contract beast

8/4/2019 Contract Beast

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Contents

I. What constitutes an offer? ............................................................................................................... 3

A. Acceptance .................................................................................................................................. 4

B. CONSIDERATION ..................................................................................... ..................................... 4

C. Mutual Assent ..................................................................................... ......................................... 5

II. What Kind of Contract is it?.............................................................................................................. 6

III. What Promises/Contracts are Enforceable ................................................................................... 6

A. Statute of Frauds- must be in writing ........................................................................................... 6

B. Mutuality of Obligation ................................................................................................................ 6

C. Gifts ............................................................................................................................................. 7

D. Mistake/Non-Disclosure/Warranty/Misrepresentation ................................................................ 7

E. Unconscionable Contracts ............................................................................................................ 9

F. Duress ........................................................................................................................................ 10

G. Employment Contracts ............................................................................................................... 11

IV. Creation/Elimination of Duty to Perform .......................................................... .......................... 11

A. Order of Performance in a bilateral contract .............................................................................. 11

B. Conditions .................................................................................................................................. 12

C. Impossibility/Impracticability/Frustration of Purpose (elimination of duty) ................................ 13

D. Waiver and Estoppel .................................................................................................................. 15

E. Accord and Satisfaction .............................................................................................................. 15

V. Interpretation/Parol Evidence ........................................................................................................ 16

A. Parol Evidence............................................................................................................................ 16

B. Interpretation .................................................................................... ........................................ 18

C. Interpreting Divisible v. Entire .................................................................................................... 19

VI. Modification .............................................................................................................................. 19

VII. Breach/Repudiation/Performance .............................................................................................. 20

A. Anticipatory Repudiation............................................................................................................ 20

B. Breach........................................................................................................................................ 20

C. Good Faith Substantial Performance .......................................................................................... 20

D. Goods ........................................................................................................................................ 21


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VIII. Remedies (damages) .................................................................................................................. 21

A. Remedies in Equity ..................................................................................................................... 21

B. Remedies at Law ........................................................................................................................ 22

C. Promissory Estoppel ................................................................................................................... 24


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I. What constitutes an offer?

y An offer of a promise/act in exchange for a promise/acto Advertisements: an offer to make an offer, not actually in and of itself, generally are

preliminary proposals (Malton)

Unless: when it objectively constitutes an offer (Carbolic)y Unilateral contracty Does it invite acceptance by an act

o when a reasonable person would believe that an offer has been made for a unilateralcontract (Colbaugh)

y Things to help determine if there has objectively been an offer:o The words used in communicationo Significant termso Relationship of the partieso Common practices or trade usages

y If contract is vague as to whether it is a bilateral or unilateral contract court will interpret asbilateral

o Bilateral: if you promise to do this, I promise to pay youo Unilateral: if you do this, I will pay you

y Duration of the offer:o Unless otherwise stipulated the contract remains open for a specific period of timeo Option usually requires specific language as to how long the option will stay open

If not specified use reasonable time

o If attempt to accept after the date of acceptance has expired look at circumstances andlanguage used

Could create new offer from offeree (thereby making him oferror) Offerors failure to reject late acceptance may suggest either it was not late at

all or the offeror acquiesced in the delay making acceptance effective

y Revocation:o Death of offeror before acceptance by offeree constitutes revocation of unilateral

contract

o Offeror can revoke contract at any time before acceptance Option contract for which there is separate consideration, cannot be revokedbefore the expiration date

y Even if oferree rejects the option, the option stays openo May have an estoppel argument


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A. Acceptancey Unless the contract explicitly states otherwise, any reasonable means of acceptance constitutes

acceptance (performance, verbal acceptance, written acceptance)

o CONTRACT MUST EXPLICITLY SPECIFY THAT IT REQUIRES A SPECIFIC TYPE OFPERFORMANCE IN ORDER TO ENFORCE THAT PERFORMANCE (Allied Steel)

o Mailbox Rule: posting in the mail constitutes acceptance from the date of the post(Morrison)

Does not apply to option contractsy Option contracts are not accepted until acceptance received

(Restatement 63)

y Unilateral Contract: must complete performance in order to accept, but once begins substantialperformance, the offeror cannot rescind the offer

o Employee: when an employee continues to work after receipt of new handbook,constitutes acceptance of unilateral contract

o Must know about offer in order for performance to constitute acceptance (rewardcases)

y Acceptance by silence: if prior dealing or course of conduct makes reasonable expectation fromofferror that silence suffices for acceptance

o Also could be expressly stated in the contracty Shrinkwrap: An acceptance becomes binding on the offeree (purchaser) when he is afforded an

opportunity to reject the terms after discovering them but does not

y Rejection:o if the offer lapses the offeree rejects ito or can explicitly reject

y Counteroffero General Rule: Acceptance must correspond to the terms of the offer (Mirror Image)o Rejects the initial offer and presents new offer (Livingstone v. Evans)

UCC 2-207: You can accept with changes to the contract, which count asproposals for additional terms to be added to/changed in the contract, these

new proposals become part of the contract unless they expressly conflict with

the original offer. In this case they are removed (knockoutrule) and are replaced

with any UCC gap fillers (Richardson), if there are any gap fillers

y This is only if there has been objective manifestation of agreement bythe offeror (proceeds under these new terms)

o There can only be one offer on the table at an giveno However, can interpret as a rejection with an explanation or request for information or

a suggestion for changes with intent of reserving the decision to accept until the offeror

reacts to the request

B. CONSIDERATIONy Promise/act that is part of a bargained for exchange on each side


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y No consideration it is a gift, promises to make gifts are not enforceableo Promises to make gifts are not enforceable unless there has reasonably relied on the

promises(promissory estoppel)

y Consideration can be a detriment or benefity Bargained for exchange: must be something sought by one of the partiesy Nominal: generally courts do not consider the adequacy of consideration, but if it is GROSSLY

inadequate then the court might void the contract (Fischer)

o Consider time value (20 dollars now for 100 dollars later) (Batsakas, Shnell)y Past Consideration: a promise made on past actions is gratuitous and unenforceable where the

promisor did not directly benefit from the past actions (Mills v. Wyman), but where one

intervenes unrequested and prevents harm to another, the direct beneficiaries promise is

enforceable (Webb v. Mcgowin)

o Watch out for the officious intermeddlery Settlements: for a settlement to count as valid consideration, the claim being settled must be

made in good faith and must have substantial foundation, had a legal right to sue (Duncan v.

Black)

o Restatement: dont need both, must have one or the othero Counts as forbearance of a legal right to sue

y Incidental detriment is not consideration: sticking out your hand to accept a gift is notconsideration

o Is it condition of a gift or is it consideration?y Anything that you already had a legal duty to perform is not consideration

o Legal, contractual, statutory (Levine v. Blumenthal)y Promissory estoppel can serve in the absence of considerationy Option contracts need separate consideration/detrimental reliance

C. MutualAssenty Each party has to intend to be agreeing to the same thing = subjective theory (Raffles)y Objective theory: a reasonable meaning of the words used by the party in context and actually

believed by the counter party

o If X means A and writes B, and Y believes B: X is held to Bo If X means A and writes B, but Y believes it to be A: court interprets what parties agreed

to

y Subjective views may be brought in as evidence as to what a reasonable person in the actorssituation would believe (see parol evidence)

y If the court determines the terms are too vague to form a contract, but a reasonable personwould reasonably believe that there was a contract formed, may get reliance damages

(promissory estoppel, Wheeler)


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II. What Kind of Contract is it?y Goods/Servicesy UCC

III. What Promises/Contracts are EnforceableA. Statute of Frauds- mustbe in writing

y Contracts for sale of landy Goods over $500y Contracts that cannot be performed within one year

o Courts reluctant to apply it unless it is absolutely clear the contract cannot beperformed within a year of its making, even if it is unlikely that it will be performed in a

year

y Promises to answer for debt default or miscarriage of anothery Marriagey If not in writing = unenforceable but not void

o Voidable = someone must challenge it to get it thrown outy NOTE*: Option contracts must also be in writing (EaCoronis)

o Not statute of fraudsB. Mutuality of Obligation

y There must be a point at which each side is ACTUALLY bound to do somethingo Otherwise illusory and contract failso Must be possible state of affairs in which the party will be bound under the agreement

Promise to make a promise is not enforceable (Sun Printing and Empro) If I feel like it is not enforceable (Davis)

y Conditional promises: before condition is met/fulfilled there is no obligation on either party toperform

o Once the condition precedent has occurred, both parties are bound by the contracto If condition precedent based on one partys satisfaction or discretion this does not

render contract illusory b/c that party must use discretion in good faith

y While an express promise may be lacking, it still may be instinct with obligation, an impliedpromise imperfectly expressed is a form of valid contract

o Usually will find an obligation of good faith and fair dealing (Lady Duff) Promise to use best efforts

y Output/Requirement Contracts (promise of exclusive dealing)o Requirements: I promise to buy all my requirements from the seller

Seller has promise to produce as much as he needso Output Contract: I promise to sell you everything I make/or I promise to buy everything

you make

o Even though there is no specificity as to the amount, they must proceed in good faith


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UCC 2-306(1): quantity tendered or demanded may not be disproportionate toany estimate, or if no estimate was stated, to any normal or otherwise

comparable output or requirements

y For increases in demand or output, not necessarily for decreases Normally good faith is honesty in fact, but if merchant under UCC 2-1031(b)

imposes a higher standard of objective and section

o The fact that you are not making profits the way you expected is not sufficient toterminate the contract, but severe economic hardship may allow for termination

(forcing to go out of business)

y Franchisor can break a franchise agreement for any reason in good faith but must providesufficient notice (Corenswet)

o Generally a party may not retain a unilateral right to terminate without notice as statedin the contract: include term that gives specific time period for notice

y Alternative Performance Contracts: if a party is not bound because of a choice of performance,but each choice constitutes bargained for consideration, then the contract is fine

o One of the alternative performances would have been consideration and there is orappears to the parties to be a substantial possibility that before the promisor exercises

his choice events may eliminate the alternatives which would not have been

consideration

y Contract is incomplete if it lacks BOTH duration and price (SunPrinting)o Can use UCC gap fillers for one, but not both

C. Giftsy Where the circumstances evidence that ones effort to give services to another is voluntary, no

payment can be expected (Martin v. Little Brown)

o The one who is trying to receive payment, has the burden of proof that both partiesintended there to be payment

y personal services rendered between the couple will not constitute an implied contract(aka acontract implied-in-fact) because such services are ordinarily understood to be gratuitous

(Marone)

y Contract implied in fact when a plaintiff without being requested to do so renders servicesunder circumstances indicating that he expects to be paid therefore, and the defendant knowing

or should know such circumstances avails himself of those services (Collins v. Lewis)

y Contract implied in law unjust enrichment. Not about the expectations of the party anymore,it is solely about whether benefit was conferred from one party onto another. If such benefit is

conferred, payment is expected. Donee has burden of proving donative intent.

D. Mistake/Non-Disclosure/Warranty/Misrepresentationy All of these things can lead to rescission rather than a breachy Non-Disclosure

o No duty in an arms length transaction to disclose information (Laidlaw)o If you have fiduciary/confidentiality/agency duty, this defeats the rule of non-disclosure


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Jackson v. Seymoury Misrepresentation

o Cannot make an affirmative misrepresentation = fraud (Cushman)o Cannot knowingly permit a knowing affirmative misrepresentation to be made

(Husband in Cushman)

o Seller of land has a duty to disclose all known defects of the property that are notreasonably discoverable by an inspection

o There must be reasonable reliance by the buyer on the misrepresentation by the seller(Cushman)

Buyer must not have known about the condition which was misrepresentedy What constitutes a mistake?

o Error in judgment does not qualify as a mistakeo Incorrect prediction of future events is not a mistakeo Mistake of fact must be distinguished from mistake as to meaning (misunderstanding)o Mistake of law could as a facto Situation appears to call for the application of mistake doctrine may be more properly

treated as a breach of contractual commitment

y Mutual Mistakeo Where both parties make a mistake about a material term of the contract, price or

structure reflects a mutual understanding of the goods, which turns out to be incorrect

the parties can rescind the contract

Sherwood v. Walker Parties must have shared an erroneous belief concerning a fact at time of

contract

The erroneous fact was a basic assumption on which the contract was made The mistake must have a material effect on the exchange of performance Adversely affected party must not have borne the risk of the mistake

y Unilateral Mistake: where a material mistake is made by one party, including a clerical error(Elsinore), but does not constitute the neglect of a legal duty, and the other party knows or has

reason to know of the mistake, the mistake maker can get rescission

o The error concerns a facto The fact is a basic assumption on wich the mistaken party made the contracto The mistake has a material effect on the exchange, adverse to the mistaken partyo The mistaken party must not bear the risk of the mistake

Negligence on the mistaken part will not constitute avoidance

o The equities must favor relief for the mistake Would one party receive a windfall

y Mistakes in transcriptiono Mistake in the way in which the agreement is expressed in writingo Must convincingly show that an error was made in recording the terms agreed, and

plausibly explain why he failed to notice it when signing the document


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o Relief is to reform the contract to reflect was actually agreedo Question of reformation could also be when parties chose words that do not have the

legal effect intended

y Express Warranty: When seller provides an express warranty that goods will correspond to aparticular description, the seller has a duty to provide goods of such quality

o Language resembling a guaranty can qualify as express warrantyo Description of past performance is not an express warranty of future performance

(Tribe v. Peterson)

o Breach caused by the party given the warranty, does not qualify as a breach of thewarranty against the giver of the warranty

o Puffery (unspecific positive expressions) do not count as express warranty this house is awesome and indeed this house is not so awesome

y Implied Warranty: Circumstances, language of contract, and context of dealing create anexpectation of the quality of the subject matter

o Where land is sold with the restriction on use, the land is sold with an implied warrantyfor that use (Hinson)

o Any sale of residence by the builder carries with it an implied warranty of habitability(Johnson v. Healy)

This works in a vacuumo If there is an as is clause in the contract, where the buyer agrees that he has not relied

on any representations of quality by the seller, there can be no breach of warranty,

because there was no warranty (Lafazia)

E. Unconscionable Contractsy General rule of unconscionability: an equity court will not enforce a contract that it decides no

reasonable person would have entered into

o Needs procedural and substantive unconscionabilityy Procedural: absence of meaningful choice or opportunity to appreciate the terms

o mere disparity of bargaining power is not enougho Factors include:

Education Legal representation Sophistication of the person/contract Maze of fine print Setting of the transaction High pressure tactics (take it or leave it)

o Was there meaningful choice of party entering contracto Freedom of contract v. procedural unconscionability creates no freedom to contract

y Substantive: terms shock the conscience, the terms are completely unfair, and they are favoringthe party who is at an advantage in formation of the contract

o Sometimes if the substantive unconscionability is egregious, courts may not requireprocedural unconscionability


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o All takes place in equityo Freedom of contract v. protection of powers

y UCC: courts have wide leeway to find part or all of a contract unconscionableo Court is not bound by what victim requestso More likely to reduce than raiseo Reconciles freedom of contract v. protection of parties

y Contracts of Adhesion: can give rise to procedural or substantive unconscionabilityo Generally a standard form contract, despite duty to read can give rise to

procedural/substantive unconscionabality

o Must be adequate market mechanism to allow the otherp arty to negotiate a change interms or to seek an alternative

The imposition of unfavorable terms on a take it or leave it basis Will not be automatically unenforceable

o Has to contradict the reasonable expectations of the adherent or be excessively onesided (Broemmer abortion case)

Certain terms can be stricken to conform with reasonable expectationsy Standardized disclaimers: in order for a disclaimer to be upheld, it must be 1) either clear or not

legalese, or must be explained to the customer, and (2) conform with public policy

o Factors courts determine (Richards needs all 3): Unclear Excessively one sided (universal disclaimer of responsibility) Non-negotiable

y Good faith is a factoro It is unclear exactly what good faith constitutes or requireso (for exam): trickery = not acting in good faitho Never dispositive in determining unconscionability

Will skew analysis towards injured partyF. Duress

y A party makes an improper threat that induces assent that leaves victim no reasonablealternative but to agree

o Can be implied threat Can be economic duress or physical duress Can be something that the threatening party has legal right to do (Wolf,

minority subjective view)

o Makes contract voidableo Must overcome free will leaving no choice

Can be loss of valued customer or damage to reputationy Duress can apply to modifications of contract (Alaska)y Abuse of position to make victim enter disadvantaged contract

o No real threato Usually not available for arms length transactions


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y Must not have time nor ability to pursue legal remedyy When someone drops his legal right to contest the disputed sum of money, because of a

financial need, that financial need will not entitle him to a claim of duress (Hackley)

o Unless other party knows about his financial situation and purposefully leverages him toenter into a deal he would not have otherwise entered into

G. Employment Contractsy Employment at will is when either party can terminate the employment at any time for any

reason.

o Employment is by default at will unless there is an agreed upon time period and thecontract specifies that one can only terminate for a cause

o Employee at will can be fired without cause Has to EXTREMELY CLEAR for it to be modifying at-will relationship

y General right of an employer to terminate an at will employee will not be upheld when itcontravenes public policy such as a stated law (Sheets)

o Must be clearly mandated public policyy Employee can be bound in at-will employee contract by policies in manual if the employer does

not clearly disclaim indicating that the polices are changeable, otherwise employees can rely on

promises they have

o Dispute/resolution process in manual, that will modify the at-will relationship, and bindthe employer for going through that process unless clear conspicuous disclaimer

y An employees willful breach of his duties under his employment contract is a factor inconsidering whether employee may lose pension after retirement

o will not substantially negate many years of loyal service.o Employment contracts are divisible and likened to installment contracts

breach during a couple years does not materially affect other

IV. Creation/Elimination ofDuty to PerformA. Order of Performance in abilateral contract

y 3 types of related duties in a bilateral contract:o Mutual and Independent Promises

All promises are absolute an independent of one another (old view that all arelike this)

Performance of one does not depend on performance of the othery Ill go get lunch and you have to watch over the roomy Even if I desert the room, you still must get lunch

o Conditional and Dependent One party must perform to create the duty of the other party to perform

y if I buy lunch, then you will repay me


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y If I dont buy lunch, you do not need to pay meo Mutual performance

no party needs to perform until the other party performs swap at the sametime

dont need to perform unless the other party triggers the obligation byperforming

each can put the other in default by performingy Categorizing order of performance

o For the court to decideo Determine performance by what the parties conceivably meant at the time AND what

makes most commercial sense

Which one takes longer?o Look at negotiations of the parties to determine what category they fall intoo If the contract specifies an order then it is category 2

y Tender and Demando Must be in category 3o can put the other party in default by tendering performance and demand performance

or you can perform (no need to demand) tendering is showing that you are ready, willing, able to perform

o in order to put the other party in breach you have to show that the other was not ableto tender performance as of the required date

while tendering performance is needed to throw the other party in default, if itis clear that the other party cannot or will not perform by the required date,

tender is not needed (ziehen)

y however, still must show you were able to tender performance an assumption that the other party will not (be able) to perform does not

absolve your duty (Hathaway)

B. Conditionsy General rule: whether a party has meant for a provision to be a condition or a promise, is a

matter of partys intent to be gleaned from the language of the contract, the circumstances of

the agreement, and common sense (Glaholm)

y Where it is ambiguous a court will likely interpret it as a promise versus a condition as to avoidforfeiture

o Usually condition will cause greater loss than promise because when a condition isbreached an obligation for the other party never arises

o Where a promise is breached, the obligation still arises but you must pay for the harmthat arises as a result of the breach of promise

Insurance contracts- as to avoid someone paying premiums and then all of asudden not be able to reap the benefits of the contract

y If you miss a premium payment and it is considered a promise you losethat amount of coverage


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y If premium payment was condition you would lose entire coveragey If you can demonstrate sufficiently that there was a condition precedent, court will STILL

construe the condition very narrowly

y Burden of proof is on the party wanting to interrupt the status quoo Condition precedent: is a condition where the status quo there is no obligation until the

condition is met, once the condition is met the obligation arises.

The obligee is the one who wants the condition to be met, wants the obligationof the obligor to arise, so the obligee has the burden of proof to show condition

exists and it was met

o Condition subsequent: status quo is that there is an obligation, unless the condition ismet

The obligor who has an obligation in absence of the condition, is looking for thecondition to be present and met to avoid his obligation, has the burden of proof

of showing the condition exists and it was met

y Prevention: if the occurrence of a condition will give rise to your obligation, you cannot actuallytry and prevent it from happening (Parsons)

y Time is of the essence clauses: generally frowned upon and you must show that this iscommercially necessary and you are not just sticking it in there

o If purpose behind clause is legitimate then it includes the additional obligation toperform by the EXACT time requirements as opposed to the usual leeway

o See waiver and estoppely A condition can be waived as opposed to central consideration (Clark v. West)y Insurance Contracts

o Normally courts honor conditionso

For insurance companies wont enforce conditions against the insured, if insured canshow (burden of proof) that this failure to meet the condition did not burden the

insurance company

y Conditions of satisfaction: conditions based on idiosyncratic satisfaction/discretion carry withthem a duty of good faith and if they are a merchant they carry with them commercial

reasonability

y If there is language in the contract that sets up an event for performance (payday), could just bean estimated time for performance instead of a condition

C. Impossibility/Impracticability/Frustration of Purpose(elimination of duty)

y Impossibility through no fault of either party can excuse performance of the contracto If the contract contemplated performance to be depended on the continued existence

of a person or thing, and the person died or thing was destroyed after the contracts

execution but before performance is completed = impossibility

Material itemo Objectively impossible and event was unforeseen by both parties at time of contract


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Kel-Kim: unforeseeableo Increase in cost does not render performance impossible, and a contractor yet to deliver

GFSP is liable if building destroyed.

o If partial performance by contractor wrought into larger structure of owner and wholestructure destroyed, impossibility excuses, and contractor can recover in quantum

meruit (Carroll)o UCC 2-613: for specified goods (that car) if the loss of the goods is not the fault of the

seller, the seller is excused (contract is avoided)

o where goods are fungible, the provider must provide, including replacing destroyedgoods (Bunge).

Soybeans vs. soybeans from this farmy Impracticability (UCC2.615)

o Available to party who is adversely affected by the change in circumstanceso After contract was made, an event occurred, the non-occurrence of which was a basic

assumption of the contract

Must be unforeseen (not unforeseeable) Occurrence must be external to the contract

y Change in law or government regulationy Change in market condition (however, generally not one that is used

because basic assumption of contracts is market will change) but if

there was an unexpected thing that changed the market in an

unexpected manner may be able to invoke the doctrine (war, embargo,

natural disaster)

o The effect of the event is to render the partys performance impracticable undulyburdensome

Must have such a severe impact on the performance that it cannot be renderedw/o great loss, risk, or other hardship

y Economic loss may be allowed depending on hardship of economic loss(Taylor, what if another music hall down the road was available?)

o Party seeking relief was not at fault in causing the occurrenceo Party seeking relief must not have borne the risk of the event occurring

Force majeure clause: provides allocation for risk Could be implied in contract Commercial practices and expectations

o Impracticability relives duty of performance and liability for damages May also be able to claim restitution

o Impracticability may also apply to only a part of the contracto unless a particular method of perf. is specified as only acceptable one, party prevented

from perf. by impossibility of expected method must find another way, even if increased

cost, and is not excused for impossibility or impracticability. (American Trdg.)

y Frustration of Purposeo Event so seriously affects the value or usefulness of the benefit that it frustrates the

contracts central purpose for that party


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o Cannot be secret or obscure purpose Shared basis (Krell v. Henry)

o No explicit allocation of riskD. Waiver and Estoppel

y After a contract is entered into, the promisor who indicates by words or conduct induces theother to believe, that he will not exercise, has not exercised, and is not exercising a right

y Estoppel: Party by its words or conduct, induces the other party to act to his detriment bycausing him justifiably to believe that he is not exercising his right

o Estoppel can be lifted by sufficient notice (qualitatively and time)o When a conditional seller repeatedly and consistently accepts late and inadequate

payments without objection, his course of conduct estops him from asserting a

condition subsequent to terminate the contract

Clear notice of the sellers reassertion of his right to prompt payment wouldremove the estoppel and reestablish the condition

y Waiver: Voluntary relinquishment of a known right (can be by words or conduct, but tougher toprove for conduct)

o If a waiver is made prior to due date it can be retracted if the other party has yet to relyon that waiver

o Can waive specific demandso does not require considerationo lower standard of proof to show that you did not waive a right than notestopped

need proof of reliance on waiver/proof can be inferred from circumstances totrump a claim of non-waiver

o Waivers are limited to situations where a party to a contract abandons a right that partyhas under a contract (Quigley)

Cannot waive the basic consideration of a contracty Estoppel vs. Waiver

o Estoppel is more appropriate if detrimental reliance can be shown and there is somequestion about whether the right relinquished is material enough to require

consideration

o Waiver is better if no prejudicial reliance can be established, but there is an argumentthat the abandoned right is not central to the exchange

E. Accord and Satisfactiony When a promisor cashes a check for services rendered, which the promissee declares for full

payment, even if the promisor accepts and cashes the check on condition that it is for partial

payment only, with the remainder to be litigated in court, this counts as fully payment (Martin)

y UCC 1207: promisor can cash the check and still challenge the payment


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V. Interpretation/ParolEvidenceA. ParolEvidence

y Applies when there is an agreement that is recorded in writing and one of the parties proffersevidence to prove a term that is not contained in the writing or to explain or expand on a term

in the writing

o Rule of lawy Covers evidence of terms allegedly agreed to prior to the written contract

o Includes oral/writteny Covers terms allegedly agreed contemporaneously with the writing

o Does not extend to evidence of all contemporaneous written agreement Existence of writing is more reliable Contract need not be contained in single document

o Course of performance is not parol evidence because usually takes place after thewriting

y Does not cover evidence of either oral/written agreements claimed to have been made after theexecution of the writing

y You can use parol evidence where it is:o A collateral agreement

Collateral agreements will be allowed usually because the agreement issufficiently distinct from the scope of the writing, it can be seen as a different

contract, related to but separate from the integrated written agreement

Still cannot contradict terms in writing Must have separate consideration Separately identified

o Does not contradict the writing any express or implied provision of the contracto Does not constitute some agreement that would naturally be in the writing

y Is there an integration? Is the contract a complete, final and certain record of what the partiesagreed to?

o If there is an integration clause, the contract is integratedo Problem if the writing does not say it is an integration

Andrews: if it is clear from the language that the written memorandum wasintended to be an integration of the parties agreement = integrated

Lehman: Take in external evidence to determine parties intention Traynor: allow parol evidence on the question of an integration, where suchevidence leads to an interpretation of the integration language, of which such

language is reasonably susceptible

o Scope of integration clause: Look at language of the clause, if it is not clear how much the integration clause

covers, then may not be fully integrated

UCC 2-202: allow in parol evidence as long as it does not contradict


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Full Integration: If written memorandum is a complete, final, and certain recordof the parties agreement

y No parol evidenceof anything within the scope of the agreementy Merger clauses provide evidence to complete integration

o Boiler plate merger clauses are less likely to be upheld Partial Integration: not complete and final record of the agreement, may fully

and finally express some terms but not all of the terms

y parol evidence is excluded relating to any term that is integrated in thewriting

y permits evidence that supplements or explains the writing to the extentthat it is not integrated

y must not be inconsistent with terms of the agreement Unintegrated: may not fully and finally express any terms

y Parol evidence can be admitted to explain all termsy Interpreting the language: interpreting meaning a substantive term in the contract that may be

ambiguous/vague

o Court not juryo Andrews/Kaye: only allow extrinsic evidence to resolve a patent ambiguity, if it is clear

on its face, no extrinsic evidence no matter what it would show. (WWW Associates)

o Lehman: admit extrinsic evidence to determine whether there is an ambiguity about aterm of the contract

Latent ambiguity: parol evidence shows there is an ambiguous term that maynot otherwise be ambiguous

o Traynor: only allow extrinsic evidence on the preliminary question, whether to applyparol evidence rule to the substance, where such extrinsic evidence suggests a meaningto which the language

Judge looks at parol evidence, sees what it suggests, if parol evidence suggestsomething that is a reasonable interpretation of the language, he will allow it

If the parol evidence is wild and crazy: FUCK THAT! (Pacific Gas)y Practice of interpreting ambiguities/integration

o Just because the parties dispute over the meaning of the term does not mean the termis ambiguous (objective approach)

o First they look to four corners of the written document: if document appears completeand raises no ambiguities no parol evidence (WWW Assc.)

o Evidence concerning course and practice of dealings in a particular field is an admissibleto explain the scope of the terms (Columbia)

o Industry usage of certain terms will be given their industry meaningy When a contract is not ambiguous by its terms but reading the contract as a whole will lead to

ridiculous results, parol evidence or common sense context can be added

y Party who wants to narrow common sense meaning of a word, has the burden to show thenarrower meaning was intended


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y Exceptions to Parol Evidence:o Unequivocal evidence of mutual mistake

Mutual Mistake Injury to the beneficiary party is negligible (no windfall for adverse party)

y Impact of such action would not be too detrimental to party losing asresult (Hoffman)

The contract itself can show the court how to rewrite the documento To prove fraud (Lipsit)

Sometimes not allowed if evidence contradicts express term of contract (Bankof America v. Pendergrass)

y Minority view Allowed even if there is an integration clause

y Wont be allowed if there is an as is clause saying they agreed not torely on representations in accepting contract (Lafazia)

o External evidence can be introduced to show an orally made conditioned performance,that does not appear in the writing, unless it contradicts express term in the writing (LI

Trust)

I only agree if you get them all to agreeo Duress and other bases for invalidating or avoiding contract

B. Interpretationy Parties sometimes fail to express their assent adequately, leave a material aspect of their

agreement is ambiguous/vague, they failed to resolve it, or provide for it all

y No contract comes into being if a material aspect of the agreement is left indefinite by theparties and the uncertainty cannot be resolved by the process of interpretation or construction

o There must be an incurable uncertainty about what the parties agreed to, so intent toenter in contract is in doubt

o The uncertainty must relate to a material aspect of the relationshipy Courts will tolerate some degree of indefiniteness as long as it is clear that the parties intended

to enter into a contract

o Must have some means of resolving the uncertainty so that a breach can be identifiedand remedied

y Interpretation by courts use:o Ordinary meaning of the words

Trade usageo History of communication/negotiationo Course of performanceo Course of dealings

y Construction: inferring meaning as a matter of law, go beyond facts to find what the partieswould have probably meant, not necessarily what they did mean


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o Term may be implied in law even though it overrides or conflict with what was agreedupon

y Courts try to interpret the contract in a way to give it meaning and make it enforceableo Avoid forfeitureo Specific provisions are given greater weight than general provisions

Specific controls the generalo Look at negotiated terms over standardized termso When one party has drafted the unclear language, courts choose meaning that favors

the other party

y Courts can use gap fillersy Parties cannot effectively agree to exclude terms that are so fundamental to fair dealings that

these legally implied obligations are needed

o Reasonably and in good faithy Agreements to agree may be enforced if the court determines that the term will be settled by

some objective standard

o Objective v. subjective standardy Sometimes courts recognize that the parties entered into a preliminary and subsidiary contract

in which each gave consideration by forbearing to exercise the right to terminate negotiations at

will and promising to negotiate in good faith in an effort to reach agreement on the principal

contract

o Lack of good faith v. negotiation breakdowny Agreement to record in writing may be upheld if the writing is just a formality and had intended

to be bound by the oral agreement

y Party with more reasonable understanding will often prevailC. Interpreting Divisible v.Entire

y When multiple deliveries are all of the same type of good, and no time of payment is stated inthe contract, it is most likely the contract will be interpreted as entire rather than divisible

y UCC 2-307: if contract is silent then entire delivery and entire payment are due at the sametime, if it allows for installment deliveries, there may be demands for part payment at each

delivery

y Where its clear from the nature of the contract that there are 2 separate agreements pastedinto one contract, the payment of the contract will be divisible

VI. Modificationy Modifications situations where contracting parties incur different duties and obligations from

those in their original contract

y Any modification of a contract requires separate considerationo Cannot promise to do what you were already had legal duty to do (Levine)o UCC 2-209: do not need separate consideration for modification

Subject to good faith requirements of 2-203


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y When circumstances unforeseen to both parties make the performance of the contract undulyburdensome, the parties may agree , in view of changed conditions to an adjustment of the

price

o Consideration for increased amount of money is increased amount of worko The previous contract was for building a foundation without having to clear additional

wreckage, the new contract is to clear the additional wreckage (Brian Constr.)

o Restatement 89: If the modification is fair and equitable in view of circumstances notanticipated by the parties when the contract was made, you can modify the original

contract without additional consideration

y Unless it is a contract for the sale of goods, a non-material written term may be impliedlymodified and need not be done in writing explicitly even when the contract requires written

modification (Universal Builders)

VII. Breach/Repudiation/PerformanceA. Anticipatory Repudiation

y Where a party makes a definite and unequivocal manifestation of an intention, not to renderpromised performance at an appointed time, counter party does not have to wait to institute

legal proceedings against the repudiator (Whole Sale Sand v. Decker)

o Unclear what qualifies as definite and unequivocal manifestationB. Breach

y Fails to honor a promise of performance when that performance falls duey Material breach: failure or deficiency in performance is central to the contract, it substantially

impairs its value and disappoints reasonable expectations of partyo Total material breach promisee can (K&G):

Withhold performance Terminate contract Claim full damages

y Partial breach may entitle injured party to damages but not terminationy Non-material breach will not entitle injured party to rescission unless contract provides

o Rescission only available upon material breachy UCC 2-610: Can treat anticipatory repudiation as a breach

C. Good Faith Substantial Performancey When you have GFSP the contractor has performed, and is entitled to the contract price (less

cost of minor repairs/difference in value for larger items)

y GFSP: where deviation from a construction plan does not amount to frustration of details, ofgreat personal importance, and where rectifying such deviations would result in economic waste

y When general provides sub-contract, performance not complete until general deliverssubstantial performance on entire contract to ultimate owner


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o General bears the risk of loss until he conveyso Sub-contractor not liable for loss if he has given GFSP to general contractor

y Failure to deliver GFSP it absolves the other party from performance (terminates other partysduty)

o Considered a material breachy When contract to work and no date set for payment work must be substantially performed

before payment is demanded

y GFSP can allow contractor to recover under quantum meruitD. Goods

y UCC 2-601: For non-installment contracts, buyer can rightfully reject if proffered goods do notconform to the contract in every respect (perfect tender)

o Limited by buyers obligation of good faith (honesty in fact or if between merchantsconformity to standards of trade and reasonable commercial standards)

Seller must prove lack of good faitho Even a wrongful rejection is still effective, but it is actionable

Can sue for damagesy What constitutes acceptance?

o Buyer accepts when buyer either: indicates acceptance despite non-conformity fails to make an effective rejection

o UCC 2-607: once buyer accepts he must pay contract price and cannot reject for non-conformity, unless buyer reasonably believed that seller would promptly cure non-

conformity and seller fails to do so

Seller must cure any non-conformity buyer reasonably seller had agreed to cure If seller does not cure 2-608(1)(a), the buyer can revoke acceptance Otherwise: buyer can only later revoke acceptance if buyer, with burden, can

show a significant impairment of value

VIII. Remedies (damages)A. Remedies in Equity

y Rescission: Resets to before the contract was performedo Must be because of something mutual

Mutual agreement to rescind Mutual mistake

y Exception: see Elsinoreo Unconscionabilityo To get rescission, need both:

Material breach and Favorable equity


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y Other remedies in the contract are relevant to courts decision indetermining whether equities favor rescission

y Specific Performance:o One must persuade the court that:

Any monetary damages would be inadequate (due to unvaluability)y Family heirloomy Unique piece of land

Balance of the equities is in your favoro Court cannot affirmatively order specific performance of personal service contract

Can enforce negative covenant not to work elsewherey Limited circumstances

B. Remedies at Lawy Expectancy Damages:

o P Phrase: put the promise in the position he would have been in, had the promisorperformed (Hawkins)

o Diminution of valueo Cost of completion

Normal damages unless would be economically wasteful/inefficient Even if economically wasteful/inefficient, if the damaged party would complete

it on its own because of some idiosyncratic value = cost of completion

y BOP on damaged partyo Only gets difference between contract price and market price at time and place of

delivery (Acme Mills)

o Installment Contract: look at difference between contract price and market price as ofthe time and place of EACH installment

Different for each installment as market price fluctuates (Missouri Furnace)o UCC 2-712: If promisee covers, then the damages are difference between cover price

and contract price

o Fungible Goods: if the buyer breaches a contract to purchase a fungible good, resale ofthe goods by the seller does not absolve the buyer from paying full damages

2 sale rule (Neri) SEE UCC FOR ALL DAMAGES INVOLVING GOODS

o Promisee only compensated for actual lossesy Limitations on Expectancy damages:

o Mitigation: once promisee knows of promisors breach, promisee must work to mitigatedamaged caused

Non-breaching party entitled to expected profit plus expense incurred prior tobreach

Contract price less expenditures saved by breach See UCC2-709/2-713 Second sale is not mitigation when goods are costlessly expandable


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y Kiearsage An employee must accept a new job, if the terms/conditions are not inferior to

the job lost because of the breach (Parker v. 20th

Cent. Fox)

o Consequential damages: promisee receives 1)direct consequences that arise in theordinary course of the breach 2) what was reasonably foreseen by both parties as of

contract formation as a consequence of breach (Hadley)

Restatement: court can limit as it deems appropriate Holmes requires some sort of agreement, even if it is tacit agreement that

contemplates payment for special circumstances (Globe)

UCC 2-715(2): foreseeability not necessarily foreseeno No emotional distress damages in contracts (Valentine)o No speculative damageso No damages for efficient breacho Promisee has burden of proving damages

y Reliance Damages: where expectancy is too speculative do reliance damages insteado Reimburse the promisee for expenses made in the expectation of performanceo Cannot be expenditures before the contract was made (Dempsey)o If working on something that prevents you from working on another project you still

cannot collect

Too hypothetical and theoretical If you can pinpoint to something and show with certainty that you would have

been able to make money had it not been for spending time on the contract

that was breached you can collect

o Promisee can recover expenses incurred in reliance of contract with promisor, minusthe losses incurred had the contract had been fulfil led

Breacher must prove that it was a losing for the promiseey Restitution: claim for unjust enrichment

o Off contract theory of recovery Unenforceable contracts cannot recover expectancy go to restitution

o Claim for conferral of benefit on the promisor by the promisee unjustly enriching thepromisor

Promisor must show donative intent to rebut the claim Not for losses incurred by the promisee

o If you get to a certain point in the contract where its basically complete (like GFSP) willnot have claim for restitution, only have claim for contract price

o Employment Restitution If the employee breaches the contract, he can seek restitution for the value of

work performed, measured as % of the contract price equal to the % of the

work he performed minus damages that his breach caused the employer

Does not work in continuous employmento Contractor Restitution:


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Where a contractor delivers GFSP there is no breach If there are a few small things that are off, and the owner refuses to pay

recovery is the agreed upon contract price minus the decrease in diminution of

value resulting from deviations from the contract

o Property Restitution: Where buyer of property breaches after making a down payment, can recover

down payment as restitution less damages incurred by the seller from the

breach

y Liquidated Damageso Court will only enforce liquidated damages clause where:

Actual damages are difficult to ascertain at time of breach (Samson) Amount agreed upon is good faith reasonable estimate of damages (Samson) The court does not deem it to be penalty (Muldoon)

o Limited liability clause is more likely to be enforced: not a penalty agreed upon tostatement to limit liability

o UCC 2-718(1): reasonableness of pre-estimate can be determined as of contractformation or time of breach

C. Promissory Estoppely If there is no enforceable contract, courts can enforce promissory estoppel if:

o There was a promise from the promisor to the promiseeo Foreseeable that the promisee would rely on the promiseo The promisee actually does reasonably rely on the promiseo The reliance is of a definite and substantial natureo Injustice can only be avoided by enforcement of the promise

y party seeking to invoke promisory estoppel for an otherwise unenforceable contract under thestatute of frauds (employer contract), must show clear and convincing evidence of fraud

(Stearns)

y option contracts are subject to promissory estoppel

contract beast

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