Contracts II Outline Fall 2009

Contracts II Outline POLICING THE BARGAIN Capacity – Mental = cognitive – able to understand nature & consequences only, if not then void if it’s as a matter of law, if as a matter of fact could be void or voidable. Restmt says voidable Compulsory – unable to act in a reasonable manner and the other party had reason to know of lack of capacity then voidable Minors – general rule – all contracts are voidable – minor only has to return what he has; minority rule has to pay for the extent of the benefit received. If you’re not a “good faith” purchaser though it might matter. Necessaries – minors must pay for the reasonable price of goods to the extent the items are necessaries. Undue influence – undue susceptibility of the vulnerable person, excessive pressure by the dominant person. Duress = wrongful threat & inadequate supply/inavailabilty of other remedy/no other choice. Lack of alternatives must in part be created by defendant’s misconduct. Illegal contracts are void. Contracts against public policy are void. Discharge of Contractual Obligations – – Impracticability/unforeseen circumstances – – By agreement of the parties: i.e. mutual rescission (each parties rescinded obligations operate as legal consideration), modification (Will always occur after the parties have formed it but before full performance. no consideration needed – always an original contract, when contract is executory (i.e. before it has been fully performed by either party, the parties may agree to change at least one of the original k duties the old duty is discharged & replaced in the contract by the new duty – whether there is consideration is frequently an issue since it’s mostly onesided), substituted contract (contract is partially executed, one of the parties has fully performed. Creates creditor/debtor relationship – if creditor accepts debtors promise to pay something less than the full amount in exchange for the discharge – there is a substituted contract ), accord ( contract is partially executed, one of the parties has fully performed. Creates creditor/debtor relationship; if creditor accepts the debtors PERFORMANCE in exchange for the discharge then there is an accord. The performance is called the satisfaction. ).

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In defense of enforcing a modification it is often argued that there is no consideration for the higher price or the alteration. That’s where the pre-existing duty/legal duty rule comes in. if a party merely promises to do what a party is bound to do then this promise cannot be consideration for a return promise. Problem can be solved by providing consideration, something additional or different. Another alternative is to rescind the old contract and enter into a new one. Restatement provides that a modification is binding if it is fair & equitable, in view of unforeseen circumstances, to the extent provided by statute or as justice requires in reliance on the promise. Under the UCC a modification needs no consideration to be binding when the sale of goods is involved. UCC also imposes a requirement of good faith. Must observe standards of fair dealing in trade, and may require objectively demonstrable reason for seeking modification. When a modification or attempt doesn’t satisfy requirements under

UCC conduct by the parties can operate as a waiver of those conditions. This is because the parties have a voluntary choice whether to accept or reject the new terms. You can rescind a waiver/modification by proper notice except where the other party acts in reliance on the original waiver/modification. But waiver can only be retracted when contract is still executory. Discharge by Accord & Satisfaction – Accords are contracts & require offer, acceptance & consideration. Pre-existing duty rule often impedes the formation of an accord. Can defeat pre-exisiting legal duty rule by offering a different payment or something else different. You can also solve it by resolving a dispute or liquidating a debt. If a debt is disputed there is a good faith claim or defense to its payment. The consideration is the giving up of the disputed claim. There can be consideration if a debt is not liquidated or fixed by the parties/court. If debt is unliquidated and parties haven’t agreed to the amount, then the consideration is in the settling of the amount. Where an accord is offered and seller doesn’t respond, it’s considered acceptance by inaction. Where partial payment is offered and accepted, it is only viewed as partial payment and doesn’t dispense witih right to the whole amount. Where partial payment with statement is written then it is an accord which if accepted is satisfaction of the entire amount. Conditions – Such an event that has to occur before a performance is due. Promise = any manifestation or intention to act or refrain from acting in a specified way so made as to justify a promisee in understanding that a commitment has been made. There is a general preference to interpret something as a promise because it creates less hardship. Where it is a breach of a promise, the promisee is entitled to money damages. Where it is a breach of a condition or nonperformance of a condition, your performance is excused. That only works if the performances are simultaneous. Where performance can be rendered simultaneously it is due simultaneously, but if not the person whose performance akes time goes first. Parties are free to contract around this default rule. Condition precedent has to occur before performance comes due and condition subsequent describes an event that distinguishes a duty that has already arisen. Effect on conditions – SUBSTANTIAL PERFORMANCE – Substantial performance or immaterial breach requires that the paying party still has to pay but gets to deduct damages. If no substantial performance, the other party doesn’t have to perform either (this is similar to the breach of a condition). Even when a court has found that it does operate as a condition, there are ways around this: they are – waiver, divisible contracts & restitution. Waiver = knowing relinquishment of a legal right. Breach with respect to time is presumptively immaterial. Contracts can also be divisible into mini-contracts – For a contract to be divisble, the performance of one party must be divisible into performances that are the “agreed equivalent” of a performance by the other party. UCC eliminates the need for the buyer’s nonperformance under material breach, and also the need for divisible contracts. It adopts perfect tender rule but gives buyer the option to accept partial & get damages for expectancy or to reject altogether. However, if the buyer accepts any portion of the perfomance it must pay for what it accepted. This is contrary to common law where in a material breach buyer just can stop performing. With service contracts (i.e. haircut) it is a lot harder to make it into a divisible contract. Restitution is also a possibility on a theory of quantum meruit or unjust enrichment. I. Policing the Bargain – UCC 2-302 Unconscionable Contract or Clause. – (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any

unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination. 1. Competency & Other Limits – A. Minors & Disaffirmance a) Until a person reaches majority any contract he or she enters into is voidable at their option. A minor’s right to avoid is sometimes effective against third persons. But, under the UCC the infant’s disaffirmance cannot disturb a third person’s right (see UCC 2-403 – article 2 protects good faith purchasers). Courts generally protect the infant the FIRST time, if it was done repeatedly it might not be enforced because the infant is no longer in a position to be “taken advantage of.” b) Halbman v. Lemke – minority rule: pay for k to the extent of the benefit received / restore status quo regardless of means, even if you have to restore proceeds or other value. Majority rule: Restitution in specie/in kind only, this is the Restatement view (Section 14 – Restmt 2d Contracts). Unless willful destruction or misrepresentation in tort you can’t make a minor pay the entire amount back. c) Webster Street Partnership v. Sheridan – In a rental situation, Minor who tries to disaffirm a contract involving “necessaries” is liable only for the value of “necessaries” under the contract. The definition of necessaries varies – not just things required for bare subsistence, depends on social situation, wealth & position, and parents wealth and position. If parents are willing to supply goods or property they are not necessaries. In this case, both minors voluntarily left home but didn’t NEED the property as they could return home. i) The reason necessaries must be returned is because they have use value to the minor and thus, returning them is necessary to prevent unjust enrichment. Minor is not liable for necessaries furnished on someone else’s credit. You have to prove they entered into the contract for goods/services. The policy reason is to prevent adults from taking advantage of minors. Even if you’re not a minor, you still have a reasonable amount of time to disaffirm if the deal was made when you were a minor. A. Mental Competence – Mental incompentence of one party previously made a contract entirely void. Some states still call for total nullity because of the meeting of the minds, others just view the contract as voidable. Under the voidable theory if a contract is favorable to the mentally incompetent person it can be enforced. a) Faber v. Sweet Style Mfg. Corp. – Law was once concerned only with ability to understand; manic depression affects motivation, so manic depressives were often excluded but now the law recognizes other stages of mental incompetence, i.e. delusions can invalidate a contract if there is a link between the delusions and the making of the contract. Understanding of the consequences is not necessarily enough for enforcement if a person is legally insane. b) Restatement 2nd of Contracts – Section 15 – Mental Illness/Defect – A person incurs only voidable contractual duties by

entering into a transaction if by reason of mental illness or defect: 1.) he is unable to understand in reasonable manner the nature & consequences of the transaction OR 2.) he is unable to act in reasonable manner in relation to transaction & other party has reason to know of the condition. If contract is made on fair terms and without knowledge by other party of defect/illness, power of avoidance terminates to extent contract has been performed in whole or in part, or if circumstances have changed to make avoidance unjust. Court can grant relief as justice requires. c) Ortelere v. Teachers’ Retirement Board – Traditional test of competency = cognitive test (high standard, lucid intervals are valid). Ct decided the standard needed to be lowered and added the compulsion test, similar to Farber/Rstmt. Board knew of Grace’s psychosis or should have known. Ct here examined the adequacy of the consideration as part of the reason for their choice. d) Farnum v. Silvano – Contractual capacity requires more than lucid intervals of understanding needed for testamentary capacity. You have to be able to understand what is going on (competency) & understand the nature of the transaction & its significance. A person can know their selling their house but fail to appreciate the unreasonableness of that sale, hence the need for a more liberal standard. A. Undue Influence a) Odorizzi v. Bloomfield School Dist. – Undue influence consists of persuasion that overcomes the will without convincing the judgment. High pressure. Two elements: 1.) undue susceptibility of the vulnerable person, and 2.) excessive pressure by the dominant person. Age, sensibility, sickness, exhaustion, emotional turmoil are all factors that lessen capacity to contract. Other factors include: discussion of the contract at an inappropriate time or place, more persuaders than persuaded people, absence of an attorney or the encouragement not to seek one out, etc. b) Von Hake v. Thomas – Undue influence/constructive fraud requires more than an unfulfilled promise/lie. Among the factors to consider: 1.) one person can’t substitute his will for another’s, 2.) long-established relationship of trust, 3.) traditional fiduciary relationship imposed (i.e. attorney/client), OR if elderly 4.) an indication of feebleness or lacking full possession of faculties. Some contracts are never enforceable despite capacity. A. Violations of Public Policy – a) In Re Baby M – A surrogacy contract was illegal for violations of public policy because it contracted around a statute prohibiting the exchange of money for a child-bearing agreement. It’s criminal to pay $ to induce an adoption. Coercion of contract is a violation. Contracting for illegal things is a violation. Consent makes no difference in illegal contracts. 1. DURESS & COERCIVE RENEGOTIATION – A. Adequacy of Consideration a) Batsakis v. Demotsis – Just because consideration may seem inadequate at the time, that’s not enough to void the contract as long as there’s an exchange. Even seemingly unconscionable contracts can have consideration because it’s based off of what the other person thought the promise was worth. Some benefit/detriment exchange is what matters. Doctrine of

consideration doesn’t really look at the fairness of the deal, only care about the sufficiency of the exchange. b) Embola v. Tuppela – Doctrine of consideration is not well-suited for policing the bargaining; even when a contract appears unconscionable, it is valid unless there is a capacity issue (legal or mental), illegality, or some other clear evidence of unconsc. c) Levine v. Blumenthal – If you make a new contract, you have to have new consideration. A promise to do what you’ve already legally bound yourself to do is not adequate consideration. An offer of forbearance of a legal duty is not sufficient. An agreement to pay the balance early if at a reduced rate might be enough for a new agreement to be valid. Also, just because you perform and the other party accepts that doesn’t excuse you from the consideration for a new promise requirement. i) i) Other ways the Levine outcome could be escaped: Prepayment, payment at a different place, or probably a payment to a different person are variations from the legal duty that would alter the result. Payment in whole or in part with something other than money would do the same. a) UPC 2-209(1) – An agreement modifying the contract within this Article needs no consideration to be binding. Modifications must meet the test of good faith, however. b) Modern statutes hold that partial performance even without adequate consideration excuses the original obligation. A. Consideration and the Legal Duty Rule – a) Alaska Packers’ Ass’n v. Domenico – Legal Duty Rule - When a party merely does what he is obligated to do, he can’t demand additional compensation for that, nor is it considered adequate consideration for a new promise. To allow otherwise would give one party an unjustifiable advantage over the other. b) Schwartzreich v. Bauman-Basch, Inc. – If old contract is destroyed when the new one is made and there is an exchange of mutual promises as consideration, then it is valid. c) Austin Instrument, Inc. v. Loral Corp. – expectation measure of damages – difference between cost of cover/mitigation & original contract price. Rule for Economic Duress – 1.) wrongful threat, 2.) no other supply & inadequate remedy for breach of contract. If these elements are met then the contract is voidable. The legal duty rule doesn’t apply here because there is a new separate contract, not just a modification. If a party says give me more on the 1st deal or we’re not going through with the second deal, that’s valid because the second contract wasn’t made yet, and the promise served as adequate consideration for the new contract. This is a negotiaton because one party has a legal right to refuse to act, as opposed to a legal duty to act. d) Smithwick v. Whitley – When a contract is entered into voluntarily and the plaintiff was not deprived of free will, although the contract may seem unconscionable, it is valid. This is especially true when the plaintiff had another remedy i.e. could have sued for specific performance. e) Wolf v. Marlton Corp. – Duress is tested not by the nature of the threats, but by the state of mind induced thereby in the victim. It is “wrongful” as used in relation to duress to threaten to sell a house

to an undesirable purchaser for the purely malicious motive of damaging the seller’s business f) The object of relief for duress is to cancel out advantages secured by superior bargaining power. Preserving the individual will is a less important, but still valid, concern. Just because you have a legal right to do something doesn’t necessarily excuse you from duress. Historically duress of goods = rescission/restitution, g) Duress is to be distinguished from undue influence (power of another who is in a position of weakness, and extreme economic pressure. Solution for undue influence = rescission with restitution of an unjust gains. Undue influence combined with the abuse of “confidential relations” with the securing of unfair advantages from one party by another often leads to constructive fraud. h) Brian Constr. & Dev. Co. v. Brighenti – If you already have an obligation to do something, you can’t modify it. You have to rescind that contract and create a new one or create a new and separate contract i.e. offering to do something more than in the original contract for more money – that is a valid modification/new contract. Ct also adopts/mentions three rules that lead to the same result: Connecticut/Blakeslee rule – when it’s fair to recontract due to unexpected conditions, then there is valid consideration in a pay increase even if the same “duties” appear to be technically involved. Unforeseen circumstances often validate subsequent oral contracts – MD rule; CA – unanticipated, burdensome circumstances were enough to validate an oral contract i. General rule – two party cases – you can’t modify a contract using an existing legal duty or legal prohibition as consideration. The same is true in construction cases except for the exception of unforeseen/unanticipated circumstances. This is the RESTATEMENT POSITION AND CURRENT MAJORITY RULE. ii. Restatement section 89 – Unanticipated Circumstances allow for modifications of Contract – THAT IS THE MAJORITY RULE – A promise modifying a duty under a contract not fully performed by either side is binding: a.) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or b.) to the extent provided by statute; or c.) to the extent that justice requires enforcement in view of material change in position in reliance on the promise. iii. UCC 2-209(1) – goes one step further than restatement and completely abolishes the need for consideration in modification when the sale of goods is involved. No consideration needed in modifcation, but code does require subjective honesty & justification for the decision to seek modification. iv. In construction cases generally, the legal duty rule does not apply and courts now view exchange of new promises independent of original contract because of changed/unforeseen circumstances or the assumption of slightly different/new duties which are perceived as a sufficient detriment. One ct argues the normal consideration rule (benefit & detriment) should apply to construction cases because: 1.)

promisor gets exact consideration for which he bargained for, one to which he previously had no right & 2.) there’s no policy reason not to. A. Contractual Duty Owed to a Third Person – a) Courts generally waive the legal duty rule and hold that the promise constitutes consideration – this reflects an underlying policy to protect innocent third persons in transactions. b) McDevitt v. Stokes – In situations that border on illegality/gambling, courts take a less liberal approach to the consideration requirement/legal duty rule. Additionally, even though there was an innocent third party here, the employer, the court refused to construe the consideration requirement liberally based upon the nature of the contract. c) Universal Builders, Inc. v. Moon Motor Lodge, Inc. – Under the Restatement oral modifications are permissable where the modification is fair and equitable in cases of unforeseen/unanticipated circumstances. See section 224 of Restatement – where promisee materially changes his position in reliance on the agreement. Contract conditions are waived when they, if enforced, would approach fraud. i. UCC 2-209(4) – Oral contracts don’t satisfy the statute of frauds, but where they are modifications or rescission, they can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of material change of position in reliance on the waiver. UCC leads to Restmt position that oral agreements can waive written ones. ii. WAIVER – promisor can sometimes waive his conditional duty w/o consideration. Conditional duty can be eliminated by mere voluntary expression if performance isn’t material and doesn’t affect the value received by the promisor. One cannot waive himself into a duty to make a gift of the money. You have to know what is being waived and the mode by which such waiver is being attempted. a) Nassau Trust Co. v. Montrose Concrete Prod. Corp. – oral modifications vs. oral waiver – Modification = requires consideration except when a writing and considered dispensed by statute. Binding when consideration. Can only be withdrawn by agreement. Fair and equitable generally required to eliminate necessity of consideration. Waiver = no consideration necessary; voluntary, intentional abandonment of a known right which was otherwise legally enforceable. Cannot be expunged or recalled, but can be withdrawn provided that the party whose performance is waived is given notice of withdrawal and a reasonable time after notice within which to perform. Per Cole, waiver doesn’t require writing, consideration, reliance, judicial screening, or higher standard of proof. Can be implied as well as express by inconsistent words or actions. Estoppel – No consideration needed. Requires a promise that is false or misleading, relied upon to the plaintiff’s detriment. It prevents the person who made the statement from denying the promise. Can be equitable or promissory.

b) Cole v. Truck Ins. Exch. – Some courts require reliance in waiver
situations which actually makes it estoppel.

c) Quigley v. Wilson – Waiver = 1.) Existence of a right and actual
or constructive knowledge of that right, and 2.) an intention to give it up. No consideration/prejudice is required/necessary. This is more than a seller abandoning a contractual right – this is a modification because the contracting parties have acquired different duties & obligations from those in original contract (because contract was transferred to someone else, then transferred back and altered price). Here the modification doesn’t require consideration (although they usually do) because the modification was fair and equitable. A. FINALIZING CONTRACT DISPUTES – a) Hackley v. Headley – One party accepts another’s offer of settlement because he didn’t have the resources at the time to sue and he needed the money. He later sued for the remainder, to rescind the settlement, under the grounds of duress. Duress requires free will deprived of either person or goods. Duress of goods: 1.) compelled to submit to an illegal exaction in order to obtain the goods from one who possesses them but refuses to surrender them unless an exaction is submitted to. When a party only threatens things which he has a legal right to perform (i.e. in the case of a creditor) and the other party complies out of fear or out of a condition not caused by the threatening party, there is no duress because the free will is not impinged upon. Here debtors refusd to pay a debt already due, but the harm only resulted because P was already in financial straits. Debtors didn’t cause the financial straits. It was a coincidental result. It would be too unfair to let one party’s necessities control here when the other party didn’t cause those necessities. Court ended up rescinding the transaction for lack of consideration on grounds of bad faith because defendant knew of P’s debt. b) Capps v. Georgia Pacific Co. – Although previously one party taking advantage of another’s financial circumstances was not enough, the better rule is one which allows the statement of a duress cause of action or defense to be tried on the merits. Concurring opinion says this would be bad social policy to allow one party’s financial straits alone to serve as the basis for duress. It’s better to say lack of consideration here.Withholding of a performance shouldn’t be grounds for duress simply because the other party is in need and is known to be in need of the performance. A. ACCORD & SATISFACTION - Marton Remodeling v. Jensen – Accord is an agreement to discharge a contractual obligation, satisfaction is the “legal” consideration which binds the parties to the agreement. Here where work was done, a specific amount billed, and a lesser amount offered, despite several refusals & the filing of a mechanic’s lien, the ultimate cashing of the check with the words ‘not full payment’ constituted accord & satisfaction. Restmt position is that when a creditor’s actions are inconsistent with his words, i.e. where “not full payment” is written but the money is still accepted it is still an assent to the discharge of the debt. ;the court chooses to follow approach in former UCC 1-207 which is also the common law approach/restmt view – A party who “assents to performance in a

manner demanded or offered by the other party does not thereby prejudice the rights reserved; words such as “without prejudice” “under protest” and the like are sufficent to retain the legal right.” Doesn’t apply to an accord & satisfaction. a) See current UCC 3-311 – Accord and Satisfaction by use of Instrument. – if an instrument was tendered in good faith as full satisfaction of the claim, the amount of the claim was unliquidated or subject to a bona fide dispute, and the claimaint obtained payment of the instrument, the following subsections apply. The claim is discharged if the person proves that the instrument contained a conspicuous statement to the effect that the instrument was tendered in full satisfaction of the claim. Etc. etc. b) School Lines, Inc. v. Barcomb Motor Sales – A check was accepted but “accepted as partial payment” was written on the back by P, despite D’s writing that the check was “payment in full.” P prevailed because in this instance there was no bonafide dispute over money owed (i.e. money was liquidated) and acceptance of partial payment doesn’t relieve D of the full debt. c) Kilander v. Blickle Co. – Lack of consideration is the only argument why a creditor’s acceptance of a tendered “final payment” in the amount the debtor admits he owes is not an accord and satisfaction. A. THE EXECUTORY ACCORD – An accord without satisfaction – no payment or transfer has been made & at most there has just been an exchange of new promises. Under the common law, executory accords had no effect whatsoever on the transaction until they became accord & satisfaction situations. However, most statutes today make the accord an enforceable contract when it is in writing and signed by the parties. Where the settlement is oral, the common law rule presumably survives. a) Three situations that arise in cases of executory accord: i. Creditor Rejects Agreed Upon Settlement Item – Could be viewed as a new contract to replace the original, or it could be viewed as an “offer” to cancel the debt on receipt of the item. If it’s only an offer, it lacks consideration or reliance & the creditor can change his mind if the debtor is notified in time. This is standard doctrine. ii. Creditor gets Impatient & Decides to Take Legal Action – In this case, lawsuit would fail because the creditor has substituted the debt for a new item to be delivered by a fixed date. Because the date is not yet due, the action can’t proceed yet. This is upheld especially when a debtor has undertaken some new expense or inconvenience in order to carry out the new arrangement. This is viewed more as a substitution that carried with it a suspension of liability & the accord can be a defense to a premature lawsuit. iii. Debtor Defaults – If the debtor fails to deliver on either promise, first you have to see whether or not substitution of the new contract for the old. If that wasn’t the intent, and it would merely have resulted in forgiveness if performed, then the creditor has a choice between the two agreements. This is consistent with the Restmt view. Choice need not be made until judgment is entered. Breach of an accord must be material (i.e.

past the time of occurrence) in order to sustain a presettlement claim. A. LEGAL DUTY APART FROM CONTRACT – Duties owed to the public – a) Denney v. Reppert – Employees/public officials can’t receive compensation for things they are already obligated to perform, except if they are doing something they are NOT obligated to do (i.e. if a policeman does something outside of his jurisdiction). People who are able to collect don’t have to be aware that they are able to collect. This is similar to Alaska Packers. If you already have a duty to do it, you can’t manipulate it for money. When a reward is offered for some act anyone can collect it except one acting within the scope of their employment or official duties. b) Lord v. Lord – marriage carries with it some existing duties that can’t be compensated for under contract; it’s against public policy. 1. SCRUTINY of LIMITED COMMITMENT – At-will contracts/clauses reserving an unlimited power of cancellation. Many clauses reinforced this in the automobile franchise situations where the franchised dealer was required to provide “satisfactory sales performance” or best “efforts” to be measured by franchisor’s satisfaction. This caused conflicts, and some statutes required “good faith” – meaning the parties are guaranteed freedom from coercion or intimidation by the other party. Recommendation, endorsement, exposition, persuasion, urging, or argument would not constitute a lack of good faith. a) Sheets v. Teddy’s Frosted Foods, Inc. – An employee was terminated for repeatedly complaining about his employer’s violations of the law allegedly because the employer was unsatisfied with his performance. Employer doesn’t have an absolute right to terminate an employee – wrongful termination – employee shouldn’t have to choose between obeying the law or keeping his job. This is a public policy reason. Here plaintiff had a clear legal duty to do what he did. Dissent argues that plaintiff could have reported his concerns anonymously and still kept his job. b) Price v. Carmack Datsun, Inc. – P was injured in an automobile accident; company tried to pressure him not to use his insurance; P filed a claim, then company fired him. IL ct said the only exceptions to the at-will doctrine were those that violated a “CLEARLY MANDATED PUBLIC POLICY”, one that strikes at the heart of citizen’s social rights, duties, and responsibilities. c) Public Policy generally - Public policy is a very narrow/limited exception. In CA have to be fundamental policies delineated in statutory or constitutional provisions, Usually comes up in two cases: 1.) worker’s compensation claim, 2.) report of unlawful or improper conduct. NY refuses to recognize wrongful discharge or implied covenant of good faith (this is minority rule). d) McDonald v. Mobil Coal Producing, Inc. – Employee was accused of sexual harassment & resigned. Claims the company forced him to resign. Co says they are at-will employer. Employee argues that employee manual & course of dealing modified this employment atwill. Disclaimers in employee manuals and elsewhere must be conspicuous which is a matter of law. If disclaimer is not set off in any way, it is not conspicuous. Simply bolding text without distinguishing it in another way is not enough. Disclaimer has to be clear as to its effect on the employment relationship. When there is ambiguity as to

employer’s manifestation of intent via writing or actions, the meaning of the employment contract becomes a mixed question of law & fact. e) Kari v. General Motors Corp. – Employer’s communications (i.e. handbook) can create an offer, but that offer must contain a promise as well to be contractual. The promise must be conveyed in such a manner that the promisee can justly expect performance and reasonably rely thereon. f) Dore v. Arnold Worldwide, Inc. – At-will employment stands where there is no ambiguity. 1. STANDARDIZED TERMS, UNCONSCIONABLE INEQUALITY & GOOD FAITH – Concern is contracts of adhesion (i.e. take-it-or-leave-it contracts). Generally questions include whether such provisions/contracts are enforceable when the terms are buried in the fine print and are not freely negotiated. Focus on “assent”, “unconscionability” and “public policy.” Duty to read - One is bound by his contract unless he can show facts & circumstances to demonstrate that he was prevented from reading the contract, or that he was induced by statements to refrain from reading the contract. Just signing without reading it doesn’t give you an escape. If you had a reason to know or should’ve known you can’t just denounce the contract. a) Agricultural Insurance Co. v. Constantine – One isn’t bound by printed terms when they are an attempt to remove a bailee’s liability for negligence in the course of general dealing with the public. That would be against public policy. b) Weisz v. Park-Bernet Galleries, Inc. – Even in cases of deception where a disclaimer is placed very prominently, it is the customer’s duty to exercise care in proceeding under the disclaimer. c) Henningsen v. Bloomfield Motors, Inc. – Ps bought a car which steering wheel spun off in wife’s hands and caused an accident. There was a disclaimer to the warranty of merchantibility which was on the back of the sales contract in very fine print and buried amongst other clauses. Liability was limited to the replacement of defective parts. An acknowledgment of these provisions was printed below the signature line. P didn’t read any of these provisions. Court held that Ps weren’t bound by these limits on liability because of public policy reasons. You have to consider 4 factors: 1. A realistic evaluation of interest of buyer & seller, 2. Look at prior precedent, 3. Look at mass production methods used, 4. Look at the bargaining position occupied by the ordinary consumer in such an economy. Here, a uniform warranty doesn’t really give the buyer ANY bargaining power or choice. There’s a gross inequality in bargaining position. Ct basically said contracts of this type were contracts of adhesion. Further, court requires NOTICE (which can be satisfied by conspicuous disclaimer) and UNDERSTANDING (would an ordinary layman understand the terms)? Ct has a duty to protect the rights of the buyer against unilateral acts (read unequal/unfair acts) of a manufacturer. d) Superwood Corp. v. Siempelkamp Corp. – UCC 2-314 & 2-316 – 2-719, & 2-607: 2-314: Implied warranty of merchantibility – have to pass within that industry without objection or be of fair or average quality/fit for the purpose for which such goods are used. 2-316: Exclusion or Modification of Warranties: negation or limitation is inoperable to the extent that such consideration is unreasonable. Merchantibility must be mentioned & conspicuous if in writing, The phrase “there are no warranties which extend beyond the description

e)

f)

a)

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on the face hereof” is valid. “As is”, “with all faults”, etc. exclude the implied warranty. When buyer has refused to examine goods or examined them fully the merchantibility warranty is excluded. Course of dealing or course of performance can also exclude or modify a warranty. 2-607 – The buyer must pay at the contract rate for any goods accepted., 2. Acceptance of goods by the buyer precludes rejection of the goods accepted & if made with knowledge of a nonconformity cannot be revoked because of it unless acceptance was on the reasonable assumption that the non-conformity would be reasonably cured but acceptance does not in itself impair any other remedy provided by this Article for non-conformity. 2-719 – Remedies may be limited or altered by the agreement, except where the agreement causes the remedy’s purpose to fail and then it may be recovered under the UCC. Richards v. Richards – Exculpatory contract is one that releases a party from liability as a result of actions (or lack of actions) performed during the course of the contract. Because exculpatory contracts allow conduct that falls below an acceptable standard of care courts look at them closely for violations of public policy and construe them strictly against the party seeking to rely on them. Where an employer’s conduct creates an unreasonable risk of harm that outweighs the policy of freedom of contract. Lack of conspicuous/clear disclaimer/limit of liability, overly broad and inclusive provisions, and standardized form contracts with no opportunity for negotiation or bargaining – the combination of these three led to the violation of public policy. Broemmer v. Abortion Services of Phoenix – P went to get an abortion, they handed her three forms. Arbitration agreement for med malpractice liability was found to be contract of adhesion. Arbitration agreements are valid except when they violate legal or equitable considerations. Contracts of adhesion can be enforceable, but you have to consider the reasonable expectation of the adhering party, and whether the contract is unconscionable. Knowingly consenting goes hand in hand with reasonable expectation. i. Restatement 211 – Standardized Agreements – Where the other party has reason to believe that the party manifesting such assent would not do so if he knew the writing contained the particular term, the term is not part of the agreement. Woollums v. Horsley – Equity should never specifically enforce an unconscionable contract that is premised on fraud, undue influence, misrepresentation, duress, etc. Ct finds here that contract was unconscionable because of the position of the parties. COMMENT: DENIAL OF EQUITABLE RELIEF – i. The “Clean-Up” Principle – Courts can refuse to provide equitable relief on the basis of unconscionable contracts or where the consideration is grossly inadequate. Equity courts also hear legal issues in interest of “cleaning up” the case, and saving time/resources. Used conservatively. Waters v. Min Ltd. – A contract is unconscionable and can be rescinded if it is “such as no man in his senses and not under a delusion would make on the one hand, and no honest and fair man would accept on the other.” According to UCC 2-302, “if unconscionable, the court may refuse to enforce the contract, or enforce the remainder of the contract w/o the unconscionable clause,

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or limit application of any unconscionable clause as to avoid any unconscionable result.” The test for unconscionability is to be made as of the time the contract was made. Williams v. Walker-Thomas Furniture Co. – Where the element of unconscionability is present at the time the contract is formed, the contract should not be unenforced. Unconscionability is: 1.) absence of meaningful choice on the part of one of the parties, 2.) contract terms which are unreasonably favorable to the other party, 3.) you have to consider all of the circumstances, gross inequality of bargaining power can negate any meaningful choice. Consider how the contract was entered into (knowledge of the parties, reasonable opportunity to understand the k). Brower v. Gateway 2000, Inc. – UCC 2-207 – 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. Ct says arbitration clause is valid because it didn’t materially alter an oral agreement, merely a provision of the contract that existed between the parties. Just because unequal bargaining power doesn’t necessarily invalidate the contract as one of adhesion. The Gateway provision wasn’t take-it-or-leave-it, you had 30 days to change your mind. Look to procedural unconscionability & substantive unconscionability to make the entire determination. The substantive element by itself can be enough. Unconscionability generally – Two purposes: 1.) prevent unfair surprise, 2.) to prevent oppression. If all you have is a procedural problem there are other doctrines to deal with it (like mistake/reformation, etc.). But, you can have unconscionability on substantive grounds alone. Unconscionability combined with a breach of the duty of good faith is standard practice. i. Restmt 2nd of Contracts – Section 205 Duty of Good Faith & Fair Dealing – Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. Good faith in general emphasizes faithfulness to an agreed common purpose, and consistency with the justified expectations of the other party; Market Street Associates Ltd. Partnership v. Frey – Enforceability of the contract in part depends on whether one party was trying to intentionally trick or deceive the other party. Even though one party may not have read, if the other party doesn’t act in good faith in the course of dealing, then the contract may not be enforceable. Here it’s a breach of good faith because the party did more than exploit knowledge to its benefit, it actually took advantage. If contract provisions had been mentioned and the financing were still denied, then no breach of good faith. Undue advantage taking – basically failure to point out a problem and reason to believe the other side was unaware. COMMENT – Regulation of Unfair Terms – 1.) Compulsory contracts – if you don’t have the option to deal, it increases chances for coercion. In many cases statutes require fair dealing and equality of treatment such as by utility companies to the people seeking the services. 2.) Prohibitory Terms – Certain things you can’t agree to. Denial of legal effect is sometimes grounded in public policy. Against public policy often = illegal. 3.) Requirements of form – Sometimes special care is

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needed to make parties aware of the terms. Certain terms have specific form requirements. 4.) Balancing the Standard Form – parties in certain trade associations may devise standard forms that fairly balance the interests of all parties. THE MATURING & BREACH OF CONTRACT DUTIES – A. The Interdependence of Promises – 1) Nichols v. Raynbred - ? a) The Dependency of Promises – quid pro quo – performance for which $ was promised must have been already rendered. Dependency arises in connection with agreements under seal. b) Kingston v. Preston – 3 types of covenants – 1.) Mutual & Independent -either party may get damages for breach and a breach by the other party is no excuse. 2.) Conditions and dependent – the performance of one depends on prior performance of the other. 3.) Mutual conditions performed at the same time – if one party was ready and offered to perform and the other party neglected or refused to perform he who was ready has fulfilled his obligation and can sue. To classify, express conditions look @ intent of the parties; implied conditions rely on judicial discretion. i. Restatement of Contracts 2d – Order of Performances – 234 – When all performances can be rendered simultaneously they are due simultaneously unless there is language to indicate the contrary. 5 categories where this is possible: 1.) fixed time for both parties’ performance, 2.) time is fixed for one and not the other, 3.)Where no time is fixed for either, 4.) Same period is fixed within which each party must perform, and 5. Where different period are fixed within which each party must perform. The simultaneous performance rule applies to all but 5. ii. Restatement – 238 – When performance is due simultaneously, it is a condition of each party’s duties that such performance be rendered or offered with manifested present ability to do so. a) Price v. Van Lint – Promises are independent unless the nature of the contract suggests otherwise. Where there are mutual promises and time to perform for one may arrive before the other, the latter promise is independent. Ordinary breach of a loan doesn’t make one liable for damages, but where extraordinary injury occurs, a party can be liable for consequential damages. b) Conley v. Pitney Bowles – Bilateral contract – agreement where promises of future performance are exchanged. If one party’s performance is to be rendered before the other, it is a condition precedent to the latter’s duty. All performance due at any earlier time shall also be performed. c) Bell v. Elder – One party has to be ready to tender or offer performance even if the other party was unable to tender or offer performance; otherwise the party can’t sue for breach. d) ANTICIPATORY REPUDIATION - Wholesale Sand & Gravel, Inc. v. Decker – Anticipatory repudiation – Unequivocal, absolute and definite intent that the promised performance will not be completed within the time fixed for it in the contract arrives. This can be either by words or conduct. The failure to return to the site after repeated promises to do so constituted an anticipatory repudiation. Restatement 253 – Where obligor repudiates a duty before he has committed a breach by non-

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performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to damages for total breach. Where performances are to be exchanged under an exchange of promises, one party’s repudiation of a duty to render performance discharges the other party’s remaining duties to render performance. Repudiation may also excuse non-performance of a condition. K&G Construction Co. v. Harris – Courts assume that promises and counter-promises are dependent, but it depends on the circumstances. Here the promises were mutually dependent because performance of one depended on performance of the other. Subcontractor’s promise to submit summaries was precedent to the payment of 90% for the work. If contractors had to keep paying for crappy work and then sue for it, they’d become insolvent before work was done. Bulldozer damage was a material breach of promise to perform work in “workmanlike manner”. This justifies withholding of a progress payment, but not refusal to keep working. The refusal to keep working may constitute a repudiation even if the initial breach did not. Stanley Gudyka Sales Co. v. Lacy Forest Products Co. – Breach has to be material not insignificant. Use of the remedy of termination has to be used proportionally to the need, and notice had to be given first of the need for the other party to remedy its breach. Termination is without just cause if you don’t first give notice. Ziehen v. Smith – Some courts say if lien or other encumberance present on property for sale that relieves the vendee and he can get his purchase money but the general rule is in order to get damages or recovery of $ paid for breach of executory contract, you must show performance or tender of performance on your part, and that the other party is in default or that the performance or tender has been waived. Vendee’s performance and tender is dispense of if the vendor has disabled himself from performing or on the fixed date of performance he is unable to perform. Here D was unable to deliver title to the property so any tender of performance by the P or demand of performance on his part was unnecessary and useless. Here it wasn’t obvious that the other party couldn’t perform since he just found out about the encumberance on the day of performance. He could still remove the encumberance if he wanted. Neves v. Wright – A seller doesn’t have to have title during the entire executory period of a contract; you can’t rescind until the closing. This rule is designed to provide flexibility in real estate transactions. Basic test is whether the defect, by its nature, is one that can be practically removed.Buyer can’t act unilaterally in renouncing the contract with giving the seller a reasonable opportunity to explain and give assurances. For concurrent conditions tender need not be absolute. A tender conditional on contemporaneous performance by the D is sufficient and necessary. Sometimes ready and willing on part of P is sufficient. In some cases you have to have ready, willing plus an offer by one party so that both parties aren’t sitting on their hands at home. Each could have a right to Specific Performance but only one has a right to breach. A situation can arise where there’s no right of action against either party. A conditional tender is necessary to put either party in default so if both parties remain inactive, neither has a right of action. Possibility of putting either party in default will cease if the delay is too long. Tender can be satisfied by giving notice of readiness to perform. A demand for the performance of

another’s concurrent act is also understood to indicate readiness and an offer to perform. In some cases where neither party has performed and the time for performance has passed, the contract simply ends & neither party can collect damages. The court can return earnest money paid in a rescission like action. j) Caporale v. Rubine – another party’s act can excuse tender of such performance by the complaining party, but in order to recover for damages that other party had to be ready and willing to tender at the time that the defaulting party could not. k) ESTABLISHING ENTITLEMENT TO RELIEF – Anticipatory breach by repudiation discharges any remaining duties of the non-breacher, but when enforcement is sought either specific performance or damages, things are more complicated. It’s easy to be excused from performance. But to recover you must show that you could have performed had the breach not occurred. Otherwise the court would be allowing you to put yourself in a better position than you may have been in had the contract occurred. l) Stewart v. Newbury – Work must be substantially performed before payment can be demanded. m) Where one party’s promise requires a substantial time for performance, some extension of credit is practically unavoidable. Where there is no fixed time, the latter’s duty is conditioned on performance by the former. The party whose performance requires time is to extend credit to the latter. Two sufficient reasons for the survival of the rule that salaries should be paid when work is completed: the other party is in a better position or has greater responsibility and the latter party can’t be compelled to perform specifically. n) Kelly Constr. Co v. Hackensack Brick Co. – Where a sale is of a specified quantity of goods, a failure to pay when part delivery has been made, but when there is no specified payment date in the k, does not excuse the seller from completing delivery. This rule is in spite of the uniform sales act which says that delivery and payment are concurrent conditions. But, this doesn’t apply when deliveries are to be made in installments. Because the contract is entire it doesn’t require payment until D’s performance is completed in full. i. UCC 2-307 – Unless otherwise agreed, all goods sold in contract must be tendered by a single delivery and payment is due only upon such tender. Where the circumstances permit either party to make or demand delivery in lots, the price, if it can be determined, may be demanded for each lot. 2-612 authorizes installment contracts where elivery in separate lots is to be separately accepted. ii. Restatement 2d – 233 – Where only a part of a party’s performance is due at one time if the other party’s performance can be so apportioned that there is a comparable part that can also be rendered at that time it is due at that time unless the language or the circumstances indicate to the contrary. iii. Restatement 2d – 240 - If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performance so that the parts of each pair are properly regarded as agreed equivalents, a party’s performance of his part of such a pair has the same

effect on the other’s duties to render performance of the agreed equivalent as it would had only that pair of performances been promised. b.) Ks are often referred to as divisable or severable when pairs of agreed equivalents. But under this position they are not treated as two separate contracts. If they’re separate neither promise should be made together, and neither breach of either contract would have an effect on the other. But this is not true where there is one contract broken into parts of agreed equivalents. The parties exchanged promises for an exchange of their whole performances. iv. NOTE – Divisable or Severable Ks – Search is for pairs of corresponding performances that appear to be rough compensation for each other. Inquiry is “Whether, had the parties thought of it, they would be willing to exchange the part performance irrespective of what transpired subsequently. v. Partial performance of a divisible contract still allows a party who fails to perform to recover. Substantial performance of one part of a divisible contract has the same effect on the corresponding part as substantial performance of an indivisible duty has on the entire contract. But if the parties have made two contracts, a party’s breach of one will not excuse the other party from the performance due the breacher under the 2nd contract unless of course one contract’s performance is conditioned on the other. a) Tipton v. Feitner – Failure to perform by one party doesn’t necessarily preclude him from recovering damages from the other party if they breach. Cases where a condition is a condition precedent: 1.) if parties stipulate dependent or conditional performance, 2.) Where the act to be done by the P must naturally precede what the D is going to do, and when it is necessary to be done to enable D to perform, and 3.) if the D’s performance is the payment or equivalent for something which he is to receive from the plaintiff unless it is provided that such equivalent is to be rendered in advance of what is to be received on account of it, credit being given for the latter. The delivery and payment are each conditions of eachother and neither party can sue for breach without having offered or tendered performance on his part. i. VENDORS REMEDIES FOR THE PRICE - Affirmative doctrine of mutuality – if vendee has a right to sue, the landowner should also have a right to sue for specific performance. ii. Mutuality – ensuring completion of the exchange – both equity and law courts can do this - Rutherford v. Haven & Co. presented the question whether in equity the vendor of real estate who seeks performance of a contract with mutual and dependent covenants must tender performance (the deed) before filing the complaint. The answer is no because in equity there are more protections, for example, the court hangs onto the deed for the defendant. What if the vendor sues at law for the whole unpaid value of the contract price? Is this proper or should it be brought in equity? If the recovery is only for a specific sum of money, then an action at law seems to be proper. The enforcement measures are basically the same. Only problem is judicial inability to ensure completion of the exchange at lw. One other issue is that this action seems more like specific performance

Recovery of the Price of Goods - Sellers in certain types of situations have long been able to recover the price of goods even if their performance was not complete. Under Uniform Sales Act you could recover if 1.)the property/legal title in the goods had passed to the buyer, 2.) the price was payable on a day certain, 3.) even if title had not passed, if the goods could not readily be resold for a reasonable price. A. Interpreting Conditions – 1. A condition is some operative fact subsequent to acceptance and prior to discharge. An OFFER is a cause or condition of the power of the offeree. An ACCEPTANCE is a condition or cause of contractual rights & duties. A promise is always made by the act or acts of one of the parties. A condition has to be mutual. The purpose of a promise is the creation of a duty or disability in the promisor. Fulfillment of a promise discharges this duty, the occurrence of a condition creates a duty. Nonfulfillment of a promise is a breach and creates in the other party a right to damages. The nonoccurrence of a condition will prevent the existence of a duty in the other party but it may not create any duty to pay damages at all and it will not unless someone has promised that it shall occur. a) Howard v. Federal Crop Ins. Co. – If violation of a term in an insurance contract is a condition precedent to payment by the insurance co, nonpayment is not a breach. If the term in the contract is simply a promise, then insurer is in breach if they don’t pay. If both parties are in breach each can maintain an action for damages if the promises are mutual. You don’t actually have to use the word condition to create a condition; it is determined by the intent of the parties. Restatement holds that when clause is in doubt, it is generally viewed as a promise. Forfeitures are frowned upon as a matter of law. Insurnace Insurance policies are construed against the insurer. Contract provisions will not be construed as conditions precedent unless the contract explicitly says so. b) Merritt Hill Vineyards, Inc. v. Windy Heights Vineyard, Inc. – Failure to fulfill conditions doesn’t lead to an action for damages although it excuses performance by the other party when one party fails to perform. c) Gray v. Gardner – The promisor has the burden of proof to show that a certain condition occurred that would let him off the hook by the terms of the contract. As a matter of law, a ship has not arrived in port until it has dropped its anchor and has moored. i. Restatement of Contracts section 250 – “condition” is according as the context indicates, either a fact, or a term in a promise providing that a fact shall have such effect(other than a mere lapse of time) which unless excused a.) must exist or occur before a duty of immediate performance of a promise arises, in which case the condition is a condition precedent, or b.) will extinguish a duty to make compensation for breach of contract after the breach has occurred, in which case the condition is a condition subsequent. Federal rules of civ pro have made pleading requirements for conditions precedent less specific. a) Parsons v. Bristol Development Co. – When payment of money is to be made from a specific fund and not otherwise, the failure of such fund will defeat the right of recovery. A party who prevents fulfillment of a condition of his own obligation cannot rely on such a condition to

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defeat his liability. DOCTRINE OF CONDITIONS – one is not to benefit legally from an act aimed at defeating another’s contractual rights. “Prevention Doctrine” – An express promise to perform on the happening of an event warrants implication of a promise to refrain from activity impeding its happening and breach of the implied promise is legally as serious as breach of the express. i. Restatement 2d Contracts – 227 - In resolving doubts as to whether an event is made a condition of an obligor’s duty and as to the nature of such an event an interpretation is preferred that will reduce the obligee’s risk of forfeiture, unless the event is within the obligee’s control or the circumstances indicate that he has assumed the risk. Ewell v. Landing – Obligation to pay money can clearly be made contingent on the occurrence of a future event. Intent of parties is inferred such that justice is not distorted. Ames v. Wesnofske – The words “when” “after” and “as soon as” have the same effect as “if” in creating an express condition such that when the condition doesn’t occur no duty of performance arises. - Excuses for Nonperformance/Disability - Royal Globe Ins. Co. v. Craven – Policyholder was denied compensation under the policy because her notice was untimely and constituted a waiver of the right to collect. Estoppel doesn’t come into play because there was nothing false or misleading which the P relied upon. Disability tolls the running of the clock but doesn’t dispense with it. Once the disability is relieved, the clock starts ticking. Semmes v. Hartford Ins. Co. – Plaintiff’s disability to sue due to the Civil War relieved him of the condition of bringing the action within 12 months, however, once his disability was relieved he still waited too long to bring the suit because he was required to bring it within a “reasonable” time. Monteiro v. American Home Assurance Co. – Illness of one’s lawyer was not an excuse tolling disability because the lawyer was not a party to the contracts or a person essential to the performance of the insured’s contractual duties. This excuse for nonperformance was not recognized. Gilbert v. Globe & Rutgers Fire Ins. Co. – A waiver is a voluntary relinquishment of a known right whereas an estoppel consists of a preclusion which in law prevents a party from alleging or denying facts in consequence of his own previous act, averment or denial. Hence, if a party relinquishes a known right awarded him by contract, he cannot, without the consent of his adversary reclaim it. But the ban of estoppel may be lifted by the party against whom it is invoked by the giving of proper notice. COMMENT- Waiver of Conditions – In insurance cases waiver and estoppel are almost interchangeable. Conduct amounting to waiver typically involves reliance, especially when the conduct occurs before the time for occurrence of the condition. Generally a waiver once made is irrevocable and cannot be revived. Promises found to constitute a waiver do not need consideration. TIMELINESS AS EXPRESS CONDITION – Parties can contract to make timeliness an express condition. Many written contracts use time-is-of-the-essence clauses and rely solely on questions of the parties’ intent. If time is of the essence, performance on the designated date is mandatory.

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Porter v. Harrington – parties have a right to make a stated time for performance the essence of a contract. Such an agreement, when not waived by either words or conduct, is binding and will be given effect by courts of equity and law. NOTE – WAIVER & THE UCC - In cases of land, common law principles govern. When a sale of goods contract is subject to a dispute over timeliness the UCC section 2-209(4) + (5) comes in. Bead v. Saxton explains the scope of the UCC in these cases and states that under the UCC a buyer’s drawn out delay in rejecting deliveries of goods, coupled with its delay in notifying the seller of alleged nonconformities of the goods was a waiver of the time-is-of-theessence clause relating to the seller’s duties under the k. Thus, buyer was obligated to accept late deliveries. Ct identifed a relevant factor as course of performance between t he parties after he sale but before the formal rejection. Course-of-conduct factor incorporates common law principals of waiver. Buyer’s silence precludes it from complaining about defects such as delay that were readily apparent at the time of tender. Analysis above comes from UCC 2-208: ANY COURSE OF PERFORMANCE ACCEPTED OR ACQUIESCED IN WITHOUT OBJECTION SHALL BE RELEVANT TO DETERMINE THE MEANING OF THE AGREEMENT. Where it is ambiguous whether : explains the meaning or constitutes a waiver of a term, preference is in favor of waiver whenever such construction plus the application of the provisions of the reinstatement of rights waived is needed to preserve the flexible character of commercial contracts and to prevent surprise or other hardship. Platt Pacific Inc. v. Andelson – When parties have agreed that demand for arbitration must be made within a certain time, it’s a condition precedent to the agreement being submitted to arbitration. Where arbitration date is not met, the loss of the rights constitutes a waiver, not due to voluntary relinquishment although that is a permissible definition, but due to failure to perform an obligation. Clark v. West – If you waive a condition precedent, you can’t insist upon forfeiture. You can still get consequential damages from breach, but not specific performance. This is the case in express waiver. Implied waiver = silence. If the waiver is of consideration or subjectmatter, and not the method of performance (substance over form) then strict performance can be held throughout the contract. But here waiver concerns the method of performance. Waiver = voluntary & intentional relinquishment of a known right, Cts use it to defeat forfeiture, waiver is irrevocable. Equitable Estoppel = a party may be precluded by his acts and conduct from asserting a right to the detriment of another party who entitled to rely on such conduct has acted upon it. Waiver seemed to exist here because P believed and relied upon Ds acceptance despite knowledge of a violation of the condition. Schultz v. Los Angeles Dons – Where notice was oral instead of written, despite language requiring written notice, oral notice was sufficient because the condition for written was “waived” as the football club still acted on the oral notice to the same benefit the written would’ve provided. Aetna Cas. & Sur. Co. v. Murphy – A timely notice provision can be excused when the insurer hasn’t suffered any prejudice, but the burden is on the insured. Avoiding forfeiture despite a breach relies on a factors test. In some cases excuse of breach is allowed to prevent

disproportionate forfeiture. Ct must weigh extent of denial of compensation with the importance to the other party of protection against risk and the degree to which that protection will be lost if nonoccurrence is excused.You have to consider equity and fairness as well as factors test from Jacobs & Youngs. Look at: purpose to be served, desire to be gratified, excuse for deviation, and the cruelty of enforced adherence. If something other than notice strictly enforced can provide for protection then strict enforcement is unwarranted. In non-insurance cases often even substantial compliance doesn’t suffice. A. Conditions of Satisfaction – a) Grenier v. Compratt Constr. Co. – A condition of satisfaction can be excused if it is impracticable, if occurrence is not material, and forfeiture would otherwise result. This is Restmt 271 position. Enforcement depends upon what the parties intended and it is unlikely that parties would contract for something that couldn’t be done. Ct relied on excuse, not substantial performance. b) Loyal Erectors v. Hamilton & Sons Inc. – Progess payments are usually made for the benefit of/to protect the contractor. c) Second Nat’l Bank v. Pan American Bridge Co. – If everything else conformed with a contract, and an architect’s refusal to deliver a certificate of satisfaction was withheld in bad faith, then the contract is not forfeited. The actual conformity of the work can’t be included in the bad faith test. d) Maurer v. School Dist. No. 1 – If architect has no authority to refuse on a certain condition, that right of refusal is considered waived and the contract must be performed properly. e) Nolan v. Whitney – Where contract had been completed with trivial defects, it is sufficient to constitute substantial performance. Party must perform before he can claim money owed to him, but performance doesn’t have to be literal and exact. Unreasonable refusal by the architect dispenses with its necessity – this acts something like estoppel (or waiver). f) Van Iderstine Co. v. Barnett Leather inc. – The rule applied to contracting cases doesn’t extend to goods when an expert’s inspection is required. Unless certificate has been withheld dishonestly and in bad faith, P can’t recover. g) Fursmidt v. Hotel Abbey Holding Corp. – Two categories in contracts regarding conditions of satisfaction: 1.) contracts relating to operative fitness, utility, marketability, only required to satisfy a “reasonable man” i.e. installation of machinery, or 2.) Literal construction where agreements provide for performance involving “fancy, taste, sensibility, or judgment” of the party for whose benefit it was made. i.e. making of a garment, giving of instruction, etc. In fancy cases, honest judgment is all that is required. But honest dissatisfaction doesn’t always give one a right to recovery even if they do have a right to terminate (this is because sometimes they have to have been willing to tender their own performance in order to get damages). h) Haymore v. Levinson – Condition of satisfaction in construction cases is objective; can’t withhold approval unless there is a reasonable justification for doing so. i) Breslow v. Gotham Securities Corp. – In a case involving an attorney’s performance, this involves operative fitness, so in the case of full performance a lack of satisfaction can’t raise an issue at trial. That which

the law shall say a contracting party ought to be satisfied with, the law will say he is satisfied with. j) Morin Bldg. Products v. Baystone Constr. Inc. – Restmt – if it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied, an interpretation is preferred under which a condition of satisfaction occurs if such reasonable person in the position of the obligor would be satisfied. Requirement of reasonableness is designed to approximate what parties would have provided that they did not foresee, if they had foreseen it. Reasonable person standard applies to operative fitness, commercial quality, and mechanical utility. Standard of good faith applies to personal aesthetics or fancy. A. PROTECTING THE EXCHANGE ON BREACH – a) Plante v. Jacobs – In construction cases, substantial performance = does performance meet essential purpose of contract. Essential = special features of great personal importance. Two measures for recovery: diminished value or cost of completion. When separation of defects would lead to confusion, the rules of diminished value could apply to all defectts. Diminished value rule applies when the nature and magnitude of the defect is significant. b) Jacob & Youngs v. Kent – Where an omission wasn’t fraudulent or willful and its replacement would lead to economic waste, the court foregos such replacement. When the omission is innocent & trivial the measure is damages. When an insignificant depature, conditions will be viewed as independent and collateral. The “reasonable and probable” intention is the one used. But you can’t frustrate the purpose of the contract. Consider these factors: weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Parties are free to contract for perfect performance. Ct adopts diminished value approach because the cost of completion would be grossly and unfairly out of proportion to the good to be attained. c) RESTITUTION for the “WILLFUL” Defaulter – Does a party’s own performance preclude a restitution remedy? Recovery required completed performance but restitution on a theory of quantum meruit was recoverable for substantial performance and the failure to perform not being willful. Massachusetts says failure to perform in full bars recovery on the contract but if you have a substantial performance plus good faith you can recover in quantum meruit. d) Hadden v. Consolidated Edison Co. of New York – Even where an employee committed some wrongdoing late in his career, he is still entitled to pension benefits for the 37 years that he substantially performed. A willful breach often defeats a claim of substantial performance in many cases, but here his willful misconduct affected a term in the contract and not the entire contract. e) Worcester Heritage Society Inc. v. Trussell - In order for rescission to be available as a remedy for breach of contract the non-performance must be so material that it goes to the essence of the contract. Here the time fixed for completion was unrealistic, D had 75% performed, and there hadn’t been a total failure of consideration. D paid purchase price and invested additional funds & labor towards the restoration. f) Hathaway v. Sabin – Where a condition occurs that appears to make performance by one party impossible, should the other party anticipate this and himself not perform or be ready to perform, he is liable in the event the other party can perform despite the impossibility.

g) NOTE: A Roadmap for Insecurity – UCC 2-609 – establishes a dialogue –
the right to ask for assurances only comes into play when one party believes that the other may break the contract when the other’s performance comes due. A party demanding assurances is calling for something not required by the parties’ contract. h) Restatement of Contracts 2nd –Section 251: Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that will itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance for due performance, and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance. The obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case. If the obligee’s belief is incorrect, his own failure to perform or making of alternate arrangements may subject him to a claim for damages for total breach. i) Printing Center of Texas Inc. v. Supermind – Does the doctrine of substantial performance apply in transactions involving contracts for the sale of goods? No. In cases where the sale of goods are involved, there is the PERFECT TENDER RULE. This rule says that if goods or tender of delivery fail in any way to conform to the contract, the buyer may reject the whole. Purchaser then has a right to damages for breach of contract. If goods fail to conform to either express or implied terms of the contract the buyer has a right to reject them. Even a minor defect constitutes bad faith. A sample which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample. Further it is implied that books be commercially acceptable & appealing to the public since they were to be sold to the public. They must pass without objection in the trade and be fit for ordinary purposes to be merchantible. i. UCC 2-609 – Right to Adequate Assurance of Performance – A contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. (3) Acceptance of improper delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of future performance. (4) After receipt of a justified demand, failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation under the contract. a) Prescott & Co. v. J.B. Powles Co. – Ct permitted buyer from refusing 240 crates of onions when he ordered 300, regardless of the reason for the deficiency the buyer can refuse to receive goods if they are not “of the exact quantity ordered.” Only excuse would be if the buyer’s own act rendered performance impossible or waived it. b) Ramirez v. Autosport – UCC 2-601 – retains perfect tender rule to extent that a buyer can reject goods for any non-conformity. UCC 2-607(1)&(2) – The buyer must pay the contract rate for any goods accepted. Acceptance of goods by buyer precludes rejection of the goods accepted & if made

with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this article for non-conformity. UCC 2-612 – An installment contract is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause “each delivery is a separate contract” or its equivalent. The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment. (3) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract, there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments. c) Beck & Pauli Lithographing Co. v. Colorado Milling & Elevator Co. – Stipulations as to time of performance were not necessarily essential unless it was clear that the stipulations of the contract or the nature of its subject matter that parties intended performance within a fixed time in the contract to be a condition precedent to enforcement. This case involved contracts of artistic skill & labor manufactured specifically for the defendant and no one else. Defendant wasn’t justified in refusing to accept the goods on account of slight delay. d) COMMENT: Goods & Services – If the items are movable and thus goods within the purview of UCC – Three transactions where applicabilty of sales/goods law is concerned: a.) K may provide for transfer of ownership of goods. One solution is to apply Article 2 to the goods portions and normal k law to everything else. Another position is to examine whether the bulk of the transaction concerns goods & should apply UCC. b.) Rendition of a service oten involves transfer of ownership of goods. Classification & applicable law in these situations turns on what the “essence” of the contract is, the main objective of the parties, or the dominant aspect of the transactions. c.) Lease of equipment. 2-102 of UCC arguably covers leasing because it is a transaction in goods. e) Plateq Corp. of North Haven v. Machlett Labs, Inc. – By signifying a willingess to accept regardless of defects in products/goods, and by failing to make an effective rejection, you have accepted. Then acceptance can only be revoked by showing substantial impairment of value to you. Because post-installment inspection was not permitted, the impairment hadn’t been proved. Because goods weren’t readily re-saleable due to their unique nature, P was entitled to k price minus salvage value plus interest. Acceptance occurs under UCC 2-606 when a buyer, “after a reasonable opportunity to inspect the goods” signifies to the seller that he will take them in spite of their non-conformity OR fails to make an effective rejection. UCC 2-709 – contract price should be paid because goods can’t otherwise be sold at a reasonable price. Sometimes “waiver” or estoppel can be invoked to prevent use of a different stated ground for avoiding the contract when other unstated objective were consciously known and withheld in sales of goods cases. UCC 2-605(1) -Buyer who rejects a tender without stating objections – you can’t reject or revoke later if you fail to state a defect in connection with rejection that could’ve been easily

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ascertained through inspection. UCC 2-606(1)(b) – Goods are accepted if the buyer fails, after having had a reasonable amount of time in which to inspect them, to communicate its rejection to the seller. f) Worldwide RV Sales & Service v. Brooks – When Brooks went to pick up his mobile home, it was not as specified. He rejected, noting defects, and demanded his down payment. W offered to cure the defect, but Brooks didn’t accept because it wouldn’t make the mobile home conform to the specs in the original k. Refund of deposit allowed. Worldwide can’t claim benefit of UCC 2-508 because it failed to make a conforming delivery or conforming tender, since what it offered was inadequate. g) Fortin v. Ox-Bow Marina, Inc. – Four months after acceptance, ps rejected a boat even though Ds had made some attempts to cure the defects. UCC 2-608(1) – judge must decide whether the defects substantially impair the value of the goods to the revoking buyer. This is objective based on totality of the circumstances including number of nonconformities, type, time, and inconvenience in downtime and repair. Even cosmetic defects can substantially impair the value. Enough mistakes can shake the buyer’s faith in the goods which leads to fewer uses if any at all. Any delay by buyer is justified when in constant contact w/ seller regarding non-conformities of the goods and the seller makes repeated assurances that non-conformities will be repaired. h) COMMENT: Anticipatory Breach of Unilateral Obligations – Anticipatory breach usually only applies to bilateral contracts for future promises. Also doesn’t apply to bilateral contracts involving money only where one party has performed fully. Damages remedies measured by expectancy. This comes from Hochster v. De La Tour – if an action for damages were not allowed when the repudiation occurred it would force a plaintiff to remain unnecessarily idle. Promisee who fully performed could sue whenever after the actual breach had occurred. THE RIGHTS & DUTIES OF NON-PARTIES: A. Third Party Beneficiaries – General rule considers reasonable reliance of a third party and probable intentions of the contracting parties. 1. Lawrence v. Fox – One party owed another money, and made a separate loan to a third person. The third person said that rather than pay the loaner back, he would pay the loaner’s other creditor. He didn’t. A promise to repay in exchange for a loan is proper consideration. Promise was made by implication to the loaner and by implication to the intended recipient. A third party can maintain an action on the basis of implied promise & privity. Implied promise to pay created almost a trustee like duty to the loanee to pay the original creditor. A parol promise is valid, but also valid if it would’ve been in writing. Concurrence suggested that even absent implied promise/privity/trustee relationship, there was an agency relationship whereby Holly was the agent securing the promise for the principal. a) Legal Categories for Third Party Interests: i. Trust Analysis – If the promise involves “holding” the money for a specified time to later be distributed for a specified purpose at the loaner’s direction, then a trust relationship likely exists where legal title passes in trustee/loanee, and equitable title exists in the beneficiary/3d party recipient. The question would be whether this was the INTENT of the parties. ii. Agency – If one party purported or INTENDED for another as an agent for the purpose of receiving a promise to pay, it wouldn’t matter whether the authority to do so existed at the time, as

long as the promise is later “ratified” or known about by the principal. By this analysis, the principal is made the promisee and has a right to an action. You can ratify the agency by bringing a lawsuit. iii. Novation – new k substituted for old one. Original debtor will be party to the novation, but it’s not essential. iv. OFFER of novation – The novation or formation of a new contract by two parties could be consider as an offer to the third party whose later acceptance would be sufficient to give him an independent right to cause of action. a) Seaver v. Ransom – Court applies trustee/agency theories to third party interests. The general rule was that privity was necessary to the maintenance of an action on the k. Three permissible ways as a third party beneficiary to enforce: 1.) Where there is a pecuniary obligation running from the promisee to the beneficiary; a legal right founded upon some obligation of the promisee in the third party to adopt and claim the promise as made for his benefit. 2.) Cases where the contract is made for the benefit of the near relation of a party to the contract (moral duty to provide for future). 3.) Public contract cases where municipality seeks to protect his inhabitants by covenants for their benefit. 4.) Cases where, at the request of party to the contract, the promise runs directly to the beneficiary although he does not furnish the consideration. b) NOTE: Overlapping Duties – Person bringing suit in Seaver was recipient of “gift promise.” Niece was a donee beneficiary because the contract conferred upon her the benefit of promised performance. Whereas in Lawrence v. Fox – creditor beneficiary – because performance of the promise would satisfy the promisee’s actual or supposed duty to the beneficiary. PROMISOR under either type of contract owes a DUTY to the PROMISEE to perform as well as to the intended beneficiary. i. Restmt of Contracts 2d – 302 – Intended & Incidental Beneficiaries – (1) Unless otherwise agreed between promisor & 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 (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. (2) an incidental beneficiary is a beneficiary who is not an intended beneficiary. a) Pierce Associates v. Nemours Foundation – In order for there to be a third party beneficiary, the contracting parties must intend to confer the benefit. The intent is to be determined from the language of the k. The owner is not necessarily a beneficiary just because he benefits in every subcontractor arrangement. i. COMMENT: Intention to Benefit – The Assuming Grantee of Land – Whose intention matters? Any intention manifested by either party is relevant. But, the significant intention is usually that of the promisee. ii. Anderson v. Fox Hill Village Homeowners Corp. – A woman’s employer had a contract with the landlord that the landlord was supposed to clear off all ice. Court held that the

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employee (the woman) was not an intended beneficiary of the contract and could not recover on that theory. And further, because the ice was a natural occurrence, the landlord was not liable in tort because he is only liable for defects occurring with the property. H.R. Moch Co. v. Rensselaer Water Co. – Duty exists between a water company and a municipality, but a company whose factory was damaged as a result of the water company running out of supplies is not entitled to recover because he had no privity in that relationship. The water company was never intended to be held liable for incidental damages from performing its services. Doyle v. South Pittsburgh Water Co. – When a city failed to maintain its fire hydrants making them unusable to the fire department when plaintiff’s home caught fire, the city was liable. Where a party to a contract assumes a duty to the other party of the contract, and it is foreseeable that breach of that duty will cause injury to some third person not a party to the contract, the contracting party owes a duty to all those falling within the foreseeable orbit of risk of harm. Heyer v. Flaig – A third party beneficiary to a will can hold an attorney liable when that person suffered loss of benefits as a result of the attorney’s mistake. The recovery would be as an intended beneficiary. Hale v. Groce – A third party beneficiary acting as an intended beneficiary can maintain an action against an attorney who makes a mistake in will-drafting. Restatement of Contracts – 2d – Variations of a Duty to A Beneficiary – section 311 – (1) Discharge or modification of a duty is ineffective if a promise term creating a duty so provides. (2) in the absence of such a term, promisor & promisee retain power to discharge or modify the duty by subsequent agreement. (3) Such a power terminates when the beneficiary, before he receives notification of the discharge or modification, materially changes his position in justifiable reliance on the promise or brings suit on it or manifests assent to it a the request of the promisor or promisee. (4) if the promisee receives consideration for an attempted discharge or modification of the promisor’s duty which is ineffective against the beneficiary, the beneficiary can assert a right to the consideration so received. Rouse v. United States – An individual who does not sign a note is not liable on it. One who promises to make a payment to the promisee’s creditor can assert any defense that promisor could assert against the promisee.