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CONTRACTS OUTLINE CHAPTER 4: IDENTIFYING THE BARGAIN Section 3. Contracts without bargaining  An offer may no longer be accepted once the offeree has proposed a counteroffer.  Livingstone v. Evans: D's agent wrote to P, offering to sell land, and P responded. When P was told the price was not negotiable, he attempted to accept the original terms only to learn that D had already found a buyer.  BLR: A counteroffer will extinguish the terms of the original offer; on rejection of the counteroffer, the original offer cannot be revived at the offeree's discretion and accepted.  The UCC helps resolve contract disputes.  Richardson v. Union Carbide: The buyer's and sellers' contracts included their own standard indemnification clauses, which conflicted with each other, and the seller sought indemnity pursuant to its standard provision after equipment it sold to the buyer malfunctioned and the buyer's employee was injured.  BLR: Under the “knock-out rule,” conflicting contract terms fall out and are replaced to the extent necessary by UCC gap-filler provisions.  Shrinkwrap licenses are valid parts of a contract for the purchase of software.  ProCD, Inc. v. Zeidenberg: D purchased consumer-rated software for commercial use that he offered for use to other users, in violation of the license provided by the manufacturer, ProCD.  BLR: A shrinkwrap license that is included with computer software is binding on a buyer under the UCC when the buyer's acceptance of the license's terms occurred after the buyer had the opportunity to read the license, so long as the buyer could have avoided acceptance by returning the software.  A course of dealing may establish contractual obligations.  Hobbs v. Massasoit Whip Co.: P had an agreement with D to deliver eel skins of a certain size. On receipt, D would make payment.  BLR: In the absence of a strict contract between parties, a course of dealing may support a finding that the recipient of goods will be responsible to pay for conforming shipments.  No implied contract exists if the beneficiary did nothing that should cause the other party to expect compensation.  Martin v. Little, Brown & Co.: P volunteered information to D that enabled it to recover against a third party for copyright infringement.  BLR: No implied contract exists if the part supposedly receiving the benefit did nothing to indicate a willingness to be bound to compensate the performing party.  A couple my expressly contract to compensate one of them for performing household tasks.  Morone v. Morone: An action was brought to recover for domestic services performed by the P at the D's residence on theories that the services had been performed at the D's request and that the parties had entered into an express oral partnership agreement.  BLR: The law will not imply the existence of an agreement to compensate one member of a couple for services, including household tasks; however, the parties may expressly contract to share earnings and assets and the contract need not be in writing.  Even voluntary statements made under no duty must be truthful.  Laidlaw v. Organ: P, who knew that a peace treaty had been signed, bought tobacco from D, who did not know of the signing of the peace treaty, and D repossessed the tobacco after the peace was announced and the price of tobacco increased.  BLR: The fact that a party is under no duty to disclose a fact does not excuse that party from making a false disclosure.

Section 4. Mistake, Misrepresentation, Warranty and Nondisclosure  Fraud is assumed if the inadequacy of the price shocks the conscience.  Jackson v. Seymour: P filed suit seeking rescission of a deed conveying thirty-one acres of land to her brother, D, claiming she was fraudulently induced into entering into the contract with her brother through his gross misrepresentations concerning the conveyed property's value.  BLR: If the inadequacy of a price shocks the conscience, equity allows the court to seize on the slightest circumstances to indicate fraud, either actual or constructive.  Contracts based on mistake of material fact can be avoided.  Sherwood v. Walker: P agreed to purchase a cow that both parties believed was barren, but the cow turned out to be pregnant, and D sought to rescind the agreement.  BLR: A party that has given consent to a contract of sale may refuse to execute it or may avoid it after completion, if the contract was based upon a mistake of material fact.  Replevin: an action for the repossession of personal property wrongfully taken or detained by the defendant, whereby the plaintiff gives security for and holds the property until the court decides who owns it.  The court will grant rescission to a construction contractor that made a mistake in its bid.  Elsinore Union Elementary School v. Kastorff: A general contractor made an error in a bid for a job and tried to get released from his bid.  BLR: If a party makes a clerical error in computing a bid, he is entitled to rescind that bid to correct the mistake.  Overt affirmations create express warranties.  Tribe v. Peterson: D bought a horse from D, brought suit against sellers for breach of warranty.  BLR: An express warranty is created by any affirmation of fact made by the seller to the buyer that relates to the goods and becomes a basis of the bargain.  A mistaken assumption does not entitle the parties to rescind a contract for the purchase of land  Hinson v. Jefferson: P purchased land from D and sued to recover the purchase price because of restrictive covenants that limited the property's use and other problems with the property.  BLR: The doctrine of mutual mistake is not a valid basis for obtaining rescission of real estate transactions.  Innocent misrepresentations can create express warranties  Johnson v. Healy: P, who purchased a home constructed by D, sued D alleging misrepresentation and negligence.  BLR: If a builder-vendor makes an innocent misrepresentation that amounts to an express warranty, he is generally liable for damages resulting from reliance on that misrepresentation.  Intentional failure to make full disclosure equals fraud.  Cushman v. Kirby: P sued D for misrepresentation on purchase of home where water contained sulfur.  BLR: A party to a contract who represents that he has full information, but discloses only part of that information while leading the other party to believe he has made a full disclosure, is guilty of fraud. Section 5. Changed Circumstances Justifying Nonperformance  Accidental destruction of property required for performance of a contract excuses performance  Taylor v. Caldwell: P brought an action for damages against D for losses it sustained when the concert hall it had leased was destroyed by fire  BLR: In contracts in which the performance depends on the continued existence of a specific person or thing, a condition is implied that the impossibility of performance arising from

destruction of that thing excuses the performance

 The builder must bear the loss if a building is destroyed during construction  Tompkins v. Dudley: P, a school district trustee, sued by D for money advanced by the district on a contract to build a schoolhouse and for damages from non-performance of the contract after the building was destroyed during construction  BLR: The builder must bear the loss if a building is destroyed before the builder completes it  Recovery for part performance is limited to the amount of contract work done at the time the structure was destroyed  Carroll v. Bowersock: P sued for payment for the work he had completed on a project to perform at a warehouse before the building was destroyed by fire  BLR: A party that contracts to perform construction work for another may recover for any work performed prior to the destruction of the building  Impossibility does not apply if compliance is merely difficult  Kel Kim Corp v. Central Markets, Inc.: P sought a declatory judgment excusing it from complying with a provision in its lease with D that required it to maintain a certain level of public liability insurance  BLR: Impossibility only excuses a party's performance only when the destruction of the contract's subject matter or the means of performance makes performance objectively impossible  The act-of-God applies only to contracts for specific goods  Bunge Corp. v. Rocker: D, a farmer, failed to deliver soy beans to P, a grain dealer, after a severe winter made D's beans unharvestable, and P sued D to recover the difference between the contract price and the market price of soybeans not yet delivered.  BLR: In order for the act-of-God defense to apply, the contract must refer to specific goods or require that the goods come from a particular location and those specified goods must have been destroyed  No additional compensation for costs is allowed in a shipping contract unless the contract provides an exclusive route  American Trading & Prod. Corp. v. Shell Int'l Marine, Ltd.: P sued D for additional compensation for unanticipated extra expenses  BLR: A party to a shipping contract will not receive additional compensation for having to take a longer route than anticipated unless the anticipated route had been agreed upon by the parties in the contract as the exclusive delivery route  A court may excuse performance due to frustration of purpose even though performance is not impractical  Krell v. Henry: P rented a room in his hotel to D for 75 pounds, and both parties believed that the renter would use the room to watch the King's coronation  BLR: Even if performance is not impractical, a court may still excuse performance on the basis of frustration of purpose if events that both parties considered to be the contract's foundation cease to exist  A highway construction contractor is not liable to a subcontractor for lost profits caused by a supervening event  Chase Precast Corp v. John J. Paonessa Co.: P contracted with D to supply concrete barricades, but a supervening event obviated the D's need to purchase more dividers from P  BLR: A court may excuse performance on the basis of frustration of purpose only if the frustrating event was not reasonably foreseeable and the contract did not allocate the risk of a supervening event to one of the parties

CHAPTER 4 REVIEW:          What mistake is, when it takes place (Restatement 151-158) Impossible situations (buildings burn down, etc.) Practical vs. Impractical UCC sect. 2 (615-650) Provisions re: transactions and goods Restitution, reliance, expectancy UCC 261-72 – compare w/sect. 20, 151-158 Allocation and risk Assumption of risk Parole evidence

CHAPTER 5: POLCING THE BARGAIN Section 1. Competency and Other Limits  Minors are held to different contractual standards  Halbman v. Lemke: P, a minor, sued D for the return of $1100 he paid toward the purchase of a vehicle, and D counterclaimed for $150, the amount still owing under the contract  BLR: A minor who disaffirms a contract for the purchase of a vehicle that is not a necessity need not make restitution to the vendor for damage to the vehicle sustained before the contract was disaffirmed  Undue influence invalidates an agreement  Odorizzi v. Bloomfield School Dist.: After P, an elementary school teacher, was arrested for homosexual activities, the school forced his resignation and threatened to fire him publicly  BLR: A resignation obtained by undue influence is invalid and unenforceable  A surrogacy contract violated statutes and public policy  In Re Baby M: A surrogate mother refused to relinquish the child after giving birth, and the biological father and his wife sued to enforce the surrogacy agreement and allow the wife to adopt the child  BLR: An illegal contract is void and will not be enforced Section 2. Duress and Coercive Renegotiation  Disparity in consideration does not render a contract void  Batsakis v. Demotsis: P loaned D, who was having financial difficulties, $25 in exchange for a promissory note for $2000, plus interest and the p seeks to recover the value of the note  BLR: Mere inadequacy of consideration does not render a contract void  A contract modification must be supported by consideration  Levine v. Blumenthal: P, who leased retail space to D for an agreed amount of rent, allowed D to pay a lesser rent during the lease’s second year, but when the lease expired, the landlord sued to recover the deficiencies  BLR: In order for an agreement to validity to modify a prior agreement, the modification must rest upon new and independent consideration  A party may not demand an increase in compensation for performing a preexisting duty  Alaska Packers’ Ass’n v. Domenico: P and a group of seaman under contract with D brought suit against D to recover damages for money allegedly owed to them under contract  BLR: If a party demands additional compensation to perform a duty it is already contractually obligated to perform, any promise to pay more compensation is not enforceable without additional consideration.

 A party who entered into a contract under economic duress may void the contract  Austin Instrument, Inc. v. Loral Corp.: P threatened to cease deliveries of parts it was supplying to D pursuant to a subcontractor agreement unless D awarded P a second subcontract and agreed to a price increase on the items P was supplying under the initial subcontractor agreement  BLR: A contract is voidable because of duress if the party making the claim was forced to agree to the contract by a wrongful threat precluding the exercise of his free will

 New consideration validates subsequent contract changes  Brian Constr. & Dev. Co. v. Brighenti: P sued D for breach of contract arising out of a dispute regarding excavation of work, and the D counter-claimed  BLR: If a subsequent agreement imposes an additional obligation or burden not previously assumed and is supported by consideration, the subsequent agreement is valid and binding  Contract provisions may be waived  Universal Builders, Inc. v. Moon Motor Lodge, Inc.: P moved to have a real estate conveyance set aside because it violated the Fraudulent Conveyance Act and to declare void a supplemental agreement w/D  BLR: Under certain circumstances, a contract may be modified orally even if it provides that it can be modified only in writing  Duress exists if one unlawfully restrains the free will of another  Hackley v. Headley: P sued D to recover compensation for cutting, hauling and delivering logs  BLR: Duress occurs when one is induced to make a contract or perform an act under circumstances that deprive him of the exercise of free will as a result of another’s unlawful conduct  If the amount owing is in dispute, cashing a check stating it constitutes “full satisfaction” is an accord and satisfaction  Marton Remodeling v. Jenson: P sued D to foreclose on its mechanic’s lien after it had cashed a check for partial payment  BLR: An accord and satisfaction of a single claim cannot be avoided merely because the amount paid and accepted is only the amount paid and accepted is only the amount the debtor believes to be due  Employees acting in the scope of duty cannot claim a reward offered to the general public for that act  Denney v. Reppert: The Kentucky Bankers Association offered a $1500 reward for the capture of the robbers of the First State Bank, and many persons, including four employees of the robbed bank, came forward to claim the reward  BLR: Generally, employees and public officials who are acting within the scope of their employment are not eligible to share a reward offered to the general public for performance of some specified act Section 3. Scrutiny of Limited Commitment  An employee may assert a tort remedy for the violation of his employment contract rights  Sheets v. Teddy’s Frosted Foods, Inc.: P was fired for warning his company that it was violating a food labeling statute  BLR: An at-will employee who is terminated for reasons that are against public policy may sue in tort for wrongful discharge from employment  A contract may be found if one party acts as if a contract existed  McDonald v. Mobil Coal Producing, Inc.: P’s employer, D, gave him a handbook that set out employment and disciplinary policies, and P claimed the handbook established a contract  BLR: A party’s subjective intent not to make a contract is irrelevant if that party engages in

intentional, objective manifestations of assent to the contract that create reasonable reliance by the other party  At-will employment may be terminated by the employee or employer at any time, with or without cause  Dore v. Arnold Worldwide, Inc.: An at-will employee was terminated without case and sued the employer, arguing that there was an implied-in-fact contract that he would be terminated only for cause  BLR: When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is reasonably susceptible to the interpretation urged by the party; if it is not, the case is over Section 4. Standardized Terms, Unconscionable Inequality and Good Faith  Warranty disclaimers are void when the parties have equal bargaining power and the limitation violates public policy  Henningsen v. Bloomfield Motors, Inc.: P was involved in a serious car accident, possibly due to a steering defect ten days after husband (P) purchased the new Plymouth from D. P’s sued for damage to the car and injuries  BLR: A standard contract provision that disclaims all implied warranties and limits express warranties to repair or replacement of defective parts will not be enforced  An employer may not disclaim liability in a document not clearly stating its purpose  Richards v. Richards: D went to work for Monkem Co. (D) as a truck driver. P decided to accompany D as a passenger while he drove for Monkem, and as a prerequisite, Monkem made her sign a release of liability for injuries  BLR: Overly broad contract provisions purporting to disclaim all liability for injury will not be enforced as contrary to public policy when the disclaimer language is made a part of another document and its purpose is unclear  An adhesion contract is unenforceable if it falls outside the reasonable expectations of a party to the contract  Broemmer v. Abortion Services of Phoenix: P signed an arbitration agreement, and D claimed that the agreement precluded her right to a jury trial in a malpractice action  BLR: When determining whether a contract of adhesion is enforceable, the court will look at the reasonable expectations of the party agreeing to the contract and whether the contract is unconscionable  A contract brought about as the result of undue advantage may not be specifically enforced  Woollums v. Horsley: P sued D for specific performance of a contract for the purchase of oil, gas, and mineral rights, but D asserts the defense of undue influence  BLR: An unenforceable bargain will not be specifically enforced if enforcement would produce an injustice or be inequitable  Unconscionability exists if the circumstances shock the conscience  Waters v. Min Ltd.: P brought suit against D to rescind their contract pursuant to which the P assigned her annuity policy with a cash value of $189,000 to D’s in exchange for $50,000 and D counterclaimed seeking declaratory relief and specific enforcement  BLR: Generally, a contract is deemed unconscionable if the total of its provisions “drives too hard a bargain for a court of conscience to assist.”  An installment contract that denies the buyer a meaningful choice and contains unfair terms is unenforceable  Williams v. Walker-Thomas Furniture Co.: After P defaulted on an installment contract for a stereo she had purchased from D, D filed a complaint in replevin for possession of all items P had purchased on installment contracts with D  BLR: an unconscionable contract will not be enforced

 Unconscionability requires lack of meaningful choice  Brewer v. Gateway 2000, Inc.: P brought suit against D on behalf of themselves and others for compensatory and punitive damages, alleging that the defendant engaged in deceptive sales practices and that the arbitration clause in the agreement was unconscionable  BLR: Unconscionability requires some showing of an absence of meaningful choice on the part of one of the parties together with contract terms unreasonably favorable to the other party  The contractual duty of good faith works both ways  Market Street Associates Ltd. Partnership v. Frey: A shopping center lessee attempted to exercise a buy-back option in the lease that would have enabled it to purchase the property at significantly below market value, and the lessor refused to sell, so the lessee sued for specific performance  BLR: A contracting party cannot be allowed to use its own breach to gain an advantage by impairing the rights that the contract confers on the other party CHAPTER SIX: THE MATURING AND BREACH OF CONTRACT DUTIES Section 1. The Interdependence of Promises  It is necessary to plead delivery of the contract item to prevail for a breach  Nichols v. Raynbred: P contracted with D for the sale of a cow for fifty shillings  BLR: In an action for breach, the plaintiff does not have to plead that the contracted-for item was delivered when the contract represents a promise for a promise  Performance of a condition precedent must be tendered before the other party is required to perform  Kingston v. Preston: The P and D contracted for P to serve as D’s assistant in his silk business for fifteen months, for which D would pay P £200 and after the fifteen months give the P his business  BLR: In a contract exchanging promises, the performance of one promise may be a condition precedent to the other party’s obligation to perform  Where the promise to lend money is independent covenant, the lender is bound to tender performance  Price v. Van Lint: P wanted to buy a tract of land to start a business, but D, who had agreed to loan him the funds, refused to advance him the money  BLR: Where the D’s promise to make a loan to P and P’s promise to give D a mortgage on the property being purchased with the funds as security for the loan were independent covenants, D was bound to perform his covenant and look to his remedy for any breach of performance on P’s part  Exhaustion of administrative remedies will not be enforced when an employer fails to provide required notice of the appeals process  Conley v. Pitney Bowes: P brought suit against his employer, D after it denied his request for continued disability benefits following an automobile accident. The letter rejecting P’s claim did not specify how he could appeal the decision, so he filed suit in state court, contrary to the requirements of the company’s ERISA plan  BLR: An ERISA plan’s requirement that employees exhaust administrative remedies before filing suit will not be enforced where the employer fails to provide the employee with notice of the appeals process as required by the plan  Anticipatory repudiation of a contract requires conduct indicating a definite and unequivocal unwillingness or inability to perform  Wholesale Sand & Gravel, Inc. v. Decker: P was to perform earthwork for D that included installing a gravel driveway. P failed to commence work sixty days into the contract, D cancelled the contract.  BLR: Conduct that definitely and unequivocally indicates a party’s unwillingness or inability to perform its contractual duties when due constitutes an anticipatory repudiation of the contract.  A contractor may withhold partial payment as partial satisfaction of damages caused by a subcontractor.  K&G Construction Co v. Harris: A contractor hired a subcontractor to perform excavation work on his project in a workmanlike manner. When the subcontractor’s employee caused damage to the site

and insurance proceeds were not forthcoming, the contractor withheld a progress payment as partial satisfaction of the damage.  BLR: Subcontractor’s employee’s act in negligently damaging contractor’s promise to perform in a workmanlike manner in accordance with best practices and allowed contractor, damaged thereby, to withhold, in partial satisfaction of damages, an installment payment, which, under terms of contract, was otherwise due subcontractor.  A buyer must give a seller the opportunity to remedy title problems in order to bring an action for damages.  Ziehen v. Smith: The purchaser of property brought action to recover against the seller for breach of contract. The buyer did not demand the seller’s performance, but assumed it was not forthcoming due to the discovery of a mortgage, granted by a previous owner.  BLR: Where parties have concurrent, mutual obligations to perform at closing, the discovery of a lien or encumbrance on the property that the seller may be able to remove will not relieve the buyer of the need to demand the seller remedy the lien and deliver good title as a prerequisite to bringing a claim for damages.\  When the time and manner of payment are not addressed, work must be substantially performed before payment may be demanded.  Stewart v. Newbury: D retained P to preform work on a mill project. When D refused to pay P except at the conclusion of the entire project, P refused to continue to work and sued for payment.  BLR: In the absence of contract terms addressing time and manner of payment, work must be substantially performed before the contractor may demand payment.  A seller may not refuse delivery under a second contract on the ground that payment was not made on a previous contract.  Tipton v. Feitner: The P agreed to sell the D both live and dressed hogs. When the D failed to pay the P for the dressed hogs he received, the P resold the live hogs to a different buyer. The D then refused to pay for the dressed hogs.  BLR: When parties enter an agreement for multiple sales, whether the separate parts of the contract are independent or whether the entire performance is required as a condition precedent to recovery is determined by the intention of the parties based on an assumption that, in the absence of a provision for credit, goods will not be delivered without payment. Section 2. Interpreting Conditions  The insured’s failure to comply with a policy provision that is not a condition precedent does not void the insurer’s liability.  Howard v. Federal Crop Ins. Corp.: P made a claim against D for a damaged tobacco crop and were denied coverage on a provision that prohibited an insured from plowing under a crop prior to inspection by the D.  BLR: Policy language referring to an event will be construed as creating a promise under the contract, not a condition precedent, absent specific language conditioning payment of the loss on compliance with the condition.  The party who benefits from a condition precedent must prove its existence.  Gray v. Gardner: Parties contracted for the payment of whale oil, the price of which was dependent on the amount of oil that arrived in Nantucket during a specified time.  BLR: The party who receives the benefit from a condition precedent bears the burden of proving the condition’s existence  If a contract provides for payments from specific funds and the funds do not exist, the right to payment is defeated.  Parsons v. Bristol Dev. Co.: D hired P, an architect, to perform work in two phases on a new office building. P was paid for the first half of his work, but D never obtained funding for the second phase and refused to pay P for any additional work.

BLR: When payment is to be made from a specific fund, with no provision for alternate payments, failure of the fund necessarily defeats the right to payment.  An insurer is not liable for a loss when the insured fails to provide prompt notice of a claim.  Royal-Globe Ins. Co. v. Craven: P denied D’s claim for benefits following a hit and run accident because D failed to notify P of her injuries for nearly four months.  BLR: Where a policy requires an insured to provide prompt notice of a claim, a four-month delay in reporting an injury will excuse the insurer from paying for the loss when the insured is under no disability preventing a more timely notification.  An insured may not rely on the insurer’s conduct to delay bringing suit once that insurer has clearly denied the insured’s claim.  Gilbert v. Globe & Rutgers Fire Ins. Co.: After P’s beach cottage was destroyed by fire, D was promptly notified of the loss but declined to pay after Gilbert failed to comply with a policy provision requiring submission of the appropriate documents to support his proof of loss.  BLR: Although an insurer may be estopped from relying on limitations under its policy with respect to bringing suit, the insured may not take advantage of that estoppel in delaying instituting suit for the policy’s benefits once the insurer has clearly denied liability   A party may not demand strict compliance without notice if the parties’ course of dealing indicated it would not be required.  Porter v. Harrington: The sellers cancelled a contract for deed, refused to accept further payments, and retained all previous payments as liquidated damage when the buyer failed to deliver payments in a timely fashion.  BLR: A seller, following a long course of dealing in which he waived strict compliance with the contract terms regarding payment, may not suddenly demand strict compliance without notice to the buyer.  A party may waive a condition precedent.  Clark v. West: P agreed to provide D with a series of law books for publication. After P delivered a three-volume work on corporations, a dispute arose concerning the contract’s terms and copyright.  BLR: A party may waive a condition precedent that is incidental to performance such that a promisor, who has not fulfilled all of his or her obligations under a contract, may nonetheless receive a maximum compensation where there was a mutual understanding between the parties that the condition would not be enforced.  If no harm results from a failure to perform an express condition, the failure may be excused.  Aetna Cas. & Sur. Co. v. Murphy: D, a dentist terminated his office lease in November 1982, leaving considerable property damage. The landlord’s insurer sued Murphy for the cost of repairing the damage. D failed to notify his own insurer of the lawsuit until 1986.  BLR: Where an insured can establish a lack of prejudice to his insurer from his failure to promptly notify it of a potential claim, the insured will not be prohibited from recovering under the policy. Section 3. Conditions of “Satisfaction”  A condition may be excused due to impracticability.  Grenier v. Compratt Constr. Co.: D engaged P as a subcontractor to assist it with subdivision road construction. Under the contract, work would be deemed completed on issuance of a city engineer’s letter. Because the city did not ordinarily write such letters, P was unable to timely prove completion.  BLR: Where performance under a contract is adequately completed, compliance with a condition requiring delivery of a letter from the city engineer before payment would be excused due to impracticability.  Payment will not be withheld when a condition precedent requires approval from a third party who

refuses to provide it.  Nolan v. Whitney: P contracted with D to perform contract work and received progress payments on schedule under his contract but D withheld the final payment for P’s failure to receive a certificate of completion from the architect.  BLR: If a condition precedent to payment requires approval from a third party who unreasonable withholds that approval, the inability of the payee to comply with the condition will not prevent payment.  When parties agree to allow one party to be the judge of services, a contract may be terminated if that party is honestly dissatisfied.  Fursmidt v. Hotel Abbey Holding Corp.: P operated a valet service for guests of the Hotel Abbey. When the P’s contract was cancelled and a new valet service retained, the D refused to compensate P for the broken contract since the D was the sole judge of the quality of service the P rendered.  BLR: When a party agrees to provide services and the recipient of the services, who is to be the sole judge of the sufficiency and propriety of the services, is honestly dissatisfied with the services rendered, the contract may be cancelled, whether or not the dissatisfaction was reasonable

 Substantial performance entitles a contractor to compensation.  Plante v. Jacobs: D, who hired P to build a home using plans they provided, refused to pay P the final installment for the construction, claiming he failed to substantially comply with the plans.  BLR: A contractor is entitled to compensation where he has substantially performed under a construction contract notwithstanding that a portion of the work may not be in strict conformity with the plans provided. The contractor’s recovery will be reduced by the diminished value of the project or the cost of completing the unfinished work. Section 4. Protecting the Exchange of Breach  Breach of a trivial condition will not defeat the right to recover under a contract.  Jacob & Youngs v. Kent: P agreed to build a house for D using only Reading brand pipe for the plumbing, but inadvertently used pipe from other manufacturers that was of identical quality.  BLR: A trivial, innocent omission will not always be a failure of a condition that causes forfeiture of a contract.  Rescission is only available when the Plaintiff can establish total failure of consideration.  Worcester Heritage Society, Inc. v. Trussell: P sold a house designated as historically significant to D for $20,100 in 1984 expecting him to promptly renovate the property to its previous condition. When he failed to do so, it sought to rescind the sale.  BLR: Equity will not set aside a contract on the ground of nonperformance of one party’s promises unless the parties have agreed that such a remedy will be appropriate, especially when the breach is not material.  A party who mistakenly presumes a contract will be impossible to perform must compensate the other party for his mistake.  Hathaway v. Sabin: D, who agreed to provide a hall for the P to stage a concert, failed to ready the hall by heating the building, when it appeared to the D that a severe snowstorm would prevent the performance from taking place. The performers would have been ready to play.  BLR: Where the defendant agreed to pay the plaintiff $75 in exchange for a concert performance at a hall to be provided by the defendant and the defendant failed to provide the hall due to the mistaken expectation that weather would require cancellation of the performance, the defendant is obligated to the plaintiff for the benefit that would have been obtained from performance.

 Every contract under the UCC includes a duty of good faith.  Printing Center of Texas, Inc. v. Supermind Pub. Co.: A book publisher rejected books provided by a printer and sued for the return of its deposit, but the printer argued that the publisher rejected the books in bad faith.  BLR: Under the UCC’s “perfect tender rule,” a buyer may reject goods that do not conform to the contract in each and every respect.  A buyer’s revocation of acceptance must conform with UCC requirements and particularize defects.  Plateq Corp. of North Haven v. Machlett Labs., Inc.: D and P contracted for the special manufacture of lead-covered steel tanks. Although P had substantially complied with the manufacture specifications, the D doubted the tanks would be adequate and cancelled the contract the day before delivery was scheduled.  BLR: A buyer may not cancel a contract for specially manufactured goods where it earlier led to seller to believe acceptance had occurred and the cancellation notice failed to comply with UCC requirements for the particularization of defects in a revocation of acceptance.

CHAPTER SEVEN: THE RIGHTS AND DUTIES OF NONPARTIES Section 1. Third Party Beneficiaries  A third party may enforce a promise that was made for his or her benefit.  Lawrence v. Fox: Holly loaned money to D and D promised to pay money to P.  BLR: A promise for the benefit of a third party may be enforced by that third party.  A contract to support a close relative may be enforced by a third-party beneficiary.  Seaver v. Ransom: Beman promised his wife that he would remember P, his wife’s niece in his will, but he did not do so.  BLR: A third-party beneficiary who is closely related to the promisor may bring an action to enforce a contract to provide for the beneficiary.  An alleged third-party beneficiary must show the contract was intended to benefit him or her.  Anderson v. Fox Hill Village Homeowners Corp.: D agreed with its landlord to remove snow and ice from the leased parking lot, but failed to do so, and P slipped and fell on ice in that parking lot.  BLR: In order to recover as a third-party beneficiary of a contract, there must be a showing that the parties to the contract intended to benefit the third-party.  Liability to a third-party requires a showing of intent.  H.R. Moch Co. V. Rensselaer Water Co.: D agreed with a city to supply water, but failed to supply water to fight a fire that destroyed a building owned by P.  BLR: A person has a cause of action for breach of contract against a public entity only if it appears that the parties to the public contract assumed liability for damages to individual members of the public.  Privity is not required to recover for negligent performance of a contract.  Heyer v. Flaig: D drafted a will for P’s mother, but omitted to advise her of the consequences of her planned remarriage to include in the will any provision her remarriage.  BLR: A third party may recover for negligent performance of a contract even though there is no privity with the contracting parties.  A party who assumes an obligation also assumes the associated rights.  Rouse v. United States: The U.S. (P) sued Rouse (D) on an obligation assumed by D, and D raised

the defenses of fraud and unsatisfactory performance.  BLR: A party who assumes an obligation is entitled to raise the same defenses as the original obligor. Section 2. Assignment and Delegation  Assumption of a contract does not imply assumption of all obligations under the contract.  Langel v. Betz: D was assigned a contract to purchase real estate from P, but refused to complete the purchase.  BLR: The assignee of a contract does not assume the obligations of the contract unless the obligations are expressly assumed.  An assignment of the right to receive funds may not be revoked by the assignor.  Herzog v. Irace: A client of D assigned the proceeds of litigation to P, but then revoked the assignment and D did not pay P.  BLR: Notice of an assignment of funds creates a trust for the benefit of the person to whom the funds are to be paid.  Absent a contrary provision, a contractual duty that does not involve personal services may be delegated.  Macke Co. v. Pizza of Gaithersburg, Inc.: D agreed to have Virginia Coffee Service install soft drink vending machines in its restaurants, the contract was assigned to P and D rescinded the agreement.  BLR: Contractual obligations that do not involve performance of personal services may be assigned unless the contract prohibits assignment.  Assignment rights are extinguished if the original contract becomes impossible to perform.  Homer v. Shaw: Lancaster assigned his right to the proceeds of a contract with D to P, and entered into a new agreement with D, who then refused to honor the assignment.  BLR: Third-party rights do not preclude the parties to a contract from entering into a new agreement if the performance of the original contract becomes impossible. Section 3. Tortious Interference with Contracts  The show must go on.  Lumley v. Gye: D induced a theatrical performer not to honor her contract to perform in P’s theater.  BLR: A party who wrongfully and maliciously induces an employee to breach a contract of employment is liable to the employee’s former employer.  Established contract merit greater protection than potential contracts.  Della Penna v. Toyota Motor Sales, U.S.A., Inc.: An auto wholesaler sought to purchase Toyota Lexus automobiles for resale in Japan, but American retailers refused to sell to him based on their agreement with D to refrain from such international sales, and the wholesaler sued D for intentional interference with his prospective contractual relations with the retailers.  BLR: A Plaintiff seeking to recover for interference with prospective contractual or economic relations must plead and prove as part of its case in chief that the defendant’s interference was wrongful by some measure beyond the fact of the interference itself.  The consultant’s privilege is limited in scope and purpose.  J.D. Edwards & Co. v. Podany: A consultant urged a software buyer to cancel its contract with P to buy alternate software from another source, when P sued the consultant for interference with its contract, the defendant claimed the “consultant’s privilege.”  BLR: Pursuant to the “consultant’s privilege,” an advisor may offer good faith advice to a client without fear of liability should the client act on that advice to the harm of a third person.

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