendant knew that the Plaintiff was not the owner of the premises he agreed to sell. He expected to acquire title by purchasing it at a foreclosure sale.
Before the foreclosure sale took place, Defendant informed the Plaintiff that she would not perform under the contract and would buy the premises herself. She bought the four parcels of land for $5,595.00 each. The Plaintiff also attended the
foreclosure sale ready to purchase the parcels of land but was out bid by the Defendant. Defendant acquired the four parcels of land for $620.00 less than she was obligated under the contract.
• In every contract there is an undertaking by each party that they will not intentionally and purposely do anything to prevent the other party from carrying out the contract. A party who causes the breach may not recover damages for non-performance of the contract. By entering into a
contract to purchase from P property, which D knew P would have to buy at a foreclosure sale in order to convey it to her, the D agreed that she would do nothing to prevent P from acquiring the property at such sale.
• Condition of personal satisfaction: subjective or objective standard? When a promisor conditions a duty to perform upon being satisfied with the other party’s performance or with respect to something else, the expression of dissatisfaction must be in good
faith. A common example of bad faith is where the promisor is dissatisfied with the overall bargain rather than the other party’s performance.

• A requirements contract is when the buyer agrees to buy however much they need for whatever the related time period is. Basically they are not going to buy them all at once, if they need them they will buy it, so basically they will be buying it from the seller
and no one else. Buyer controls the quantity. In exercising that discretion, the buyer is going to have to act consistently with the good faith duty.

• Then we have the output contract, controlled by the seller. So the buyer is going to take everything the seller makes, buyers do this whenever they are ensuring a supply. They have to use good faith

• Exclusive dealing contract, both parties have a say in the quantity. This is usually in manufacturing scenarios, it is basically that the seller will only sell to buyer and buyer will only buy this thing with seller. The duty of best efforts is attached to this, so they
both have to have best efforts, they may agree or imply this. They can contract around the best efforts rule.

Allocation of Risk
• To allocate risks you can use three mechanisms:
• 1. Representations and warranties: the representation is a statement that certain existing and historical facts are true, it don’t mean that they are known, but they exist and could b known and are true at the time. The warranty part is a promise to
indemnify if it turns out they are not true. By describing the goods in a certain fashion then you are warrantying that these things are true, and if they are not true relief is damages.

• 2. covenants: A promise about something in the future, not true today but will be true in the future.

• 3. Conditions: a condition operated differently thant a warranty or a covenant, it says that some event may happen or may not happen but if it does/doesn’t happen it relieves the buyer from performing…. X has to occur or the buyer doesn’t have to go
through with the deal.

• Representations and Warranties of Quality – a warranty is a promise that a representation is true.

• Express Warranties The following actions create an express warranty that the representation is true:
• a) Any affirmation of fact relating to the goods that become part of the basis of the bargain.
• b) Any description of the goods that becomes part of the basis of the bargain.
• c) Any sample or model that becomes part of the basis of the bargain.
• 2) Formal words like “warrant” or “guarantee” are not necessary for creating an express warranty, nor
• is intent to make a warranty necessary, but
• representation of an item’s value or
• a statement of the seller’s opinion
• does not create a warranty. [puffing]
• “Puffing”: §2-313(2) says not necessary that formal words like warrant or guarantee are used, but merely that they are an affirmation of fact. Statement of opinion or commendation doesn’t create a warranty, it is merely “puffing.”
• §2-313A & §2-313B – clarifies that a manufacturer who makes an express warranty to the public (either through dealer or through ads), is liable if goods don’t conform.
• Implied Warranties
• § 2-314 Implied warranty: Merchantability; (it applies only to merchants and sellers of goods of that kind).

• (1) Unless excluded or modified, 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…

• § 2-315 Implied Warranty: Fitness for Particular Purpose (something more specific than any purpose) (in order for this to be impose the buyer has to have disclosed to the seller what the particular purpose is, and they have to know that the
buyer is relying on the seller to select the product for this purpose).

• 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.

• Contracting Around Implied Warranty

• To modify the implied warranty of merchantability the language must

• mention merchantability, and

• be conspicuous.

• To modify the implied warranty of fitness the exclusion must be

• in writhing, and

• be conspicuous.

• All implied warranties are excluded with phrases like “as is,” and “with all faults.”

• When a buyer examines goods, or refuses to, the seller is not responsible for any implied warranties that inspection would have revealed

Express Conditions
• Nature and Effect –
• An event, not certain to occur, which must occur, unless its non-occurrence is excused before performance under a contract becomes due
• Condition – an obligor will often qualify his duty by providing that performance will not become due unless a stated event, which is not certain to occur, does occur
• An obligor can make an event a condition of his duty in order to shift to the obligee the risk of its nonoccurrence
• The event may be within the control of the obligee or the obligor (satisfaction) or of neither
• The event was made a condition by agreement of the two parties and if the event does not occur 2 remedies
• The duty to perform the promise upon the occurrence of the event never arose
• The duty and thus the K is discharged, when the condition can not longer occur
• Counter-arguments if the condition does not occur
• The event was not a condition at all- it was a matter of convenience that did not affect the rights and duties of the parties
• The event was promised as a part of the agree exchange
• The condition was excused delted from the agreement, eiher because the party waived it or because its excuse is necessary to avoid forfeiture
• Condition precedent –The duty to perform, although created at the time of contracting, exists in only potential or contingent form If not met than the duty does not arise. An element of the P’s case n suing on the contract and must be proved by the party seeking to enforce it
• Condition subsequent -The duty to perform arises immediately but If not met then the duty to perform is discharged. A defense to non-performance and must be proved by the party whse performance obligation has allegedly been discharged
 • Dove v. Rose Acre Farms, Inc.- terms of a contract, which are clear and understood by all the parties must be enforced, even if such enforcement results in a total forfeiture by the party who does not strictly comply with all the terms of the K
• Facts: Pl works for Df; bonus program where if Pl works certain amount of time, can never be absent, never late. In the last week Pl got sick, still went to work, where Df told him he could just stay on the couch, and they would still count it. But Pl left for the hospital instead.
• Pl says he substantially performed so he should get the bonus. But the condition was not met, so he didn’t fulfill the K. The point of the bonus program was not met. If you don’t meet the condition you cannot recover. If it is a promise then substantial performance
satisfies but if it is an express condition strict compliance with term is not substantial performance.
• if you have an express condition and it is not met then performance is excused.

• An implied condition is something that isn’t express, but is implied because it was necessary to make the express provisions functional. You couldn’t effectuate the express provisions without this implied provision (implied in fact, which is something that is
necessary to make the party’s agreement work).

• Wal-Noon Corp. v. Hill- IMPLIED CONDTION

• Facts: D leases property to Pl. Lease says Df responsible for any problem unless Pl’s negligence. Problem with roof; Pl fixes it. Later Pl realizes Df is responsible, so wants the money he spent on the roof.
• Implied condition that Df had to be notified (b/c how else would he know he’s responsible, and he also needs to know if Pl is negligent). if you have an express condition and it is not met then performance is excused. In order to effectuate an express provision of a
contract if it is necessary to impose a condition, the court will imply a condition
• Excuse of Express Condition- If an express condition has failed, the promisor has a defense and may be discharged from the K w/o obligation to pay for part-performance.
• If the condition turns out to be immaterial to the promisor and the promisee has relief or conferred a benefit on the promisor, discharging the promisor may provide a severe test for the freedom from contract policy
• Possible grounds for excuse are:
• Some possible grounds for excuse include: (1) An agreement by both parties modifying the contract to discharge the condition; (2) Conduct by the party for whose benefit the condition was made that waives the condition; (3) Changed
circumstances that make compliance by the promisee with the condition impracticable; and (4) Discharge by the court.

• Clark v. West
• Facts: Pl to write law books for Df to publish. K says Pl must abstain from alcohol to get higher rate. Df knew Pl was drinking.
• Df knew & accepted the full manuscript from P and he avowed and represented to the P that he was entitled to and would receive said royalty payments and P believed and relief upon such representations. So he implicitly waived that condition.
• Conditions precedent can be waived so long as the condition was not consideration for the contract.
• Condition is a term of the K and it can be deleted or modified by a subsequent agreement b/w the parties.
• If however the condition is a material part of the agreed exchange – the agreement must satisfy the usual requirements for an enforceable modification, including upon occasion consideration
• Election waiver- The P has not satisfied an express condition but D with full knowledge, still performs the duty contracted for
• Estoppel Waiver- The condition is waived b/c P has materially changed his or her position in reliance upon D’s representation
• Waiver without election or estoppel – one party has promised or represented that he or she will not insist upon express condition, waiver becomes a judicial devisce to avoid farfeiture in particular case where an agreed modification cannot be found
• Changes circumstances that make compliance by promisee with the condition impracticable
• Discharge by the court
Constructive Conditions of Exchange: Dependent vs. Independent
• Constructive Conditions are read into a K by the court without regard to the parties’ intentions. Done in the interest of fairness to ensure that both parties recive the performance for which they bargained “implied in law condition”
• Historical Development – Previously covenants were defaulted as being independent, unless K clearly said they were dependent. In Kingston v. Preston, Lord Mansfield changed default to dependent.
• Independent v. Dependent promises
• Independent
• If parties intended that performance by each of them is in no way conditional upon performance by the other
• Parties exchanged promises for promises (not promise of performance for the performance of a promise)
• Failure to perform an independent promise does not excuse non-performance on the party of the adversary, but each is required to perform his promise, and if he does not perform, he is liable to the adversary party for such nonperformance
• Dependent
• If parties intend performance by one to be conditioned upon performance by the other
• If they are mutually dependent, they may be
• Precedent - a promise that is performed before a corresponding promise on the part of the adversary party is to be performed
• Subsequent - a corresponding promise that is not to be performed until the other party to the contract has performed a precedent covenant
• Concurrent - promises that are to be performed at the same time by each of the parties, who are respectively bound to perform each.
• Default is dependant. Unless it is clear from the K that the covenants were intended to be independent.
• Dependency offers both parties maximum security against disappointment of their expectations of a subsequent exchange of performances by allowing each party to defer his own performance until he has been assured the other will perform.
• Dependency avoids placing on either party the burden of financing the other before the latter has performed.
• Where performances exchanged under an exchange of promises can be performed simultaneously, they are due simultaneously, unless language or circumstances indicate otherwise.
• Where the performance of only one party requires time, his performance is due at an earlier time than that of the other party, unless language or circumstances indicate otherwise.

Substantial Performance – occurs when the contract was not performed exactly, but was performed to the extent that the difference in the end result is insubstantial. Where there is substantial performance the harmed party may not recover the cost of completion, but rather the difference in
market value
• Jacob & Youngs v. Kent
• Facts: Pl builds Df’s home. K specifies Reading Pipe to be used. Due to an oversight unintentional) Pl uses anther brand, but of same quality. Df says condition of K not met, so doesn’t have to pay Pl. Cost a whole lot to replace with correct reading pipe, but no change in value.
• "An omission both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by forfeiture?." And that: "It is true in most cases the cost of replacement is the
measure' The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value.
• 1) Where D’s promise to perform (to pay) is a subsequent dependent promise to P’s precedent dependent promise to perform,
• 2) a default rule (constructive condition) may apply, making
• 3) defendant’s performance due on plaintiff’s substantial performance of its promise to perform (in lieu of perfect performance).
• 241: Circumstances Significant in Determining Whether a Failure is Material:
• The extent to which the injured party will be deprived of the benefit, which he reasonably expected.
• The extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived.
• The extent to which the party failing to perform or to offer to perform will suffer forfeiture.
• 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.
• 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

Doctrine of Divisibility – a K is divisible only when it explicitly states it; i.e. stipulating compensation for each separate installment as performed. A K under which the whole performance is divided into 2 parts of the whole performance and the performance of each part is agreed upon. Each
part performance is roughly the compensation for a corresponding part performance by the other party
• Lowy v. United Pacific Insurance Co.
• Facts: Df, contractor to perform excavation and grading work, and also street improvement work. Df performs 98% of grading, but breaches & doesn’t do street improvements.
st nd
• Court says this is a divisible K, b/c separate consideration, separate payments (progressive). So since it’s divisible, first look at 1 part, yes substantial performance, they should be paid for that w/o looking at 2 part where no work was done.
• If you have a divisible contract, then you can measure performance by creating constructive precedent and subsequent condition, creating a duty to pay for each phase.
• Evidence of divisibility includes drafting language, and whether the parties acted like they believed it was divisible. (both evidence of intent for divisibility).
• § 240 Whether 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
• process of apportionment is essentially one of calculation and the rule can only be applied where calculation is feasible
• injured party will not be required to pay for a part of the performance that he has received if he cannot make full use of that part without the remainder of performance- the court must take account of the possibility that the remainder of the performance can be easily obtained from
some other source
• Employment Contracts – A hired laborer is entitled to compensation for work actually performed unless there is an express stipulation to the contrary in the K. Britton v Turner established this.
• Britton v. Turner
• Facts: K for employment; Pl to work for 1 yr and Df to pay him $120. Pl stopped working after 9.5 months. Df saying he didn’t fulfill K, so can’t pay him.
• Under the old rule, a person who only partially completes the K would be under a worse condition than someone who never performs at all. Because they would have put time and energy into performing partially.
• In contracts divisible through time where the promisor receives a benefit over that time, if the employee does not fulfill the time contracted, the employer must pay for the benefit received minus the damages incurred due to the contract not being fully performed. An employee
can recover in restitution the net benefit retained by the D after full compensation for P’s breach of contract
• § 357 measure of the D’s benefit from the P’s part performance is the amount by which he has been enriched as a result of such performance
• §371 if money rather than restitution is sought “it may as justice requires be measured by either (a) the reasonable value o the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position, or (b) the extent to which the other
party’s property has been increased in value or his other interest advanced
• as justice requires and when the party seeking restituion has himself committed a material breach uncertainties as to the amount of the benefit may properly be resolved against him
CHANGED CIRCUMSTANCES
• The law of impracticability and frustration can be thought of as another type of implied condition. One’s duty to perform a contract is normally- that is, by default- conditioned not only upon the absence of a material breach by the other side, but also conditioned upon performance not
becoming impracticable because of changed circumstances.
• If unexpected impediments lie in the way, and a loss must ensue, it leaves the loss where the contract places it. One the other hand, if the event was unexpected and the impace on performance severe, most court are willing to consider the possibility of some relief.
• To determine whether there should be relief for changed circumstances answer the following Q’s:
• 1. What was the nature of the risk event and what was its impact on the contractual relationship?
• 2. Was the party seeking relief at fault in that it caused the event or failed to take reasonable steps either to avoid it or to minimize the impact?
• 3. If the party seeking relief was not at fault did the agreement allocate the risk of the event to one or the other or both parties?
• 4. If there was no agreement, express or implied, allocating the risk, how is the court to fill the gap in risk allocation?
• Restatement (Sd)§ 263: Impracticability [873]
• If the existence of a specific thing is necessary for performance,
• its failure to come into existence, destruction, or deterioration
• that makes performance impracticable
• is an even the non-occurrence of which was a basic assumption of the KT.
• [Rest § 262 is the same but for people – death or incapacity]
• Supervening Impracticability
• § 261 Discharge by Supervening Impracticability – Where after K made, performance made impractical w/o his fault, by occurrence or non-occurrence of an event of which was a basic assumption on which the K made, duty to perform discharged, unless otherwise said in K.
• Taylor v. Caldwell
 • Facts: Pl contracts to use Df’s music hall. Music hall burns down. Pl wants expected profits. No express language in K that says music hall burning down excuses performance.
• Very impractical to put in K expressly for everything that may occur. We need to imply this.
• After K made, performance made impractical b/c hall is burned down, no longer exists. The music hall being there was a basic assumption.
• In contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of the performance arising from the perishing of the person or thing shall excuse the performance.
• Death or Incapacity of an Essential Person
• §262 If the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the K was made
• §263- Basic assumption – particular person is necessary for the performance of a duty (determined by the agreement or whether the performance was a personal matter requiring personal experience, ability, skill and judgment. Whether the other party has a “substantial interest”
in having the contract performed by the particular person)
• Frustration of Purpose
• § 265. Discharge By Supervening Frustration - Where, after a contract is made, a party's principal purpose is substantially frustrated 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 remaining
duties to render performance are discharged, unless the language or the circumstances indicate the contrary.
• Paradine v. Jane
• Facts: Paradine (P) sued Jane (D) for a failure to pay rent for three years on leased lands. Jane asserted as a defense that the lands had been seized and occupied by Prince Rupert of Germany, and that Jane had been put out of possession
and frustrated in the performance of his duties under the lease and was not bound to perform under the contract.
• if the party creates the duty and becomes unable to perform due to frustration of purpose, the law will not protect the party in his own agreement and performance will not be excused. The court held that in this case the lessee would have gained the advantage of the profits and
therefore he must bear the risk of the losses.He could have contracted with a force majour clause
• If the substance of the KT requires a particular state of things, and that state of things is frustrated, by no fault of both parties, and not foreseeable, performance is excused.
• Krell v. Henry
• Facts: Pl rents out rooms to Df overlooking a street where there was to be a coronation procession. Never mentioned that coronation was reason for rental. Coronation canceled.
• If an underlying condition ceases to exist or becomes impossible not due to the fault of the parties, the contract can be rescinded.
• The letters do not mention the coronation, but the announcement in the window advertised for the coronation, and D asked the housekeep specifically about the view for the ceremony. Thus, viewing the coronation was an underlying condition of the agreement.
• When the purpose of a KT is prevented by an event not contemplated by the parties, further performance is discharged.
• Purpose is determined by surrounding circumstances and the parties’ actions.
• Washington State Hop Producers, Inc. v. Goschie Farms, Inc.
• Facts: Until 1985 the Dept of Agr. Required hop growers to obtain federal allotments in order to market their hops, known as “hop base” P the trust was organized in 1979 to acquire, lease and sell federal hop base. In 1985 the marketing allotments order were terminated.
Prior to termination the trust had received bids on many of their hop bases. Those that paid sued the trust for return of their money
• The court state that the basis pupose of the contracts, to purchasea hop allotment base, was frustrated by the termination of the allotment system because hop base existed only virtue of that system. The continued need to own or control hop base in order to sell hops was an
assumption central to the subject matter of the K, and w/o this assumption no contract would have been made.
• In determining frustration of purpose, change in value is evidence of frustration, but not conclusive. Foreseeability of the frustration does not bar rescission. Other factors include relative bargaining power and the ease of contracting around.

BREACH OF CONTRACT AND PERMISSIBLE REMEDIAL RESPONSES

• Breach of contract – when a party fails w/o justification to perform when a promised performance is due
• If the promisee has fully performed the agreed exchange, the remedy for breach is limited to an action for damages or specific performance
• If the promisee still has duties to perform under the agreed exchange, the breach, if material may also discharge those remaining duties
• Has both affirmative (damages for the total breach) and defensive (cancel the contract)
• If both parties still have obligations under the K and the promisor’s repudiation is of a material part of the agreed exchange and the repudiation has again, both affirmative and defensive remedies and these remedies can be invoked before the time set for performance
• When a promisor violates the duty of good faith and fair dealing by preventing or hindering the performance of the other party or by failing to cooperate in performing the agreed exchange
• Anticipatory Repudiation
• § 250 A repudiation is (a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that wold of itself give the obligee a claim for damages for total breach under § 243 or (b) a voluntary affirmative act which renders the obligor unable or apparently unable
to perform without such a breach
• UCC § 2-610. Anticipatory Repudiation. Repudiation of K when performance not yet due. Aggrieved party may wait a reasonable time for performance or resort to a remedy even if they told the breaching party that they’re waiting for performance & have asked them to retract the
repudiation. (2) Repudiation includes language that a reasonable party would interpret to mean that the other party will not or cannot make a performance still due under the K or voluntary affirmative conduct that would appear to a reasonable party to make a future performance by the
other party impossible
• UCC § 2-611. Retraction of Anticipatory Repudiation. Can still retract until time of performance is due, unless other party has relied and changed their position (by cancelling, etc.). Retraction can be made in any way that clearly indicates to other party its intent, plus give assurances if
justifiably demanded.
• Right to cancel upon prospective breach
• When promisor, by words or conduct, repudiates a performance not yet due under the agreed exchange. If both parties still have obligations under the K, remedies can be invoked before the time set or performance.
• § 253. Effect Of A Repudiation As A Breach And On Other Party's Duties. Where there is repudiation before breach, this gives rise to a claim for damages for total breach. One party's repudiation of a duty to render performance discharges the other party's remaining duties to
render performance.
• Hochster v. De La Tour
• Facts: K for Pl to work for Df. Df repudiated (before Pl began). Pl sued before actual reach (time K said that work would begin). Pl found another job.
• Rule/Analysis: When a party clearly repudiates a material promise in advance, the other may treat this as a breach immediately and can seek relief for breach without delay. Pl allowed to seek employment (w/o it being a breach itself) after Df repudiated b/c Pl is absolved from
performance of the K. Pl mitigated damages by seeking other employment.

COMPENSATORY DAMAGES – BREACH OR REPUDIATION BY PAYOR

• Unless the parties have agreed upon a time for payment (either before or after performance) the duty to pay, whether in a lump sum or in installments, does not arise until the performer has tendered or completed all or party of its portion of the exchange.
• If this is done w/o a breach, the performer is entitled to enforce the contract for the full amount promised plus interest
• Even if the performer has breached, the duty to pay is enforceable with an adjustment if there has been substantial performance
• John Hancock Mutual Life Insurance v. Cohen
• Plaintiff was the beneficiary of an insurance policy issued by John Hancock Mutual Insurance Co. (Defendant). The policy was such that Plaintiff received payments from the time the policy was issued for the next twenty years, with a final payment of $5000.00. Defendant stopped
payments and paid the $5000.00 after fifteen years, because, Defendant claimed, that there was a mistake and both insured and Defendant intended the policy to be for fifteen years.
• Restatement § 318 general rule no unilateral promise for an executed agreed exchange to pay money at a future time can be enforced until that day arrives . However court said this rule does not apply in suits to enforce K for future payment of money only, in installments or otherwise
However, Corbin on Contracts does not apply because the contract in question is not an annuity or disability policy that would pay installments for an indefinite time, nor is it an agreement to pay money in the future if an event occurs. Rather, it is a unilateral contract to pay a specific
amount of money at a specific time.
• The doctrine of anticipatory breach does not apply to a unilateral contract by an insurance company to pay a specified amount of money at a specified time
• Repudiation of Promise to Pay money when other party has fully Performed
• All express and implied conditions have been satisfied except that the agreed time for payment, whether in installments or a lump sum, has not yet arrived. Repudiation occurs for payment, the other party can obtain a judgment BEFORE the time for payment arrives
• However the full amount must be discousted to reflect the defendant’s loss of use
• Acceleration clauses – are drafted to permit the remedy denied in Cohen
• § 253(1) where an obligor repudiates a duty before he has committed a breach by non-perfomrance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach
• (c) one of the established limits on the doctrine of anticipatory breach is that the obligor’s repudiation alone gives rise to no claim for damages at all if he has already received all of the agreed exchange for it
• § 243(3) where at the time of the breach the only remaining duties of performance are those of the party in breach and are for the payment of money in installments not related to one another, his breach by non-performance as to less than the whole, whether or not accompanied or followed by a
repudiation, does not give rise to a claim for damages for total breach
• Discounting the Present Value- Adjusting Damage Award for Inflation
• Material breach occurs and the court is willing to give P a lump sum judment for the toal amount due on the contract two things are certain to occure
• D will be relieved from paying any agreed interest on the principal
• The lump sum must be discounted to present value – the interest rate which is assumed to be available for future investments of the capital sum awarded as damages
• Moreover sometimes courts will require a total offset of the dicoutn rate by the inflation rate as a matter of law
• American Mechanical Corp. v. Union Machine Co. of Lynn, Inc.
• Facts: Pl in financial difficulty, Df knew. K to sell property to Df, but Df repudiated. Bank takes Pl’s property and sells for a lot less in order to pay off mortgage owed. Pl sues for breach.
• Analysis: If we use UCC §2-708(b), the measure of damages is diff btwn market price & K price. Problem is that the diff would be nominal, but actual damages caused by breach were a lot more (since foreclosure caused sale of well below market). Court says that in this case, we can
use actual price sold for to measure the damages. Reasoning behind this is that the point of awarding damages is to put aggrieved party in position they would be in if there were no breach. Can only do this if we use actual damages.
• In cases where it is clear to both parties, in a sale of real estate, what the actual losses will be, the court may use actual losses of the injured party, when the other repudiates a contract rather than the contract price minus the fair market value of the real estate.
• Breach of Construction Contract and the “Components” Approach
• When owner breaches while contractor in midst of performing - Unless the contract is divisible or contractor has substantially performed, can’t get the agreed price as damages.
• What damages can a contractor recover? – A plaintiff could collect either in quantum meruit for what had been finished, or in contract for what plaintiff had lost (k price, plus incidental and consequential, less paid, less expenses saved – UCC 2-708).
• New Era Homes Corp. v. Forster
• Facts: K for home improvements, where Df pays Pl for the work in installments. Pl did work, and when time to get payment came, Pl didn’t pay. Pl stopped work and sued for entire balance.
• Analysis: Majority interpreted the K to be a whole K (not severable), where the full payment was consideration for the work done, and the installments were only a device used for convenience. So the remedy should be the value of what Pl had lost (the K price, less
payments rec’d, less expenses save – or cost of completion).
• When a K is not divisible, on D’s default, P could collect either in quantum meruit for what had been finished, or in contract for the value of what P had lost- that is the contract price, less payments made and less the cost of completion
 • If the Contract can prove other losses, including incidental or consequential damages- then they can be also claimed
• Contractor should have the opportunity to plead and prove consequential damages resulting from the breach which were FORESEEABLE to the defendant at the time of contracting
• Lost Volume Seller
• UCC 2-708(2) - If measure of damages (under 2-708(1)) is inadequate to put seller in as good a position as performance would have done, then entitled to damages measured by the profit (incl. reasonable overhead) which seller would have made from the deal, plus incidental & costs
reasonably incurred, less expenses saved.
• When seller is able to resale goods for basically the same price - under this measure, seller can keep proceeds of resale and recover the profit that would have been made on the first sale.
nd
• Reasoning: The breach cost the seller an additional profitable transaction, in addition to those he would have made anyway (he would have sold the 2 unit even if no breach).
• Locks v. Wade
• Facts: K for lease of jukebox. Df repudiated K. Pl subsequently rented jukebox to others.
• The court held that the proper measure of damages was the difference between the contract price and the cost of performing the contract because the supply in the market for jukeboxes was not limited. Therefore, if buyer didn’t breach, he could have made profit on that sale, and
for any other customers. The breach cost the seller a deal (an additional profitable transaction).
• Where there is a breach of contract to lease a piece of personal proper, supply of which is readily available, the damages should be the profits the lesser, which would have been made on the contract even if lesser is able to lease the property
to someone else for the same price.

BREACH OF CONTRACT BY SUPPLIER OF GOODS, SERVICES, OR CONSTRUCTION

• The breach is of a promise to sell and deliver good or land, contruct a home or perform personal or professional services rather than a promise to accept and pay for the performance
• If a seller has failed to deliver goods that the buyer had planned to use in an operating business, the damages may include bothe the extra costs inccured in obtaining substitute good from a third part (DIRECT DAMAGES) and any profits lost b/c of the delay in otaining the substitute
(CONSEQUENTIAL DAMAGES)
• Reliance Copperage Corp. v. Treat
• Plaintiff and Defendant entered into a contract where Plaintiff agreed to buy and Defendant agreed to deliver 300,000 staves at $450.00 per thousand no later than December 31, 1950. Later, Defendant indicated that he would not fulfill the contract. Plaintiff refused to accept the
repudiation.
• A party in an executory contract may refuse to accept anticipatory repudiation of it and insiste upon performance and if he does so the contract remains in existence and is binding on both parties, and no actionable claim for damages arises until the time for performance expires
• Repudiation does not accelerate the time fixed for performance; nor does it change the damages to be awarded as the equivalen of the promised performance. And P had no duty to mitigate his damages
• Damages awareded based nonperformance by the seller = the difference between te contract price and the market price of the staves on the date when delivery was due. NOTE: no damages for the nonperformance of the contract occurred before December 31

CONSEQUENTIAL DAMAGES: FORESEEABILITY; MITIGATION; CERTAINTY; INCIDENTAL RELIANCE

• Foreseeability - The loss had to be a foreseeable consequence of breach at time of contracting
• Hadley v. Baxendale
• Facts: Pl is mill operator, and crankshaft broke. Can’t operate w/o it. Df to deliver for repair. Df didn’t delivery on time, and Pl lost profits.
• Rule/Analysis: Court said can only recover consequential damages for losses that are foreseeable (naturally arising), or is Pl’s special circumstances were communicated to Df (in contemplation of the parties at time of contracting).
• The loss of profits here can not reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made their contract. The loss does not flow naturally from the breach, nor were the
special circumstance would have made it a reasonable know by the D
• UCC §2-715(2) - Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting has reason to know and which could not reasonably be prevented by cover or
otherwise; and (b) injury to person or property proximately resulting from any brach of warranty
• Rest §351: Damages are not recoverable for loss that the party in breach did not have reason to foresee as the probable result of the breach when the contract was made. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach (a) in the ordinary
course of events, or (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach has reason to know. (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in
reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation
• General damages - are the natural and probable consequences of a breach and are deemed to have been within the contemplation of the breaching party. A party seeking general damages need not offer further proof that the damages were foreseeable.
• “Special” or particular damages arise from the special facts and circumstances of the case and are not deemed to be within the contemplation of the breaching party unless he was made aware of such specific facts and circumstances. A party seeking consequential damages must
demonstrate that the damages were foreseeable at the time the contract was formed.
• Mitigation – could the Pl have reasonably mitigated damages by purchasing substitute goods on the open market or continuing to deal with the breaching party?
• UCC §2-715(2) - Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting has reason to know and which could not reasonably be prevented by cover or
otherwise
• Ascertainable – Can Pl prove what profits were lost with reasonable certainty?
• If profits are too speculative, can the Pl recover the reliance expenditures as an alternative?
• Can the Pl recover both lost profits and reliance expenditures?
• Enforceability of clauses "excluding" consequential damages caused by breach.
• Hydraform Products Corp. v. American Steel & Aluminum Corp.
• Facts: Df to supply steel to Pl for manufacturing woodstoves (400 for the season and upon demand more). Df knew timing was very important to Pl – Pl had to get woodstoves out by certain time in order to make their profits. Df delivered late and defective materials. Pl
realized Df couldn’t perform as agreed, and tried to get materials from other suppliers, but was unable to get what they needed in time. There was a clause that if would not be liable for consequential damages.
• Held: Clause was unenforceable, b/c it failed of its essential purpose, as it provided Hydraform with no effective remedy – it did not address the problem of late shipment. Hydraform allowed to recover consequential damages.
• Consequential damages must be reasonably foreseeable, ascertainable (cannot be speculative), and unavoidable (could not be mitigated).
• Lost profits for that season – reasonably foreseeable, Df knew of Pl’s needs. It was ascertainable b/c there is enough support to conclude that Hydraform would have sold the woodstoves they would have manufactured if Df had not been late in delivery. Tried to
mitigate, but could find no alternative seller.
• Any lost sales beyond that first season and the loss of the business were not foreseeable by Df. Cannot recover for the lost profits of subsequent seasons. Also, those profits were not ascertainable.
• Lost Profits Under CISG
• Buyer could recover the profits lost in being unable to sell the product during the period between breach and the replacement contract (measured by subtracting the toal variable costs, actual and hypothetical, that would have been expended from the estimate gross proceeds of the
units sold)
• Buyer could recover pre-breach reliance costs (those incurred to prepare for performance) even though they were not counted as variable costs in computing lost profits
• The buyer could also recover reasonable costs incurred after the breach in an effort to effect a cure or to obtain a replacement contract
• Calculating lost profits – using the “new business rule”
• New business – can’t really prove what profits would have been (merely anticipatory), but an existing business can show profits from previous years
• Proof issues are frequent mixed with the question of whther the breach caused the loss consequential profits
MANTAL ANGUISH AND PUNITIVE DAMAGES
• § 353. Loss Due To Emotional Disturbance. Recovery excluded unless breach also caused bodily harm, or if it was very foreseeable that an emotional disturbance would likely result from a breach.
• § 355. Punitive Damages. Punitive damages are generally not recoverable for breach of contract, but if the conduct that causes the breach also constitutes a tort, punitive damages may be awarded.
• To award punitive damages, breach must constitute an independent and willful tort accompanied by fraud, malice, wantonness or oppression.
• Acquista v. New York Life Insurance
• Facts: Acquista has disability insurance. He gets sick, but insurance company denies the claims. Acquista alleges bad faith conduct in the assessment of his claims. NY does not recognize this sort of conduct as a tort, but only a breach of K (some states say this is a tort).
• Rule: Where an insurer in bad faith denies a claim, damages are not limited to amount due under the policy. Damages could include consequential damages such as mental distress, or aggravation and inconvenience.
• Otherwise insurance companies would have no motivation not to breach
• Goal of K damages is to put aggrieved in same position as if no breach. No money from insurance can cause a lot to happen b/c insured doesn’t necessarily have the funds to take care of problems now, then sue later.
• These non-economic losses would be compensable only in circumstances where they were a foreseeable result of a breach at time of contracting.
• Boise Dodge, Inc. v. Clark
• Facts: Pl bought a car described as “new.” Actually, the car was used, and the odometer had been set back to take off the mileage. Court awarded punitive damages.
• Because there was intentional deceit and fraud involved (tortious conduct), punitive damages would be allowed. Reasoning: Someone who engages in a calculated, fraudulent scheme would not be deterred if the only punishment is to pay the Pl for
actual loss (compensatory damages only returns to Pl amount Df took); they would have no motivation not to engage in this type of behavior.
• The award of punitive damages must not be grossly out of proportion to the severity of the offense.
EQUITABLE REMEDIES FOR BREACH OF CONTRACT: PROHINITORY INJUNCTION AND SPECIFIC PERFORMANCE
• Equitable remedies are available only when there’s no adequate remedy at law
• Factors affecting the adequacy of damages (§360)
• The difficulty of proving damages with reasonable certainty
• The difficulty of procuring suitable substitute performance by means of money awarded as damages, and
• The likelihood that an award of damages could not be collected
• Injunction: is an equitable where a party is required to do, or to refrain from doing, certain acts.
• If you don’t follow an injunction, you can be held in contempt. May be fined or go to jail if you don’t perform. B/c we concluded long ago that we do not imprison ppl for failure to pay damages (if they have no assets), you can’t be held in contempt for failure to pay damages,
b/c money damages are not an in personam remedy - remedy that effects a person (b/c we go after the assets, not the person).
• Specific Performance - is a remedy in the form of a court order that the breaching party renders performance of the contract. Specific performance is not available if expectation damages are adequate to put the aggrieved party in as good a position as he would have been had the contract
been fully performed.
• Curtice Brothers v. Catts
• Facts Plaintiff has a tomato-canning factory. Defendant made a contract with Plaintiff to sell Plaintiff tomatoes. Plaintiff’s factory has a six-week season to pack tomatoes
• Analysis: Plaintiff, having only six weeks to can tomatoes in the factory, must do all the preparation for the canning season before the six weeks start. Plaintiff can only do that if Plaintiff knows, roughly, how many tomatoes will be canned that season. While money
damages could compensate Plaintiff for having to pay more for tomatoes on the open market, it will not give Plaintiff back the time that Plaintiff needed to prepare for the packing season
• When there are circumstances when money damages would not compensate the injured party in a breach of contract action, the court may order specific performance even if the goods or services involved were not unique.
• Northern Indiana Public Service Co v. Carbon County Coal Co.
• Facts: K to purchase coal at set price and quantity (coal overpriced). Oil price collapses, and Df breaches – this is a classic example of an efficient breach. They would save more money b breaching (& paying damage) than performing the K. Pl awarded $181mm, but
wants specific performance.

• Court denies specific performance (Posner uses a law & economics approach)
• This was not a profitable business, and so this was an efficient breach (costs more to take coal out of the ground than what market price is).

• This would be inefficient (highest and best use) – essentially make Df pay to keep the mine open, when the free market wouldn’t.
• Posner forecasts that if he did grant the injunction, the 2 parties would just negotiate for Df to buy out the injunction (Pl would want out b/c not profitable business). The compromise would be between the $181mm and cost of injunction.

LIQUIDATED DAMAGES & OTHER AGREED REMEDIES

• Liquidated Damages - At the time the contract is formed, the parties may agree to a fixed sum of money or a set formula for setting damages in the event of a breach. Stipulated damages will be enforced if they reflect an honest effort to anticipate the harm caused by a breach. Stipulated
 damages will be deemed invalid if they represent an attempt to punish the breaching party, such as in the case of unreasonably large damages.
• § 2-718. Liquidation or Limitation of Damages; Deposits. - Damages for breach may be liquidated in the agreement, but the amount must be reasonable in light of:
• the anticipated or actual harm caused by breach,
• where it is difficult to prove the loss, and
• the inconvenience or impossibility of otherwise obtaining an adequate remedy.
• A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty."
• § 356 Liquidated Damages and Penalties – (common law) Damages may be liquidated in K, but only a reasonable amount in light of anticipated or actual loss caused by breach & difficulties of proof of loss. Unreasonably large liq. damages are unenforceable on grounds of public
policy as a penalty.
• § 361 Effect of Provision for Liquidated Damages - Specific performance or an injunction may be granted to enforce a duty even though there is a provision for liquidated damages for breach of that duty.
• Time of Contracting Test – look at reasonableness at the time of contracting. The actual losses don’t matter. The point of liquidated damages is to protect against very high or very low actual loss.
• Ex: if the liquidated damages ends up being less than actual loss, breaching party is protected in only paying what liquidated damages are in the K, but non-breaching doesn’t get full compensation for their loss. This is the trade-off – limits/allocates the risk.
• However, sometimes a liquidated damages clause serves the interest of one party over the other, and is a result of unequal bargaining power. In this situation, it may be more appealing to look at the actual damages.
• Southwest Engineering Co. v. United States
• Facts: Gov’t K, w/ liquidated damages provision which calculated such damage at a rate per day. Pl was 97 days late, and gov’t subtracted the liquidated damages from payment to Pl. Pl suing to recover this amount, alleging that it’s an unenforceable penalty; govt suffered no
harm.
• The amount so fixed must be a reasonable forecast of just compensation for the harm that is caused by the breach, and Second, the harm that is caused by the breach must be one that is incapable or very difficult of accurate estimation
• Conclusion: The amount of the liquidated damages forecasted at K creation was reasonable, and the harm that may be caused was unmeasurable at time of K creation, so it is an enforceable liquidated damages clause. The absence of actual damages at the time of breach of K or
thereafter does not bar recovery of liquidated damages.
• Leeber v. Deltona Corp
• Facts: Pl signed K for purchase of condo and put down as deposit 15% of total price. This deposit would be liq damages in case of breach. When Pl failed to close (breach), Df terminated K, kept deposit & resold property for more to someone else.
• Florida law says that if the enforcement of a liq damages clause was unconscionable, then it won’t be enforced. The 15% was a reasonable amount forecasted as a loss at time of contracting. The issue here was that lower court looked at actual loss, & since Df was able to sell for
more after, court only compensated Dfs for actual, incurred losses.
• The court here said this was wrong b/c the whole point of liq damages is for allocation of risk, and otherwise it would just be damages for breach of K, but parties had contracted otherwise. The point to have this type of provision is to predetermine a way to handle breach of K
ahead of time, so as to avoid litigation and to equitably resolve conflicts, and this should be encouraged.

THIRD PAERY INTEREST

• Assignment – transfer of rights (the person who assigns a contractual right is the obligee under the contract and becomes the assignor- the person who is assigned is the assignee. The person whos duties are transferred to the assignee by the assignment, is the obligor)
• Definition- a voluntary manifestation of intention by the holder of an existing right to make an immediate transfer of that right to another person
• The assignment must be a complete relinquishment of the right by the assignor in favor of the assignee, so that the assignor retains no contract over it and no power to revoke it

• only possible once a contract has been made and those rights and obligations have come into existence

• Assignment of Future Accounts – If one ownes something one has a legal and practical advantage, an asset. Once can obtain money by transferring ownership (as in a sale) or by using the asset as security for a loan
• § 321 Except as otherwise provided by statute, an assigment of right to payment expected to arise out of an existing employment or other continuing business relationship is effective in the same way as an assignment of an existing right. (2) Except as otherwise provided by statute and
as stated in Sebsection (1), a purported assignment of a right expected to arise under a contract not in existence operates only as a promise to assign the right when it arises and as a power to enforce it
• Assignment of wages – legislature has limited the assignability of Future wages

• Allhusen v. Caristo Construction

• Caristo subcontracted with Kroo Painting. The contract contained a prohibitory provision that said any assignment to a 3rd party of the contract or any interest therein, or of any money due or to become due, would be void without the written
consent of Carist. The rights were assigned without written consent. The assignee, Allhusen, brought the suit to recover the debt. Caristo requested SJ based on the fact that the clause in the K prohibited the right to be assigned without their
written approval Special term dismissed the complain

• The language was very clear and definite b/c of the freedom for parties to contract, the court must enforce this prevision.
• Any doubt or ambiguity should be resolved in favor of transferability, and a clause that prohibits “assignment of the contract” should, if possible, be taken to forbid only the deligation of duties

• Any property right, not necessarily personal, is assignable, is overcome only by agreement of the contracting parties or a principle of law or public policy

• Carol Owen v. CNA

• Facts: Settlement agreement for a slip-fall case. Initial payment and then some schedule for the rest of the money. Owen assigned her rights and benefits under the settlement agreement. Send a letter to CNA stating that she is changing addresses and to send the money to the
new address
• Because the language of the non-assignment provision in plaintiff's structured settlement agreement does not specifically restrict plaintiff's power of assignment, and because the assignment would not "materially increase the burden of risk" imposed on the carrier, in the context
of this record the clause is unenforceable.

• § 317 of the Restatement of Contracts also recognizes the validity of assignments of contractual rights, but with three important exceptions: (a) the assignment would materially change the duty of the obligor, increase the burden or risk imposed on him by his contract, impair his
chance of obtaining return performance, or reduce its value to him; (b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy; or (c) the assignment is validly precluded by contract.
• Under § 322, in the absence of a specific manifestation to the contrary, a non-assignment provision is interpreted merely as a covenant not to assign, the breach of which renders the assigning party liable in damages. The assignment,
however, remains valid and enforceable. In this case, the pertinent agreement language constitutes merely a covenant not to assign.

• This position is consistent with courts that have held that generally contractual provisions that limit assignments operate only to limit a party's right to assign the contract, but not its power to do so, unless the parties manifest an intent to the
contrary with specificity.

• A non-assignment clause in a contract is unenforceable unless it materially changes the contract or gives the non-assigning party duties or aspect of compensation the non-assigning party did not bargain for.

• Delegation – transfer of duties (the person who delegates her contractual duty is the obligor under the K and becomes the deligator of the duty. The person who assumed the duty is called the delegate. The person whose rights have been delegated, is called the obligee)
• § 318 (1) an obligor can property delegate the performance of his duty to another unless the delegation is contracry to public policy or the terms of his promise (Unless otherwise agreed, a promise requires performance by a particular person only to the extent tht the obligee has a
substantial interest in having that person perform or control the acts promised; (3) Uless the obligee agrees otherwise, neither delegation of performance nor a K to assume the duty made with the obligor by the person delegated discharges any duty or liability of the delegating
obligor
• Sally Beauty v. Nexxus Products Co

• Facts: Best Barber enterd into a contract with D, Nexxus under which Best was appointed the exclusive distributor of Nexxus hari care. P acquired Best in a stock purchase transaction. P was an owned subsidiary of competitor of the D. D termininated the distribution
agreement

• Analysis: While the UCC does permit delegation of contractual duties, it recognizes that there are times when “an obligor will find it convenient or even necessary to relieve himself of the duty of performance under a contract.” the UCC bars delegation of duties when
performance of such duties would be a “substantially different thing” than what was bargained for. In the instant case, because a direct competitor of the Plaintiff had acquired Best Barber, the court concluded that performance of the duties by the Defendant would be a
substantially different thing than what was bargained for. The Defendant would not be able to rely on the Plaintiff to use its best efforts to promote its product when the Plaintiff is owned by the Defendant’s comp

• Third Party Beneficiry

• Intended Beneficiary
• § 302 Unless otherwise agreed b/w 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) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

• the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance
• Acquires rights under the contract – and the intended Beneficiary can enforece the duty only after his rights have vested

• § 302 (2) An incidental beneficiary is a beneficiary who is not a n intended beneficiary

• Can not acquire arights under the K (An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee

• Kmart Corp v. Balfour Beatty

• D entered into a contract with TPL to build a shopping center. KMART Corp is a tenant of TPL. When the shopping center where P has a store was damged in a hurricane, P sued D for negligence

rd
• There are tow way in which the courts determine whether a party is an intended beneficiary to a contract (1) they attempt to the modern approach – it is enough that the promisor understood that the promisee had an intent to benefit the 3 party and (2) Performance of the
promise will satisfy an actual or supposed or asserted duty of the promisee to the beneficiary
• Hale v. Groce

• Defendant, an attorney, was directed by a client to include a bequest of money to Plaintiff in client’s will. Defendant failed to do so and client died.

• An intended beneficiary has the right to enforce the contract just as one who made the contract. If performance is not possible, the intended beneficiary may sue for damages, just as one who made the contract could.