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CONTRACTS II
EXAM TIPS............................................................................................................................................................3
I. Intention...............................................................................................................................................................4
II. Interpretation & Implication...............................................................................................................................4
III. Offer, Revocation, Rejection, Counteroffer, Acceptance...................................................................................7
IV. Mistake, Misrepresentation, Fraud, Impossibility, & Frustration....................................................................24
V. Conditions & Performance................................................................................................................................44
VI. Third Party Beneficiaries.................................................................................................................................46
VII. Assignment and Delegation............................................................................................................................48
Ben Coulter Contracts II-Stone
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EXAM TIPS
Things to do on the next exam
1. Make sure you are reflecting the handouts
a. be organized
b. budget your time
2. Don’t just recite facts
3. Use IRAQ+P
4. State the rule of law
5. Know the “tests”—example preexisting duty or commercial impracticability
6. Put it on the paper—pretend he knows nothing
7. Look for the ringer-the “clear” point
8. Err towards putting issues in, even if you think that it is a stretch
Exam Tips:
1. Likely to get an overall intent/meeting of the minds—Re-employment, Chicken case, Penzoil, etc.
2. Make sure to identify the issue and give the rules and apply and argue both ways
3. Know the 3 elements of offer, § 33 [certainty of terms], 52 [accepted only by the person invited to
accept]
Essay
1. id issues
2. tell what rules apply
3. apply to the facts
4. perhaps argue yes/no
bring a pencil
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I. Intention
A. Is there a meeting of the minds as intent to contract? What is the test?
B. Objective intent [dispassionate 3rd party] v. Subjective intent [parties in their own
minds appear to mean], Stone favors the objective test because it is less
imperfect
C. Example: Embry v. Hargadine, McKittrick Dry Goods p.330f, Employee claims that
there was an ultimatum for a one year or extension…Defendant’s response was a
go ahead, get the salesmen out, don’t worry…court reverses on the objective
standard
D. O + A [intent is a precursor] + C = K
E. Gap-filler cases
1. R2 § 204 allows the filling in of gaps – a reasonable term can be supplied by the court if needed
2. Sometimes, even major terms are allowed
3. No k unless there is reasonable certainty of terms – R2 § 33 – terms are reasonably certain “if they
provide a basis for determining the existence of a breach and for giving an appropriate remedy”
4. Courts can go one of two ways—“can we find a key?”
a. in k language or terms
b. in surrounding facts or circumstances, § 223 course of dealing – like Armco Steel
G. Texaco v. Penzoil
-suit for the Tort of Interference
-only interference with K relations?
Why didn’t Penzoil just sue Getty? There was an indemnification agreement to protect them from those
sorts of claims.
2. Argue no K?
Agreement subject to the more formal agreement—not a memorial
The complexity of the merger itself—can be 100s of pages
Lawyers need to do their work-selling one of the biggest companies in the world
Trade practice—not a done deal in NY till the details are sown up
The court runs with the idea that the world is a jungle where a person’s word cannot be trusted. From
Texaco’s side, this means wait for the definitive merger agreement.
4. Stone’s Comments
This is a Texas court using NY contract law…but really seems to base the decision on Texas and NY business
practices. A similar case in the 2nd District [NY] went the other way. The message in planning is dot your I’s
and cross your T’s or the K won’t be enforced. Tort-he’s skeptical. Judges gone wild. Don’t assume anything.
Is the Texas court really the one interfering with K?
5. Agreements to Agree increase the possibility of ultimate contract. They can be written as option contracts.
Staci’s looking up a skirt example.
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B. Basic Definition: Restatement, Second § 24 – one party manifests a willingness to enter into a
bargain, and “a promise to do or refrain from doing a specified thing in the future”
C. Nebraska Seed Co. Case-- words of offer must be a final intent to make an offer…I
want is asking not offering. Look to see “I offer” or RPP standard.
1. The court says we don’t have an offer because the farmer is seeking bids…it is an invitation to make an
offer.
2. Wanting and offering are not the same thing
3. Court sees it as § 26 preliminary negotiation
4. If this is an offer, then the farmer could not possibly fill all of the orders if multiples made.
G. Are Ads offers? Lefkowitz-Furs [court finds an offer in a “first come, first serve”
setting-Ads Case]
1. The general SQ rule is that an ad is not an offer, but rather are invitations to negotiate, § 26
preliminary negots, an invitation to make an offer, a unilateral offer
2. This is a risk allocation question, would expose to infinite risk
3. Facts must show a promise of performance under positive details under § 24
I. Definitions
Offeror-the person making the offer
Offeree-the person to whom the offer is being made
Promisor-the person making the promise in question
Promisee-the person receiving the promise
Revoke-if the offeror withdraws his offer
Reject-if the offeree refuses to enter into the deal
“Remain open”-offer stays out there until the period the oferee has the power of acceptance
J. Duration of an offer
1. Black letter rule: an unequivocal rejection terminates the power of acceptance…could reject an offer for
now but say going to consider it…offeror could state in the offer that it would remain open despite a rejection…
an offeror disregarding a rejection is giving a new offer with the same terms, § 38
2. Black letter rule: a counteroffer is a rejection of the offer, and thus has the same effect as a rejection…
tempered by UCC § 2-207…[must have the 3 common law elements of offer]…ok to have a conditional term
provided by the offerors; also, one partner can bind the second partner
3. Black letter rule: to be effective, an acceptance must occur within the specified time at the end of a
reasonable time if the offer has no specified time limit, § 41(1)…reasonable person test…very short if face to
face or through instantaneous electronic means (not much after the termination of the conversation)…also short
in inherently speculative transactions
4. Black letter rule: power of acceptance is terminated upon the death or incapacity of the offeror, § 48…
chipped away at by UCC § 4-405 and Restatement, Second, Agency § 120
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K. Mailbox Rule- R2 § 63, in the absence of the contrary, acceptance is effective when
dispatched
Hypo on the Board
1. On the 10th, A offers to B property for $50,000 received by B in the mail
2. 11th B “sends” return letter to accept [there is a K now] and arrives at A’s place on 13th [date is
irrelevant]
3. But back on 12th, B telephones A & says “I reject” [this is too late, already a K]
L. Policy—Disciplining Ads
Two choices
1. Law schools argue for judicial analysis,
2. Business schools say it is only rare that ads are deceptive trade practices. The ads lower info costs and
are an invitation to negotiate. Bait and switch are emotional language, etc.
Regulating ads makes the dealer do things to increase the profit and cost to the buyer, enforce arbitration, etc. It
increases the costs of goods and services. It also increases transactions costs related to the law.
The alternative is for people to demand more as individuals. People will change their buying patterns.
Steinberg, p.426
P argues that the brochure and the invitation to apply are an offer. Acceptance of application and cashing of the
application fee are acceptance. P wants the school to look objectively at the future offers. The court rules for
the P, but Stone points out that it is unenforceable. We still have legacy admits. Analogy made to Affirmative
Action. Stone thinks market competition is the best option.
N. Death of Offer
1. Revocation—withdrawal by the offeror
2. Rejection—offeree kills by refusing the offer, like § 38
3. Counter-offer—subs new offer, § 39
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2. Issue: Was there revocation? Specifically, was it revoked when the buyer learned of the acceptance of a third
party?
3. Yes: Revocation
1. Seller agreed to sell to a third party
2. Buyer learned of it
4. Law – Revocation effective if received by the offeree before he accepts an offer. This is indirect
revocation .
2. A revocation must be a clear manifestation of unwillingness to enter into the proposed bargain…
equivocal language does not necessarily destroy the power of acceptance. R2 § 42
3. Offers, acceptances, and other related communications generally must be communicated to the person
to be effective…but Dickinson v. Dodds shows not all rejections have to be. R2 § 42 allows for indirect
revocations if the offeree gets reliable information. Also stated in line with Dickinson v. Dodds on § 43.
4. R2 § 68 says a written revocation, rejection or acceptance is received when it “comes into the possession of
the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some
place which he has authorized as the place for this or similar communications to be deposited for him.”
5. Acceptance must comply with the precise requirements of the offer, since the offeror is the master of his
offer and can specify what constitutes an effective acceptance. R2 §§ 30, 58, 60 A response in the wrong
form is a counteroffer.
7. Acceptances are valid when out of the hand while all other communications [offers, counteroffer,
revocations, etc. are effective only when received. UCC 2-206., R2 § 63 The offeror can specify around the
mail box rule.
8. The mailbox rule may be varied or rejected by the offeror’s specification of the manner of acceptance.
9. Generally, the mailbox rule is only valid if the offeree uses a reasonable means of communication.
This is defined by the type of communication used by the offeror. Also, the restatement § 67 allows a bad
medium if it gets there in the same speed as a reasonable means would have.
10. The mailbox rule does not apply to acceptances that are not properly addressed—R2 § 66
11. Mailbox rule doesn’t apply to sending your employee with a message. R2 § 63
R. Auctions
1. Well v. Schoeneweis
bid = offer to buy
fall of the hammer is acceptance
Buyer successfully sues for specific performance on the option K
S. Subcontractors v. Contractors
Not an acceptance or consideration question
Cases apply a lot of what we have looked at with O & A
1. Bid shopping causes subs to send in their bid at the last minute
2. Subs feel bound by their bid
3. Subs stop submitting to bid-shoppers
4. Subs also puff their bids
2.
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U. UCC and reliance doctrine--UCC 2-201(3)(a) specialty items open the door
A. Campbell v. Va. Metal Ind. – Gen relies on sub’s oral bid for doors in his K w/ Company.
Sub fails to provide doors and Gen sues. Sub claims protection by 2-201 of the UCC that a
K for goods of more than $500 has to be in writing.
1. P argues that the doors are unique and specific so therefore they should be
awarded spec. perf. N.C. Fed court agrees that the promise made by Va. was
binding.
2. This is a problem as this is a Fed court changing state law; writing generally
required by UCC 2-201, but case is an exception b/c of specially manufactured
goods (2-201(3)(1)(a)); This is Drennan approach
3. Only two times when Spec. Perf should be awarded
a. No adequate remedy at law for P
b. Irreparable harm to P if equity is not applied
B. Montgomery Ind. v. Thomas – K1 = original bid by sub, K2 = $32500 increase by sub
demanded and agreed to by P, K3 = K w/ school client.
1. Gen’l refuses to pay $32.5k over what was original bid, Court analyzes first bid like
Traynor finding it irrevocable after relied upon by D. Court also says that K2 was done by economic duress.
(No justifiable reliance under §87-§90)
2. Argue for the Sub – He made a mistake and the Gen’l agreed to it and then won’t pay,
who is duressing who here? According to facts Gen’l had notice of mistake b-4 K so he could have checked it
out if he had wanted to.
3. Call it bilateral or unilateral, sub performed fully when he held up his end of the
bargain (consider implied/quantum meruit contract)
C. Can a Gen’l really rely on a sub’s bid when it is such a competitive market and bids
could be seen as preliminary negotiation
D. Need to use planning to get around the problems of reliance.
V. Forms of Acceptance
How do you accept an offer?
Performance-unilateral K
Promise-bilateral K
1. Patterson v. Pattberg
How does one accept in the unilateral k area? Common law and Restatement on K go in different directions in
this case…
Facts:
1. Mortgage holder offers a reduced payment to finish the mortgage early
2. Debtor tries to accept, but the mortgage lender says too late…I sold to a third party
3. Was this an offer revoked?
4. Was this an acceptance issue?
Majority:
1. Said the offering party can choose a unilateral k or a bilateral k
2. The offeror choose a unilateral k based on “act”
3. Offer says agree to accept cash…§ 50.1, 50.3, 58…”pay me”
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4. Rule of Law: “Offer for a unilateral k can be accepted only by an act”
Dissent Approach:
1. agrees it is a unilateral k
2. he says the act is the showing up with the cash, § 50(2) part performance…“tendered”
3. problems: “checks in the mail” problem, you could jerk back the tender, stop payment of the check, this
is mere preparation to perform, no “I will love you in the morning”, money talks and BS walks
Proper planning
1. want to prevent costs
2. there is now a competitive market for lawyers
3. the plaintiff could have sought a bilateral k
1a. § 45 v. § 87(2)
Treat both as beginning of performance?
GM example – Ypsi & Willow Run plant for GM, abatement, flexibility with the reliance doctrine
GM had some good reasons to want to close the plant
Stone says
o K is a world of voluntary agreement, not reliance or court forcing
o Economic illiteracy-this is trade protectionism
o This makes us all pay the price
o The economy as a system pays because other people must bear the burden
o Customers will cheat around the system
How to plus P Sunshine?
1. Let it die under “lapse in time” under § 45?
2. Use bilateral K and specify what performance will amount to
3. Plan…
The Case:
H/W move at their mother’s request in exchange for her willing the house
Tensions develop when they do move to town, defense alleges breach of duty
They are suing because they want the house as promised, seeking specific performance
TC gave a life estate to the mom and enjoined others from taking away
ROL: The court says no revocation after the offeree began substantial and expensive performance.
A common law approach? Some recovery? Maybe they would get something under quantum meruit for the
care they gave, but no specific performance.
+ P this case
1. get agreement in advance
2. examine your state’s laws
3. get a bilateral k
The Court:
The trial court ruled in summary judgment for the defendant
The appellate court ruled for the plaintiff, finding partial performance and an attempt to perform
4. Irrevocable Offers
The court sees enough evidence of acts of acceptance by the seller. It is possible to go either way. But, we are drawn to ¶
6. The court sees acceptance through conduct. Said the buyer waived the clause. The seller lost control of the form.
R2 § 60 if an O sets the time, manner, or place, one can only accept as set out. If merely suggested, then alternatives
acceptable.
Z. Necessity of Notification
1. UCC 2-206(2)
Facts:
Eels skins case, there is no response or express k
The skins are destroyed and the sender sues
We must show a legal vehicle for recovery
Could have used bailor/bailee property law as a different vehicle…allowing us to use run of the mill law
instead of creating a unique k. “We don’t have to bastardize common law .”
Could we use the conversion tort? Property conversion?
3. Felton v. Finley
Lawyer provided legal services related to an estate
Some involved don’t want to be part of the suit one way or another
Lawyer sues the ones who did not go along
Dissent says appellants refused to be a party to the lawsuit.
This is the view from the high court down the road
Finley does get the benefit of the K
The court says he is an incidental beneficiary
4. Hail Case
How much time is a reasonable time before the insurance company has accepted through silence?
It varies…argue for your client.
The court saw a duty as per usage of trade because time is of the essence in the farming biz when a
storm can come at any time
This is an extreme situation…quick rejection or acceptance required in the insurance realm
2. UCC 2-207
§ 2-207. Additional Terms in Acceptance or Confirmation.
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly
made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of
the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the
writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on
which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
3. The legislature and the courts have relaxed the mirror image rule. Both ask whether we have the
material terms? If the answer is yes, then they find the k and leave the remaining terms to be worked out by the
parties later.
Critics say the minor terms were important too and resources have been expended to make; also, whose
offer is it anyway?; also, aren’t all terms of a k important?; there is no true agreement without all of the
terms agreed on; also, what if we can’t work it out? The court will be stepping in and stealing the K;
open this up and socialism results; § 204 gap fillers; also, what and how many terms are enough for the
k?; also, what does material mean?; no real meeting of the minds if terms are left out
1. Kearns v. Andree
Seller orally agrees to sell a house, buyer calls for repair changes
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Seller makes the changes
Buyer won’t close the deal
Buyer sells to a 3rd party and sues for the cost of the repairs [reliance interest] and the loss on the price
[expectation interest]
Note: k was oral, and any land k has to be in writing as per the Statute of Frauds
Court allows for cost of repairs
This isn’t part performance, it is preparation to perform
ROL: Court says one can recover for damages in expectation of receiving payment…this is in essence §
90 reasonable reliance with pre-contractual liability
How do we argue against recovery even under the reliance doctrine?
o If there is no enforceable k, how can a plaintiff expect to rely on payment?
o Contracts are about allocating risk…get it in express fashion
This is a bigger blow to the mirror image rule because it impacts statutory law
It destroys predictability
B. Mistake
A. Farnsworth
1. Types of mistake
a. “a belief not in accord with the facts” R2 § 151
b. historically, many courts denied mistake of the law claims because ignorance is no excuse, but today
most courts will grant relief
c. must be ex ante and misprediction excluded because not an error about the facts at the time of the k
incorrect prognosis on personal injury is not mistake, incorrect diagnosis is a mistake
d. multilateral v. unilateral mistake
2. 3 Part Restatement Test for Mistake—R2 § 152, the party adversely affected must show
a. the mistake goes to a basic assumption on which the contract was made— some say must go to
identity or existence, not attributes, quality or value- Farnsworth criticizes
b. the mistake has a material effect on the agreed exchange of performances, the imbalance resulting
must be “so severe that he cannot fairly be required to carry it out”
c. the mistake is not one of the party who bears the risk
i. a person bears the risk if it is in the k
ii. when one knows that they have limited knowledge of an issue—ex/ Wood v. Boynton
iii. when the court allocates the risk to him because it is reasonable to do so—ex/contractor
discovering rock in the soil
3. Generally, a party is not barred on the basis of mistake merely because that party could have avoided the
mistake by the exercise of reasonable care, unless lack of good faith and fair dealing R2 § 157
4. Mutual Mistake-when both parties are wrong about the same facts
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5. Basic remedy for mutual mistake is avoidance, might be a loose statute of limitations, and both parties are
entitled to restitution
6. Unilateral mistake-when only one party has an erroneous perception as to the facts
8.
Note: Stone’s 5 deregulators, 1/5 is science and technology…we now would use a medical test to know the
cow’s condition, making the cow’s fertility moot…there is a duty to investigate under § 163, if you don’t want
to pay the toll, you don’t get to play the role
Stone is very skeptical of the 8 CL policemen…might find mistake if the cow was dead, or if the parties were
thinking of 2 different cows, aircraft engines case on p.607-08
D. Wood v. Boynton
1. Laymen would think mistake-error of fact, mere error, limited knowledge, etc.
2. The court definition of mistake is different
a. it requires that the thing sold or contracted for is different than the thing delivered…
the substance of the consideration must be different
b. in this case, both parties knew which stone was referred to, just ignorance on details,
composition, etc.
3. Both this case and Sherwood are about differing valuations
4. Shouldn’t these cases just be consideration cases? The court leaves the value to the parties.
5. The general rule as to mistake on the value is that the court will not intervene ***R § 154b
6. Both parties have equal chance to investigate ahead of time, example KBB, Edmunds, etc. in
the car realm
7. R § 163 – duty to inspect, look out for yourself!
8. The jeweler did not know it was a diamond…We generally don’t hold people to mere opinion
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Statutes are afraid of fraud if you can insure dead people and/or based on impossibility of performance mindset.
If an annuity K—restatements on § 162…annuities work like Social Security, if dead when taking the k, then
mistake lets out of the claim; if has a terminal illness, then not mistake but could contract around this
G. Personal Injury claim and releases: courts often let people out of releases when they are
discovered then they are worse off…Stone seems not to be a fan because it is a slippery slope on holding to
their word and letting people get money quick and back out later [time value of money, sureness of settlement]
Stone says who the hell is unconscionable? Is the court being unconscionable?
Legislatures allow rescission on clerical errors at times…we could go too far and make a mountain out of a
molehill. It may be better to allow wealth maximization. Hypothetical contract analysis allows a different
approach. Ex ante, you would not expect this?!
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N. A v. B
Goal
A. Mistake, externalize, B. Failure to look out for
nirvana own self-interest,
internalize, reality
Statutes are afraid of fraud if you can insure dead people and/or based on impossibility of performance mindset.
If an annuity K—restatements on § 162…annuities work like Social Security, if dead when taking the k, then
mistake lets out of the claim; if has a terminal illness, then not mistake but could contract around this
Personal Injury claim and releases: courts often let people out of releases when they are discovered then they
are worse off…Stone seems not to be a fan because it is a slippery slope on holding to their word and letting
people get money quick and back out later [time value of money, sureness of settlement]
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Smith v. Zimbalist
Where a document was signed that B got a Stradivarius and instead the violin was a fake violin case—
Mistake attached to express warranty
Is warranty of some kind not a better way of handling these cases?
Stone says this might be a grow the hell up case
Buyer says the response is the buyer relied on the seller…§ 169 or § 162 fraud
Seller and buyer are both collectors
§ 163 duty to investigate and look after own self-interest
If you are buying something, investigate! Get your own expert.
You only might win and there are high transactions costs…look at the real world
How could you ever expect the seller to contract in the best interest of the buyer?
Only bilateral mistake is pure mistake law, the other cases are hybrid attempts by the court…is this like
a contort, leading to the death of contract?
Are the courts over-reaching for some crazy legal vehicle?
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Mistake to this point
7. mutual bilateral – cow case, topaz case
8. mistake plus imposs
9. mistake plus express warranty
10. mistake plus fraud
11. mistake tied to innocent misrepresentation
12. mistake plus implied warranty for a particular purpose
Seller should have investigated the value of his own property. This would be a unilateral mistake and §
153 means no help.
Seller wins on re-trial
Some might argue fraud in the inducement…court says “active fraud”
Court says a failure to disclose is active fraud if there is a duty to disclose.
You do not generally have a duty to disclose
No “brother’s keeper” in contract, each side looks out for their own self-interest
Active fraud—one side can’t impose misinformation like the realm of § 161, here a failure to answer
might be more than mere silence, a seamless web of active failure to respond to a question accurately
This obligation to disclose would create a free-rider/moral hazard problem
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§ 163 duty of investigation
There is also a property rights of information view carry the day? You have a property right in
information. It is OK to give it away, but the court should not take it.
GET THE DE NOVO TERM—NEW TRIAL ON THE RECORD
Some judge would find suppression of material circs…equivalent to active fraud is this near-beer
fraud? The slippery slope of equity?
Stone says who the hell is unconscionable? Is the court being unconscionable?
Legislatures allow rescission on clerical errors at times…we could go too far and make a mountain out of a
molehill. It may be better to allow wealth maximization. Hypothetical contract analysis allows a different
approach. Ex ante, you would not expect this?!
C. Next DAY
The 3 rules
1. if equally difficult to discover the information-then no duty of either party to disclose even if later finds-
covers most of the cases
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2. if the seller has lower search costs then the seller may have a duty to disclose the discovered info
3. if the buyer has lower search costs, then the buyer may have a duty to disclose the discovered info
Different here:
1. intent of the parties-government is not a gratuitous neighbor, all pay through taxes or K
2. agency issue?
Question-when does the error of information rise to the level of rescission mistake? Here, he has to internalize
the cost. Here, the incentives are helped by requiring him to pay. He is in the best position to decide.
Also-this is an emergency-he wants help and can only expect it free if it is truly a gift
Impossibility excuses performance only when the D can claim “it” cannot be performed rather than “I” cannot
perform.
SQ is to not excuse: ROL-contracting parties must perform the black and white of the contract or pay damages
even if it is difficult.
Test: when without fault by the parties, it is known ex ante, it is known that the k cannot be fulfilled
without the existence of some specific thing, we will excuse performance under the impossibility doctrine.
Here, fire destroying building
-these are all default rules, so parties can allocate the risk through contracts
-public ordering is the fall back, default rule
Can we avoid the lawsuit fight ex ante? Are we going to use K terms or go to court and
risk the default rules? What are the default rules?
Impossibility
1. NIPSCO prevents the use
2. Argues that there is a force majeure clause—impossible, impracticable, frustrated, §§§261, 263, etc.
3. NIPSCO sees the heavy foot of government regulation as the intervening force
4. Makes the K for the coal unneeded
Judgment
1. no excuse on possibility grounds
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2. says not impossible,
3. power company eats the higher cost
Power companies will have the pros, and there is regulatory capture of the regulator bodies. The parties will be
raised in the long-run…
R=C+Ir
Posner takes the approach so as not ot excuse unprofitabke contracts. How are you going to allocate the risk for
the unforeseen action of the regulatory bodies? The black and white of the Coasean contract should thus
control. Who ex ante had the lower information costs? NIPSCO, the consumer. They are the firm that deals
daily with the PSC. The coal company does not deal with the folks. NIPSCO carries the risk if the case is
decided on an economic basis. Public service group are an expected risk.
p.662, Coronation Purpose
court uses the essential purpose doctrine
again, stone says who has the lower info cost
Wolftrap Case
Ampitheatre case, wine and cheese concert area
There is a power outage at an opera k
WT closes it down, the opera company sues him
But , power outages are foreseeable. Posner would say no excuse…clear risk.
-impossibility generally if the events are unforeseeable because people can plan to allocate the risk
-so, no relief
Doesn’t Wolftrap have better incentive and lower information costs? WT runs the place, knows the risks,
knows the profit/loss, etc. More like the builder in the 2/3 house case.
The opera company will plan around this bleeding heart liberal k by putting a clause in allocating the risk in
some way. Don’t mess with mother market! People will try to avoid the court and keep their freedom.
Introduction
Are we going to use the lower cost provider mindset? If so, we follow Posner’s approach. Could someone
insure through insurance, contract clause, etc. This allows planning.
Perhaps parties relieved from unforeseeable loss, but no relief for foreseeable loss. Ex/NIPSCO case…could
predict a change in rules…Is the government a reliable contracting party? It is foreseeable that the regulators
would change the rules.
There is a different direction in Wolftrap. ALCOA might also go in this area.
Wolftrap.
Follows the modern rule of impractibility under § 261
Electric outages are very common
This is a contradictory pull from NIPSCO
This case allows them to externalize the cost
Who was better positioned to solve? Wolftrap, but the case doesn’t go that way and it is in conflict with the
other cases.
State Lemon Laws-statutory unconscionability statutes saying we can use the statute
for remedy if specific events occur…all states have them. But have massive
limits…usually just cars. Usually hard to prove. Usually high transactions costs.
These are statistically improbable laws. STONE APPLIES THIS TO ALL
CONSUMER PROTECTION LAWS. This raises the price for all because of the
losses. Wouldn’t the common law breach of contract work? Failure of
performance? Failure of consideration? True warranty breaches?
A&M produce-
CA commercial unconscionability, 2-719.3 provision
Exclusion of warranty provision
Does the court allow the commercial limiter? No
7 part test
Two kinds of unconscionability
Ben Coulter Contracts II-Stone
40 of 51
a. procedural-oppression and surprise. But what is oppression? No real negotiation and absence of
material choice. Surprise? Stone says read your contract.
b. Substantive-being commercially unreasonable
Imperfection liability?
402 a R2 of Torts
1. in a single product
2. a rare occurrence
3. prohibitive costs to manufacture to achieve safety
4. only a minor injury
5. nothing the consumer can do to prevent/provide for safety
6. there would only be a slight increase in cost of coke if we find a way to deal with this (insurance
pool)
Spa Petite
Rugler v. Roman
Unconscionability case
Almost fraud
Owens
How to rebut illegality
1. P had a bad decision, didn’t look out for his own self-interest
2. P did do his § 163 duty to investigate
Illegality K
1. Agreements to commit a crime or toert
2. ASgreements to interfere with trade
3. Agreements to violate regulatory statutes (K is void, not voidable)
§ 181 – no recovery for illegality
Bel-Fel v. Bagel
-vulnerable widow
-does she have a k induced by fraudulent misrepresentations?
ROL: fraudulent misrepresentations render a k void
Maybe we could have used something else? Think through…find another avenue.
Goal
A. case by case, massive B. Strict Big 8, high
gov regulation, law by wish, standard of proof
law by hope
Politics Market
If the court protects her here, wouldn’t it logically extend to all kinds of things like dresses, etc.
FORCE THE HIGH LEVEL OF PROOF! THEN, WE WOULD HAVE LESS CERTAINTY.
Investment-psychic income
Classify as to time
1. Conditions precedent—trigger, B Ks with C to buy C’s house conditioned on B’s ability to find suitable
financing
2. Condition subsequent—defeating provision, if this event occurs, it operates to discharge contract, extend
to family law, B contracts wit C to support C until C is remarried as a clause of a divorce, a remarrying
ends the requirement
3. Concurrent conditions—parties are at exchange, B and C contract for sale of car for $1000, it is implied
that the seller’s obligation to hand over the car is conditioned on the tender of the money at the moment
of sale
Classify as to Form
1. Express conditions in the contract
2. Implied or inherent conditions
On the one hand, do we have a condition or is this an essential term, p.782 case
Remedy for the breach of the condition—R § 224 the victim is allowed to proceed or abandon as desired
Test: objective standard-honest, good faith, skillful and workmanlike manner in accordance with the accepted
standards of the locality and industry, insulation example
A subjective test: portrait painting example if there is a clear statement in the contract of intent to the
evaluation…personal nature, Posner on 798
Burger King Case—we have to have build one per year…this is an example of a
condition subsequent…called “defeated” if fail to meet the specs…is there
waiver?
818-Pope Construction Case—can be implied, here it is the implied condition that the prime have the
road ready for guardrails, the court finds as implied k because it is a common occurrence,
825-Sahadi as surety
D’s are personal guarantors
1 day late to pay, the bank calls in the loan
D. From Class
3 types of 3rd party beneficiary-donee [gift], creditor [key man insurance], incidental [Can people who would
have benefited sue for breach? Not if not in the k]
Ben Coulter Contracts II-Stone
47 of 51
B. Assignment
1. Historical background and code provisions
a. free assignability makes our modern credit economy work
b. at common law, ks were not assignable for fear of multiplied litigation
c. Courts in equity allowed assignment in the 17th century
d. 18th century courts in law started allowing assignabiltiy
e. American courts brought in free assignability
f. UCC article 9 really takes over
i. applies generally to transfers for value of “accounts”
ii. some exclusions including: wage claims, for collection only, as part of a sale of a business, person
under a contract in addition, assignment of a single account to address indebtedness
Assignor
Assignee
Obligor
Notice—