OUTLINE

Jessica Wolinsky-Section II
Contracts-Stone, Spring 2017
Intent to K
- Requires bargain with a manifestation of mutual assentRestatement, Second, Contracts § 17
o “Meeting of the minds” between the parties; “mutual assent”
 Mutual assent=each party makes a promise/begins performanceRestatement Contracts § 18
 Mode of assent O + ARestatement, Second, Contracts § 22
- Factors to consider: (Can U Find Diana As Cool Nuns Sing Pretty New But Wild Dumb Barney Songs Riotously)
o Completeness and formality of the writing
o K is of the class usually in writing
o Nature requires formal writing for full expression
o Few or many details (essential terms)
o Amount involved is large or small
o Common or unusual K
o Whether the negotiations indicate a written draft is contemplated as conclusion of negotiations
o Explicit statement to be bound ONLY with a signed, written agreement
o Partial performance and if it has been accepted by the party disclaiming the K
o Nothing left to negotiate/settle…all that remained was to sign what had been agreed to
o Agreement concerns complex/substantial business matters where K in writing is the norm
o Written correspondence indicating intent to K
o Prior course of dealing
o Behavior after the preliminary agreement
o Subsequent behavior
o Party’s acquiescence in the other’s reliance on the preliminary agreement
- Two Options:
o (1) Subjective-what the parties, in their own mind (inner mindset), think or believe
 Not typically usedif both parties had same understanding it will determine their rights
o (2) Objective-reasonable person standard; look at the words, actions, and conduct of the parties
 Mental assent NOT required
 Form (words) v. Substance (actions/hold people to substance)
 Two-part test for conduct as manifestation of assent:Restatement, Second, Contracts § 19
 (a) Party intends to engage in the conduct.
 (b) Party knows/has reason to know other party may infer from conduct he/she assents.
- Intention to be legally bound
o No requirement that individual intend/understand the legal consequences of his/her actions
o Intent NOT to be bound, honored by the court if other party knows/has reason to knowRestatement,
Second, Contracts § 21 (i.e. a gentlemen’s agreement”)
o Intent is inferred from a totality of conduct NOT just spoken words
 Expressions later in time are controlling over inconsistent earlier expressions
 Homan v. Earle- false marriage (implied); Embry v. Hargadine, McKittric Dry Goods Co.-re-
employ past deadline (implied); Tolmie v. UPS, Inc.- only fired for good/just cause; (not implied)
 Easterbrook v. Ball-Co Mfg.- Intent is objective. Parties who make agreement “subject to” later
agreement=intent not to be bound.
- Agreements leaving terms for later agreement (based on future events)
o Traditional premise: agreement to be finally settled must comprise ALL terms parties intend to have
o Second premise (possible): “contract with open terms”; parties understand if they fail to reach agreement
there will be a K with missing terms supplied as a matter of law
 UCC § 2-305: Open Price Term. the price is a reasonable price at the time for delivery if (a)
nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to
agree; or (c) the price is to be fixed in terms of some agreed market or other standard.
- Intention NOT to be bound until a later writing
 o Court: must determine when parties intended to be bound (currentlysigned as mere memorialization or
laternot effective until signed)
o Letters of intent-no one is bound to the terms even though they may be detailed
- Notes
o Decision is left to trier of fact
o Joking is NOT intent=unenforceableLucy v. Zehmer
o Incapacity (alcohol, mental insanity, etc.) is NOT intent to K [Restatement, Second, Contracts § 15]
o Promise (expression of commitment to do something) v. Prediction (expression of opinion)
 Anderson v. Backlund- no promise because he had no control over weather
- Misunderstanding Restatement, Second, Contracts § 20 (Konic Int’l v. Spokane Computer-surge protector)
o NO mutual assent if parties attach materially different meanings AND (1) NEITHER party knows/has
reason to know the meaning attached by the other OR (2) BOTH know/have reason to know meaning
o Follow the misunderstanding IF: (1) Party A does NOT know of any different meaning and B knows the
meaning attached by A OR (2) B has NO reason to know of different meaning attached by A and A has
reason to know of meaning attached by B
 Place burden on lowest cost provider (i.e. who has lowest TC)
o PEERLESS RULE: Party is NOT bound by meaning unless that party either knows/has reason to know
of it. Even though parties manifest assent to same language, misunderstanding may prevent formation of a
KRaffles v. Whichelhaus (different ship)
 Principles: (1) doctrine applies ONLY when the parties have different understandings of their
expression of agreement; (2) doctrine does NOT apply when one party’s understanding, because
of the party’s fault, is less reasonable than the other party’s understanding
o If attribute a peculiar meaning to words used in K, that meaning prevails, ONLY if express
statementHotchkiss v. National City Bank
o London County Council v. Henry Boot & Sons Ltd.- agreed on terms, but not what they meant
- Agreements to agree/preliminary negotiationsRestatement, Second, Contracts § 26
o Intent to K not negated by additional intent to adopt by written memorial UNLESS circumstances show
only preliminary negotiationsRestatement, Second, Contracts § 27: Existence of K Where Written
Memorial Is Contemplated..
 Texaco, Inc. v. Pennzoil Co.- “Memorandum of Agreement,” drafted to reflect earlier terms;
expect a writing, but evidence written agreement was just to memorialize earlier agreement.
o Delicatessen v. Schwachen
o City Stores Co. v. Ammerman- Issue: Will equity grant specific performance when substantial terms have
been left open for future negotiation? Court did not grant specific performance.
o
Interpretation of K
- General Notes:
o Interpretation: court determines meaning parties attachedRestatement, Second, Contracts § 200
 Competes with Construction: court determines meaning of language in K to give it legal effect
 Implied-in-fact term: implied by conduct of the parties or by circumstances
 Implied-in-law term: imposed by court without regard to intention (i.e. construction)
o Agreement: bargain of parties in fact found in language/inferred from circumstances [UCC § 1-201(3)]
- (1) Interpretation begins with meanings attached by each party at time K was made (i.e. subjective intent). If
cannot be ascertained or differs between parties, (2) use objective standard
o Regardless court must apply a standard of reasonableness in interpreting K language
o One party-B- knows/has reason to know the other party-S- has a different meaning of K term(s), court
concludes K made on seller’s termsRestatement, Second, Contracts § 201: Whose Meaning Prevails.
- Factors court looks at to interpret: Ripe Watermelon Offer Cops Perfect Eating Comfort
o Relevant circumstances surrounding the transaction
o Writings
o Oral statements
 o Other conduct by which parties manifested their assent
o Prior negotiations-parol evidence rule permits this IF language is “ambiguous” or “vague”
o Entire agreement, including all writings, read together considering the circumstances
o Course of performance, course of dealing, or usage of trade (in order of precedence)Stancroff v. Brown
 Ambiguity NOT required, but will ONLY be used to show “consistent” with express terms
 Must prove other party knew/had reason to know of usage
 Course of performance-how the parties have been performing this K [UCC § 2-208(1)]
 Course of dealing-how parties have performed prior Ks between them [UCC § 1-205(1);
Restatement, Second, Contracts § 223]
 Usage of trade- (i.e. custom) how others in trade/community do it [UCC § 1-205(2)]
- Hierarchy in Interpreting a K (burden on party with most to lose/gain): Restatement, Second, Contracts §
203: Standards of Preference
o (1) Terms of the agreement (clear terms as defined in K)
o (2) General meaning of the words (if not expressly stated)
o (3) [EXCEPTION] IF parties assign a special/narrow meaning to the word (look at facts of case)
 If not expressed in K and one party wants to use special meaning, party must prove intended to
use it otherwise use general meaning (found in words, conduct, or prior dealing)
 Frigaliment Importing Co. V. B.N.S. Int’l Sales Corp.-chicken case
o (4) Custom of the industry or prior course of dealing (know/should’ve known)
 U.S. Naval Institute v. Charter Communications-trade usage prevails.
- Fundamental principles of interpretation
o Court must apply standard of reasonableness in interpreting K language.
o Look at the entire agreement (includes writings) should be read together considering the circumstances.
o Dictionary Definitions- may be helpful in showing general use of words, but are NOT dispositive.
o Judicial emphasis is placed on the “purpose of the parties” interpretation
o Recitals-court may find a helpful statement of the purpose set forth in the form of recitals.
 3 rules: (1) If clear and operative part is ambiguous, recitals govern construction; (2) If
ambiguous and operative part is clear, operative must prevail; (3) If both are clear, but are
inconsistent, operative part is preferred
o Language imposes limit on how far court will go in interpretation.
- Rules in aid of interpretationRestatement, Second, Contracts § 202
o Courts assume parties used the language in the way reasonable persons do and to avoid absurdity.
 Expression of one thing is the exclusion of another
 Court may read a K to not include things that are similar to specific things listed
o Assume parties intend every part of the agreement to mean something
o Words repeated have same meaning throughout the K
o Specific provision control a general one and may operate as exception to it.
o Separately negotiated terms greater than standardized terms….handwritten terms greater than
typewritten/printed….typewritten greater than printed
- Rules of construction (legal effect of the K)
o Assume the bargaining process results in fair bargain (interpret with preference to fair bargain)
o Language reasonably has two interpretations, go against drafterRestatement, Second, Contracts § 206
o “Adhesion K”-drafted by one party, usually reduced to form presented to other party with no realistic
opportunity to negotiateRestatement, Second, Contracts § 211
 Goal to interpret to enforce only provisions a reasonable person signing could anticipate
o Ambiguities are sometimes resolved against a party because represented by lawyer during drafting process.
o Reasonably has two interpretations, one favors public interest, follow public interestRestatement,
Second, Contracts § 207
- Restatement, Second, Contracts § 205: Good Faith and Fair Dealing.
- Gap Filling: courts can provide minor terms routinely; need to find a hook/key where it can fill in
o UCC §2-204(3)- Even if 1+ terms are left open a K for sale does not fail for indefiniteness if parties have
intended to make a K and there is a reasonably certain basis for giving an appropriate remedy.
 o Restatement, Second, Contracts § 204: Supplying Omitted Essential Term…reasonable in circumstances
o A valid K must be sufficiently definite (Action Ads, Inc. v. Judes)
o If court has basis in facts/circumstances, court may fill the gaps (Oglebay Norton Co. v. Armco, Inc.)
 UCC § 2-305(1)- Supplying a Price Term.
o Can fix term of duration based on parties’ intent and circumstancesHaines v. City of New York
Offer
- Manifestation of willingness to enter bargain, made to justify another person in understanding his assent is invited
and will conclude itRestatement, Second, Contracts § 24 (no formalities required)
- Detail suggests offer/omission of many terms suggests not.
- Elements= intent [§ 24, § 26] + certainty of terms [§ 33, § 34] + proper communication [§ 50, § 52]
o (1) Manifestation of intent to be legally bound
 Words of offer must be final intent to offer
 Debate OFFER or PRELIMINARY NEGOTIATIONSRestatement, Second, Contracts § 26
 If recipient is aware it’s addressed to others and cannot be performed to more than one,
communications is NOT offer UNLESS recipient had NO reason to know of parties/letter, then
justified in believing it’s an offer
 Whether parties intended to be currently bound before writing OR no unless/until writing signed.
 Analyze circumstances and communications
 “subject to approval of attorney”: (1) subject to attorney’s approval (likely) or (2)
condition is fundamental and manifests intent to obtain advice/counsel first
 Advertisements/Mass Mailings/Price Quotes=NOT offers
 UNLESS language: “subject to prior sale,” “first come first served,” “while they last.”
o Must be express, court will not read it in.
o If restricts maker’s potential liability to reasonable number of people=offer
o If only a limited number can meet condition =offer (i.e. reward cases)
 Nebraska Seed Co. v. Harsh; Lefkowitz v. Great Minneapolis Surplus Store, Inc
 Exception Test: (1) some performance promised in positive terms exchange for
something requested (clear/definite) and (2) legal intention of parties and circumstances
 Reward Offers (Law of Rewards)
 Offer IF restricts maker’s potential liability to reasonable number of people OR only
limited number can meet condition
 If specific time limit, court will honor it [Newman v. Shiff -(Tax Nut)]
 Offer of reward made publicly, acceptance must be performance, NO promise
o Offeree must have been aware of reward; induced the action (person without
knowledge is not induced)
 EXCEPTION: Government Reward
 Offer lapses after a reasonable time.
 Give revocation equal publicity to offer, if no better means available.
 Acceptance MUST be the performance of the act or acts required.
o If perform part before learn, accept by rendering rest of act§ 51
o Public official under legal duty to act NO reward for performance of that act
o Achieved goal of reward but in different way than requested, may recover
o (2) Proper communication to offeree (to whom it invites acceptance)
 Restatement, Second, Contracts § 50; Restatement, Second, Contracts § 52
 Offer does not need to be communicated directly by the offeror or the offeree
 Offeror is master of his offer and may specify how/when assent must be communicated
 NO intent to be bound by communication UNLESS person is responsible for having made/sent
the communication (i.e. message NOT offer unless communicated in manner intended by offeror)
 Use of word offer or if sent in response to request for offer is deserving of weight, but NOT
controlling. (Moulton v. Kershaw; Fairmount Glass Works v. Crunden-Martin Woodenware Co.)
 NO K unless offeree exercises power of acceptance by selecting.
  Effective when received UNLESS otherwise indicated by the parties in the K
o (3) Certainty of Terms: sufficiently definite OR empower other to specify terms Restatement § 33
 Reasonably certain=provide basis determine existence of breach AND giving appropriate remedy
 May be reasonably certain even if empowers selection of term in course of performance
 Leaving terms open or uncertain may show intention is NOT an offer or acceptance.
 Agreement must contain “essential” terms: parties, price, subject matter and time for performance
 Part performance may remove uncertainty and establish enforceable KRestatement § 34
 Moulton v. Karshaw; Fair Glass Works v. Grunden-Martin Woodenware Co.
 FAIRMOUNT TWO PART RULE: (1) Offer must be reasonably definite/certain and (2) Intent
may be found form correspondence as a whole
 Unspecified terms found in course of performance, prior course of dealings, and usage of trade or
industryUCC § 2-208
 Clause reserving to its maker the power to close deal indicates it’s likely NOT an offer
 Failure to limit quantity for performancerisk disappears if proposal specifies range/upper limit
and gives recipient the power to select within it.
 Failure to limit recipientsrisk does not exist if offer is conditioned “subject to prior sale”
 Some courts allow reliance damages in transactions that contemplated an enforceable K but
where negotiations were terminated by D under circumstances violating good faith negotiations
 Entertainment of Bids:
 General Rule: When auctioneer puts property for sale to highest bidder, he is, in absence
of contrary understanding/usage, interested in entertaining offers via bids
o Although only one bidder can claim the property, even highest bid might be too
low, and it would not be reasonable to assume an intention to sell in that case.
o Each bid is an offer that the auctioneer may accept or reject.
 UCC: NO K until accepted by “the fall of the hammer or in other customary manner.”
(Auction with Reserve-default rule)
o Well v. Schoeneweis; Specialty Maintenance & Construction, Inc. v. Rosen
Systems, Inc
 Auction w/o Reserve-putting up item for bid amounts to commitment, irrevocable for
reasonable time, to sell item to the highest bidder.
- Partial Performanceif partially performed before hearing of offer (i.e. w/o knowledge), may accept by
completingRestatement, Second, Contracts § 51 AND no revocation if justifiable reliance (unilateral K-
Drennan v. Star Paving Co)
- Irrevocability of Offers (i.e. Protecting the Offeree)
o General rule: ALL offers are revocable
o Option K
 Irrevocable offer; NO duty on offeree (complete discretion to act or not)
 Irrevocable ONLY if for “short term” and the exchange is on “fair terms” (IF for term
long enough to create substantial risk of speculation=usually invalid)
 Created when:
 Offeree gives consideration for offeror’s promise not to revoke OR
 Begins performance and is contingentRestatement, Second, Contracts § 45
o Mere preparation NOT enoughRestatement, Second, Contracts § 87(2)
o Requires completion of performance by offeree as condition of right to recover
 Power of acceptance in option K NOT terminated by rejection, counteroffer, or death/insanity
o Firm OfferUCC § 2-205
 Offer “in a signed writing which by its terms gives assurance that it will be held open.”
 Irrevocable during stated time or reasonable time if not stated (may NOT exceed 3 mon).
o Reliance on Offer that Invites PerformanceRestatement, Second, Contracts § 45
 Courts avoid acceptance having to be FULL performance:
 Interpreting offer to invite promise instead of performance
  Interpretation of offer as divisible, leading to series of unilateral Ks
o Reliance on offer that invites promise
 Express/implied promise NOT to revoke offer will be enforced if offeror could foresee offeree
would rely on promise not to revoke, to his detriment, and offeree does rely
 Courts are reluctant to protect offeree that relied before making invited promise.
 Subcontractors’ bids:
 James Baird v. Gimbel Bros. –Judge Learned Hand/Traditional K Doctrine;
could revoke despite reliance by general contractor.
 Drenan v. Star Paving Co.-Traynor View; implied promise to keep offer open
o Drenan’s reliance made it binding and made the offer irrevocable.
 Put in a clause that bid is revocable
 General contractor NOT liable to subcontractors despite reasoning in Drenan
o Statute
 Under UCC § 2-205, when merchant offers to buy/sell goods in a signed writing which expressly
states it will be held open, offer is irrevocable for stated period or a reasonable time if not stated
 Limits period of irrevocability to max of 3 months, but time is usually less
o Unilateral K
 Once offeree has begun to perform, offeror may not revoke but must give amount of time stated
in offer, or, if no time stated, reasonable time to complete requested performance
 Three theories:
 (1) beginning of performance = acceptance and K is formed with offeror’s duty of
performance being conditional upon offeree completing requested act/forbearance within
appropriate time [UCC § 2-206]
 (2) offer for unilateral K has implied promise not to revoke if offeree
beginsRestatement, Second, Contracts § 45
 (3) begin performance=offeree promises to finish and K is bilateralRestatement § 62.
 If offeree has prepared to perform, may revoke UNLESS prep is substantialRestatement § 87
 Unilateral v. Bilateral (Traynor v. Hand)
 Offer may invite acceptance by a promise (bilateral) or performance (unilateral)
(objective standard)
 Basic Rule: Offer for unilateral K accepted ONLY by act (Petterson v. Pattberg)
o Empire Machinery v. Litton-if offeree takes steps in furtherance of contractual
obligations which would lead the reasonable businessman to believe the contract
has been accepted, such conduct may, under the circumstances, constitute
acceptance of the offer
Acceptance
- Offer intended ONLY for person communicated to by offeror, NOT assignable/transferableRestatement,
Second, Contracts § 52: Who May Accept
o Exception=offer that is part of an option K
- Restatement, Second, Contracts § 50: Acceptance of Offer Defined; Acceptance by Performance; UCC 2-206
- Offeree’s promise, embodied in acceptance, must be identical with offeror’s promise, embodied in the offer.
- Acceptance by Performance (rare)
o If invite acceptance by performance, NOT able to accept by promising the performance (rare)
 Petterson v. Pattberg (above)
 If offer invites acceptance by performance, offeree can, by indication, render it w/o accepting.
 Beginning performance as acceptance requires completion Restatement § 62
o Notice
 RULE: If offeree has reason to know offeror is uncertain whether offer will be accepted and that
offeror is not likely to learn of acceptance, notice is requiredRestatement § 54
 Enough if offeree uses reasonable care, even if offeror never knows (Bishop v. Eaton)
  Offeror may choose to waive notice
o Brackenbury: accepted by beginning performance so continued performance permitted; valid unilateral K
o Sunshine v. Manos-use of time/effort sufficient C for unilateral K to be binding and irrevocable.
o Davis v. Jacoby- Court found bilateral K.
o Choosing promise v. performanceRestatement, Second, Contracts § 32
- Acceptance by Promise
o Undisclosed intent is irrelevant if conduct gives offeror reason to believe offeree intends to accept
o To be effective, acceptance must occur within specified time (statute/rule/in option K)
o 3 Requirements for Acceptance:
 (1) express commitment-mere acknowledgment of receipt or expression of interest NOT enough
 (2) unconditional-NOT conditional on any further act by either party; unequivocal and
unconditional
 Offeree’s promise to accept later (promise to make a promise) is NOT acceptance
Exception: promise taking effect automatically at later time if stated event has NOT
occurred is effective at time event did not occur (either may withdraw before)
 (3) must NOT vary terms of offer-(traditionally) commitment must be on terms proposed by
offer; offeree’s promise (i.e. acceptance) must be identical with offeror’s promise (i.e. offer)
 Offeror, as master of the offer, may impose additional requirements
o Promise inferred from silence or exercise of dominionRestatement, Second, Contracts § 69
 Promise will NOT be inferred from offeree’s inaction (Indiana Mfg. Co. v. Hayes)
 EXCEPTIONS (i.e. where reason to believe from silence that offeree assents):
o Reliance by offeror (significant but not sufficient on its own)
o Prior dealings or usage of trade that make it reasonable for offeree to notify
offeror if offeree does not intend to accept
 Hobbs v. Massasoit Whip Co.; Ammons v. Wilson & Co.
o Solicitation of offer by representative of offeree
o Failure by offeree to return property or something symbolic of agreement
o Subsequent conduct of the parties
o Minor modification of existing K
 3 Part Test for Silence= (1) Silence + (2) Duty to Respond + (3) Failure to Respond
 Offeree’s exercise of dominion: (Ransom v. Penn Mutual Life Ins. Co.)
 Offeree exercises dominion over goods by acting inconsistently with offeror’s
ownership=acceptance + pay price for goods
 Offeree that takes benefit of services offered is bound by terms of offer if offeree had
reasonable opportunity to reject (required to speak up in protest)
o NoticeRestatement, Second, Contracts § 56
 Offeree must take appropriate steps to let the offeror know of acceptance.
 Promise in words- communication of those words to offeror necessary for acceptance and
no further requirement of notice.
 Promise implied from conduct- offeree is expected to give notice of acceptance if it
would not otherwise come promptly to the offeror’s attention.
 EXCEPTIONS:
 Performance or preparation for performance
 Offeror chances to learn of acceptance as promptly as if notice had been given
 Offeror may choose to waive notice
 To be effective acceptance must be unequivocal (Culton v. Gilchrist)
 Equivocal (ambiguous)=not boundRestatement, Second, Contracts § 57
- Termination of the Power of Acceptance
o If terminated by revocation, lapse, or rejection it can be revived
o (1) revocation=clear manifestation of unwillingness to enter bargainRestatement § 42
 Express OR Indirect (when offeror acts inconsistent with intent to KRestatement § 43
  Revocation Test: (1) Offeror takes definite action inconsistent with intent to K; (2) offeree
acquires reliable information to that effect (must receive before acceptance)
 If divisible, any part not accepted is revocableRestatement, Second, Contracts § 47
 May put down deposit, but offer still revocable and deposit may be forfeitedRestatement § 44
 Actions constituting revocation:
 Subsequent offer, inconsistent with original offer
 Action w/o words if inconsistent with intent to K
 Indirect communication may be sufficient if offeree received reliable info that offeror
took definite action inconsistent with intent to KRestatement, Second, Contracts § 43
o Dickinson v. Dodds
 General offers (i.e. public ad) equal publicity of revocation is sufficientRestatement,
Second, Contracts § 46 (Izadi v. Machado (Gus) Ford, Inc.)
 Revocation is NOT effective UNTIL received by offeree
 Offers are revocable by offeror prior to acceptance
 Exceptions:
o Option K=NOT terminated Restatement, Second, Contracts § 37
 Humble Oil & Refining Co. v. Westside Investment Corp.
o Detrimental reliance by offeree on promise not to revoke or reliance on offer
o Offer for unilateral K, when offeree has begun to perform the requested act
o Statute precludes revocation
o (2) death or incapacity of offeror (NOT in option K)Restatement, Second, Contracts § 48
o (3) lapse of the offerRestatement, Second, Contracts § 41
 Time is at discretion of offeror
 If no time specified, lapses after a “reasonable time (RT)”
 RT Test: time satisfactory to offeror by RP in position of offeree (circumstances)
o Balance interests of offeree (time to make informed decision) v. offeror’s interest
(avoid risks of change during that time)
o If K is for sale of something speculative, time will be short/something that does
not change rapidly, time will be relatively long
o UCC § 1-205: Reasonable time; Seasonableness.
 Effect of means of transmission:
o Oral offer=terminates at end of conversation
o If transmitted expeditiously, sense of urgency may be suggested
 Direct negotiations-usually does not extend beyond termination of communication
 Speculative transactions- purchase/sale something fluctuates, reasonable time short
 Where offeree uses time made available for communication to take advantage of price
movements favorable to him, there may be lack of good faith that permits offeror to
refuse to complete the transaction
 Delay in transit does NOT extend time for acceptance if offeree knew/has reason to know of the
delay BUT if delay is due to fault of offeror or means of transmission of offeror and offeree
neither knows/doesn’t have reason to know, time is extended
 Acceptance after lapse of time may be treated by offeror as counteroffer and may be accepted
 Offeror cannot waive delay by choosing to ignore it
o (4) rejection of the offer by offereeRestatement, Second, Contracts § 38
 Rejection=when offeror is justified in inferring the offeree does not intend to accept the offer
 Majority-rejection NOT effective until received by offeror
 Offeror may rely on rejection by (1) action or (2) inaction or (3) failing to revoke offer
 Rejection terminates offer if before acceptance (Restatement § 40)
 If offer has been rejected with effect of terminating power of acceptance, and offeror then states
will disregard rejection, offeror has made a new offer on same terms.
 Communication intended to be an acceptance BUT adds qualifications/conditions is counteroffer
and a rejection NOT acceptanceRestatement, Second, Contracts § 59
  Invalidated IF acceptance depends on assent to changed/added termsRestatement,
Second, Contracts § 61
 Communication that suggest the offer be modified or that inquires whether different terms
might be acceptable may not terminate the power of acceptance.
 Counter-OfferRestatement, Second, Contracts § 39
- Battle of the Forms (Itoh v. Jordan)Restatement, Second, Contracts § 58 and § 59
o Mirror image rule: offeree’s commitment must be on the terms proposed by offer with NO variation.
 3 possible approaches for UCC 2-207 (Diatom, Inc. v. Penwalt; Roto-Lith):
 (1) Treat different terms as included under 2-207(2). But different terms would never
become part of the K, because they materially alter the K.
 (2) offeror’s terms control…not additional terms, but attempt to change term in K
 (3) “knock-out rule”. conflicting terms cancel each other out; offeree’s form is treated as
acceptance of the terms in the offeror’s form which did not conflict.
- Mailbox Rule: communication effective when “put in the mail” Restatement, Second, Contracts § 63
o (1) If acceptance is not as invited, rule does NOT apply and acceptance is ineffective
 NOT applicable to instantaneous means of communication
o (2) Revocation by mail is not effective until receipt
o (3) Once offeree dispatched acceptance= too late to reconsider and reject or withdraw acceptance
o (4) mailbox rule allocates the risk of transmission of the acceptance
o Does NOT apply to option Ks
o Messages Delivered by an Agent of the Sender- no K until acceptance is received by offeror
Precontractual Liability
- Rule: party to negotiations may stop w/o liability at any time, for any reason or no reason. Only cost is
loss of that party’s investment in negotiations (time, effort, expense)
o If negotiations succeed resulting in K, party that misbehaved can be deprived of bargain, BUT if
fail because of similar behavior, courts reluctant to impose liability.
o Duty of fair dealing does NOT extend to negotiations
- Rare Exceptions:
o Public Utilities- under a duty to serve w/o discrimination and on proper terms to anyone
o Improper Motivation- purpose of refusal to negotiate is improper (restrain trade/monopoly)
o Improper Discrimination- purpose of refusal is improper discrimination
o Collective Bargaining- businesses and labor unions must bargain in “good faith.”
o Gov. Bids- Heyer Products-gov. obligation to honestly consider bid/not wantonly disregard
- 4 grounds for precontractual liability
o (1) unjust enrichment: duty to make restitution of benefits received during negotiation
o (2) misrepresentation: NO fraudulently misrepresenting intention to come to terms.
 Markov v. ABC Transfer and Storage Case
o (3) specific promise: promise made to interest other party in negotiations and other party relied
o (4) agreements to negotiate: some courts will enforce liability where parties agree to negotiate.
- Reliance
o Rule: One may have duty to bargain in good faith, the breach may result in liability for damages,
at least to extent of compensating detrimental reliance of injured party. Hoffman v. Red Owl
Stores- “Babe in the woods”
o 3 elements:
 (1) promise was one promisor should reasonably expect to induce action/forbearance of
definite and substantial character?
 (2) promise did induce such action or forbearance.
 (3) Injustice can be avoided only by enforcement of the promise.
Policing the Bargain: Big 8 Common Law Policemen
1. MISTAKE
a. Mistake=belief NOT in accord with facts (includes law)Restatement, Second, Contracts § 151-
153
b. Mistake IF it destroys the meeting of the minds (Sherwood v. Walker)
c. Restatement, Second, Contracts § 152: When Mistake of Both Parties Make a Contract Voidable.
i. (1) Basic assumption: mistake goes to a basic assumption on which K was made;
ii. (2) Material effect: mistake has a material effect on agreed exchange of performances
(resulting imbalance is so severe one party cannot be fairly held to carry it out); and
iii. (3) Must NOT bear risk: mistake is not one of which the party bears the risk.
1. Party bears risk of mistake when:Restatement, Second, Contracts § 154
a. Risk allocated by agreement (express/implied) AND take risk by ignorance
d. RARELY void K based on unilateral mistake UNLESSRestatement, Second, Contracts § 153
i. Mistake caused by or related to impossibility of performance
ii. Mistake caused by positive fraud
iii. Mistake caused by innocent misrepresentation
iv. Mistake tied to an implied warranty for fitness for a particular purpose
v. Non-disclosure
vi. Active fraud relating to silence leading to an error of information.
vii. First Baptist Church Case- (mistaken bids)
e. Mutual bilateral mistake of material fact affecting substance of consideration is basis for rescission
f. Where both parties know unique purpose for K, there is mistake when purpose does not occur
(Griffith v. BrymerCoronation Case)
g. Parties NOT bound if each is honestly mistaken regarding identity of K subject-matter (Smith v.
Zimbalist)
h. NO general duty to disclose even if party knows info to the exclusion of others (Laidlaw v. Organ)
i. Allocating risk of “search/information costs”
1. 3 Rules: Emphasis is on ability to discover, NOT on who has the info.
a. If it’s equally difficult to discover, no duty to disclose.
b. If seller ex ante can more efficiently discover at lower cost, he has duty
c. Buyer ex ante can more efficiently discover, at lower cost, he must disclose
2. If spent ton of money finding out, then shouldn’t have to disclose;
ii. NO imposing misinformation on the other party
2. IMPOSSIBILITY, IMPRACTICABILITY, FRUSTRATION
a. ImpossibilityRestatement, Second, Contracts § 265 and § 266 (Taylor v. Caldwell)
i. 3 Scenarios:
1. K for personal services where death or illness intervenes.
2. K where intervening legislation makes performance unlawful.
3. If existence of a thing is necessary for party’s performance, party is excused if
destruction/deterioration of that thing prevents performance.
ii. TEST: if parties do NOT know from beginning and there is NO fault, then excuse when
implied term/condition never occurs OR ceases to exist
b. ImpracticabilityRestatement, Second, Contracts § 261 (Wolftrap)
i. Death/incapacity person necessary for performanceRestatement § 262
ii. Destruction, deterioration or failure to come into existence of “thing”Restatement § 263
iii. Prevention by gov. regulation/orderRestatement, Second, Contracts § 264
iv. UCC § 2-615
1. Excuses S from timely delivery if commercially impracticable because of
unforeseen supervening circumstances NOT within contemplation at time of K
 2. Inc. cost alone does NOT excuse performance UNLESS due to unforeseen
contingency altering essential nature of performance (severe shortage of raw
materials/supplies due to contingency—war, embargo, crop failure)
3. Requirements:
a. Performance became impracticable.
b. Non-occurrence of event was “a basic assumption on which K was made.”
c. Not fault of promisor
d. Party did not assume a greater obligation, otherwise would be bound
c. FrustrationRestatement, Second Contracts § 265 (court is reluctant to grant relief)
i. Requirements:
1. Substantially frustrated party’s principal purpose (not their fault)
2. Basic Assumption.
3. Frustration resulted without fault of party seeking to be excused.
4. Party must not have assumed a greater obligation.
d. Existing impracticability/frustration=NO duty performRestatement, Second, Contracts § 266
3. MISREPRESENTATION
a. Assertion that is NOT in accord with factsRestatement, Second, Contracts § 159-§ 165; § 167
i. If action known/intended to prevent another from learning of
fact=assertionRestatement, Second, Contracts § 160
ii. Non-disclosure of known fact is assertion fact does NOT exist in these cases ONLY if
know disclosure willRestatement, Second, Contracts § 161
1. Prevent previous assertion form being a misrepresentation/fraudulent/material.
2. Correct mistake of other party as to a basic assumption on which K was made and
if non-disclosure amounts to a failure to act in good faith and fair dealing.
3. Correct mistake of other party as to contents/effect of a writing
4. Other entitled to know fact because of relation of trust/confidence between them.
b. Prevents K if induces conduct that appears to be manifestation of assentRestatement, Second,
Contracts § 163
c. Makes K voidableRestatement, Second, Contracts § 164
i. (1) If manifestation of assent is induced by fraudulent or material misrepresentation by
other party upon which recipient is justified in relying
ii. (2) If party’s manifestation of assent is induced by either a fraudulent or material
misrepresentation by one who is NOT a party to transaction upon which recipient is
justified in relying, K is voidable by recipient, UNLESS other party to the transaction in
good faith and without reason to know of the misrepresentation gives value or relies
materially on the transaction.
d. Can cure UNLESS harmedRestatement, Second, Contracts § 165
e. Misrepresentation is an inducing cause if substantially contributes to decision to manifest
assentRestatement, Second, Contracts § 167
f. Fraudulent Misrepresentation (i.e. FRAUD)
i. Elements of Fraud (Tort of Deceit: Restatement, Second, Contracts §162
1. Representation is made + it’s false + D knew it was false + D intended to
defraud/mislead + P relied and suffered damages
ii. Club Med.-fails test
iii. Types:
1. Fraud in execution-where it goes to the very character of the proposed K
a. Ex: one party induces other to sign doc by falsely stating it has no legal
effectif other party neither knows/has reason to know of character,
effect of misrepresentation is no K=VOID
2. Fraud in inducement- fraudulent misrepresentation goes ONLY to
inducement=VOIDABLE
iv. Requirements:
 1. Must be an assertion that is NOT in accord with the facts
a. Made by words, concealment (affirmative act intended/known to keep
other from learning fact), or non-disclosure
2. Assertion must be either fraudulent OR material
a. Fraudulent-both consciously false and intend to mislead
b. Material-show the misrepresentation would likely induce reasonable
recipient to K
3. Assertion must have been relied on in manifesting assent
4. Reliance (detrimental) must be justified
g. Misrepresentation made without deliberate intent to mislead is either (1) Negligent
Misrepresentation or (2) Innocent Misrepresentation
h. Effect of misrepresentation
i. Fraud in execution=NO K/ Fraud in inducement makes K VOIDABLE if insist
ii. Process:
1. Disaffirm the K
2. Either: (a) raise it as defense to action brought to enforce K OR (b) bring action
based on avoidance (action for rescission)
iii. NO avoidance if already ratified
iv. Restitution—party seeking avoidance required to make restitution of what he received.
4. DURESS
a. Unlawful or coercive pressure on a contracting partyRestatement, Second, Contracts § 174-
176
b. K is voidable IF assent induced by an improper threat leaving victim no reasonable alternative
AND if induced by 3P, UNLESS other party in good faith and w/o reason to know of duress
gives value OR relies materiallyRestatement, Second, Contracts § 175
c. Threat is improper:Restatement, Second, Contracts § 176
i. Threat is improper if
1. Threaten crime/tort, or threat would be crime/tort if resulted in obtaining property,
2. Threaten criminal prosecution,
3. Threaten use of civil process and threat is made in bad faith, or
4. Threat is breach of duty of good faith and fair dealing under K
ii. Threat is improper if resulting exchange is not on fair terms, and
1. Threat would harm recipient and not significantly benefit party making threat
2. Effectiveness of threat in inducing manifestation of assent is significantly increased
by prior unfair dealing by party making the threat, or
3. What is threatened is otherwise a use of power for illegitimate ends.
d. Physical compulsion OR threatRestatement, Second, Contracts § 174
i. Physical compulsion=“mere mechanical instrument” and conduct is NOT effective to
manifest assent (NO K because NO consent)
e. Elements of Duress:
i. Must be a threat (manifestation of intent to inflict loss/harmexpress/implied)
ii. Threat must be improper
1. Not all threats are improperthreaten something have legal right to, not improper
iii. Threat must induce victim’s manifestation of assent.
iv. Threat must have been sufficiently grave to justify victim’s assent (leave victim “no
reasonable alternative”)
f. Effect of duress
i. K is VOIDABLE
ii. If, the assent of the ‘victim’ is obtained by duress of a 3rd person rather than of other
party to K, victim can avoid the K unless other party to the K in good faith and without
reason to know of the duress either gives value or relies materially on the K.
iii. Restitution-on disaffirmance the victim is entitled to restitution.
5. UNDUE INFLUENCE
a. ‘Gentle persuasion’ “kill them with kindness”
b. Restatement, Second, Contracts § 177: When Undue Influence Makes a Contract Voidable.
i. If party’s manifestation of assent is induced by one who is not a party to the transaction, K
is voidable by victim unless the other party to transaction in good faith and without reason
to know of undue influence gives value or relies materially on the transaction.
c. STONE: we need the extreme vulnerability of one party & an abuse of a close relationship of trust.
6. INCAPACITY
a. General Rule: One is generally assumed to have full power to bind oneself
contractuallyRestatement, Second, Contracts § 12
i. STONE TEST Party must be incapable of comprehending the business at hand
b. NO capacity:
i. Under guardianship
ii. InfantRestatement, Second, Contracts § 14
1. Exercise of power of avoidance is known as disaffirmance; minor may disaffirm
either before or after reaching the age of majority.
a. Lost through ratification
b. Exception=
i. Necessities-if provide minor the necessities of life, they are bound
(strict)
ii. Misrepresentation- may be liable for fraudulent misrepresentation
in tort if you can find some justifiable reliance
iii. Mentally ill/defectiveRestatement, Second, Contracts § 15
1. Cognitive test= unable to understand in a reasonable manner nature and
consequences of transaction OR unable to act in a reasonable manner in relation
to the transaction AND other party has reason to know
2. Volitional test=no knowledge of impairment, power of avoidance terminates to
extent K has been performed
3. Must be such that you cannot comprehend nature and consequences of the
transaction. More than just being mentally ill!
iv. IntoxicatedRestatement, Second, Contracts § 16
1. Unable to understand in a reasonable manner the nature and consequences of the
transaction OR unable to act in a reasonable manner in relation to the transaction.
2. STONE TEST So drunk that one can’t comprehend the business at hand
3. ONLY makes K voidable when other party knows/has reason to know of it
c. Effects of mental incompetency/intoxication-disaffirmance and ratification work the same, but in
some states, K is void, because no meeting of the minds (but this is a minority view).
7. ILLEGALITY (unenforceable bc public policy)Restatement, Second, K § 178 (Owens v. Owens)
a. Unenforceable on grounds of public policy if legislation provides it is unenforceable or interest in
its enforcement is clearly outweighed by a public policy
b. In weighing interest in the enforcement of a term, account is taken of
i. Parties’ justified expectations,
ii. Any forfeiture that would result if the enforcement were denied, and
iii. Any special public interest in the enforcement of the term.
c. In weighing a public policy against enforcement of a term, account is taken of Restatement,
Second, Contracts § 179
i. Strength of that policy as manifested by legislation or judicial decisions,
ii. Likelihood a refusal to enforce the term will further that policy,
iii. Seriousness of any misconduct involved and the extent to which it will deliberate, and
iv. Directness of the connection between that misconduct and the term.
d. Policies: Restatement, Second, Contracts §192-196; § 181
 i. Policy Against impairment of family relationships (especially marriage)
ii. Policy Against Gambling
iii. Policy Against the Restraint of Trade (sale of business/end of employment)
1. Rule: If not ancillary to another protected promise it is unreasonable.
2. Rule: If ancillary, then may be reasonable restraint on trade if limited as to scope
3. To be valid: it must be (1) ancillary…and (2) it must protect a legitimate interest of
the promisee, (3) It must be reasonable in scope (activity, geography, and time) and
(4) the legitimate interest of the promisee must outweigh the hardship to the
promisor and the injury to the public.
iv. Term exempting consequences of misrep.Restatement, Second, Contracts § 196
v. Policy Against Restraints on Alienation of Property
vi. Policies Against Encouraging Litigation
vii. Promise interfering with K of anotherRestatement, Second, Contracts § 194
viii. Policy Against Interfering with the Judicial Process
ix. Policy Against Improperly Influencing Legislators and other Government Officials
x. Policy Against Inducement of Torts/Similar WrongsRestatement, Second, Contracts
§ 192 (East River)
xi. Policy Against Inducing Breach of Fiduciary DutyRestatement, Second, Contracts §
193
xii. Policy Against Limitation of LiabilityRestatement, Second, Contracts § 195 (Yellow
Pages Case)
xiii. Violation of regulation realmRestatement, Second, Contracts § 181
UNCONSCIONABILITY
- Absence of meaningful choice on part of one of the parties together with K terms which are unreasonably
favorable to the other partyRestatement, Second, Contracts § 208/UCC 2-302 (Williams v. Walker)
- Unconscionable=no man in his senses and not under delusion would make on the one hand, and as no
honest and fair man would accept on the other
- Need to find BOTH procedural and substantive unconscionability to find K unenforceable
o (1) Absence of meaningful choice (i.e. procedural unconscionability)
 Problem/imbalance in the bargaining process
 Look for oppression=no real negotiation OR an absence of meaningful choice
 Surprise
 Includes sharp bargaining practices, fine print, convoluted language, lack of understanding,
and inequality in bargaining power (insufficient alone)
o (2) Unreasonably favorable terms (substantive unconscionability)
 Commercially unreasonable (unfair price term is insufficient alone)
- UCC § 2-302: Unconscionable Contract or Clause.
o May refuse to enforce K, enforce remainder w/o clause, limit application of unconscionable clause
o May have reasonable opportunity to present evidence to aid determination
- Scope: determination whether it’s unconscionable is made considering setting, purpose, and effect
o Factorsweakness in K process, fraud, and other invalidating causes
- Inadequate consideration insufficient alone, but gross disparity may be important factor
- Gross inequality of bargaining power + terms unreasonably favorable to the stronger party=may indicate
the transaction involved elements of deception/compulsion, or may show weaker party had no meaningful
choice, no real alternative, or did not assent/appear to assent
o Factors that may contribute to a finding of unconscionability in the bargaining process:
 Belief by stronger party there is no reasonable prob. weaker party will fully perform K
  Knowledge of stronger party that weaker party will be unable to receive substantial benefits
 Knowledge of stronger party that weaker party is unable reasonably to protect his interest
because of physical/mental infirmities, ignorance, illiteracy or inability to understand, etc.
- Specific terms may be unconscionable whether or not K as a whole is unconscionable.
THIRD PARTY BENEFICIARIES
- Performance of a K usually benefits persons other than parties, but 3P NO enforcement abilities
- Intended and Incidental Beneficiaries (modern rule)Restatement, Second, Contracts § 302
o Intended Beneficiaries-3P who does acquire rights under a K
 Requirements:
 (1) show recognition of right to performance in beneficiary is appropriate to
effectuate intent of parties
 (2) show either (a) performance of promise will satisfy obligation of promise to pay
money to beneficiary OR (b) circumstances indicate promisee intends to give
beneficiary benefit of promised performance
o Incidental Beneficiaries-one who does NOT acquire rights under a KRestatement, Second,
Contracts § 315
- Creditor Beneficiaries-promisee seeks promisor pay a debt to a 3rd partyLawrence v. Fox
o MUST be an actual duty to pay $
- Donee Beneficiaries-3P is person whom promisee sought to make a gift toSeaver v. Ransom
o Show it is appropriate to effectuate intent of parties AND circumstances indicate promisee
intended to give beneficiary benefit of promised performance
- Interpretation
o If parties specify, court gives effect, BUT often unclear
o Intention of promiseerequires indication promisee would have been willing to pay fair value for
promisor’s undertaking a duty to beneficiary
o Disclaimer by beneficiarybeneficiary of gift promise that hasn’t already assented to a K for its
benefit may render any duty to itself inoperative from beginning, by disclaiming within reasonable
time after learning of the KRestatement, Second, Contracts § 306
o Reliance-if beneficiary would be reasonable in relying on promise as manifesting an intention to
confer a right, he is an intended beneficiaryRestatement, Second, Contracts § 90
- Recurring situations
o Construction K
 Horizontal Claim- 2 contractors (A and C) contracted directly with owner (B). C makes a
claim against A, alleging the other’s delay in performing its K with the owner hindered the
complaining contractor.
 Traditional Rule: C cannot bring a claim against A on the K between A and B
 Recent trend: SOME allow C to recover as intended beneficiary
 Vertical Claim- Owner C has contracted with general contractor (B) who has contracted
with a subcontractor (A). The owner makes a claim vertically against the subcontractor for
damages due to the subcontractors delay or defective performance.
 Traditional Rule: C cannot bring a claim against A on a contract between A and B.
 Recent trend: SOME allow owner to recover as creditor beneficiary despite fact
subcontractor’s performance is NOT performance of general contractor’s duty to
owner
o Gov. KRestatement, Second, Contracts § 313
 K perform public services Ks often benefit individual members of public, but courts
reluctant to accord rights as beneficiaries to individuals UNLESS K makes it clear
  Risk of 3P beneficiaries with gov. K:
 Possibility of excessive financial burden
 Risk of multitude of claims
 Likelihood of impairment of services
 Difficulty in determining intent of gov.
 Moch v. Rensselaer Water Co.
 Rejected claims by injured drivers against persons K’d with gov. to repair/maintain hwys.
 Scope of risk/potential liability-concerned about potential unlimited/extreme liability
 K involving gov. duty-IF K is one to perform duty gov. owes to members of public, courts
generally allow recovery by individual members on theory they are creditor beneficiaries
 Provisions in the K-gov. K sometimes by terms indicate intent beneficiaries have right of
enforcement and courts give effect to terms
- Rights of parties
o Beneficiary v. Promisor-intended beneficiary has rights against promisorRestatement, Second,
Contracts § 304
o Beneficiary v. Promisee-beneficiary retains any right beneficiary had against promisee before K
between promisor and promisee (2 duties owed to beneficiary and can get judgment against
BOTH)
o Promisee v. Promisor-promisee as well as beneficiary has right against promisor
 Enforceable by action for damages or SP
 Promisee may have claim against promisor for restitution
 Right to SP and damages depend on whether K was gift promise (nominal damages because
no econ. loss) or promise to pay promisee’s debt (easy to prove $ damages so no SP)
o Vulnerability of beneficiary to discharge/modificationRestatement, Second, Contracts § 311
 If beneficiary C consents, promisor A and promisee B free to make subsequent agreement
to discharge/modify promisor’s duty to beneficiary
 There is a time after which a beneficiary that does not consent is no longer vulnerable to
such an agreement. This is the moment in which the beneficiary’s rights vest.
 3 views on when the rights vest:
o As soon as K is made (even though may not learn of K till later)
o Having learned of the K, beneficiary assents to it.
o Right does not vest until, having learned of K, beneficiary relies on it.
 Default rule: vesting rule may be varied by terms of the K
- Defenses
o Beneficiaries rights under a K rise NO higher than right of promisee
o Lack of consideration
o Unenforceability on grounds of public policy
o Failure to satisfy SOF
o Vulnerable to defenses of promisor that arise under K terms during performance (i.e.
nonoccurrence of a condition and failure of performance)
o Estoppel
ASSIGNMENT AND DELGATION
- Deals with the transfer of K rights and duties.
- Assignment: transfer of K rightRestatement, Second, Contracts § 317
o NO assignment if:
 It would materially change obligor’s duty
 Materially increase burden of risk imposed by K
  Materially impair chance of obtaining return performance
 Materially reduces value
 Forbidden by statute
 Public policy
o Necessary for effective assignment:
 Manifest intent to make present transfer of right w/o further action by owner/obligor
 Manifest directly OR to 3P/No words of art necessary
o Transfer extinguishes assignor’s right to performance by obligor and gives assignee right
o Assignment w/ limited effectRestatement, Second, Contracts § 331
o Partial assignmentRestatement, Second, Contracts § 326
o NO writing necessary for SOF
o Limitations (i.e. exceptions to rule K rights are freely assignable):
 Against public policy
 Adverse effect on obligorUCC § 2-210
 Restriction for benefit of obligor
 Material change in obligor’s duty
 Material increase in burden or risk
 Material impairment as to return performance
 Terms prohibiting assignment (construed narrowly)
o Waiver-of defense clause- a clause under which one agrees should an assignment occur, the
consumer would not set up any defenses against the assignee. Court have generally upheld these
waiversRestatement, Second, Contracts § 336
o Revocability of gratuitous assignment
 Even if effective, may be revocable when assignor revokes assignment, becomes
incapacitated or dies
 Assignor may revoke by notifying either obligor or assignee, by getting performance
from obligor or by assigning same right to another assignee
 NOT gratuitous if assignee gives value for assignment (taking in exchange for something
that would be consideration or security for/or in total/partial satisfaction of preexisting
obligation)
 Assignor may lose power to terminate gratuitous assignment because of assignee’s
subsequent acts by performance from obligor OR estoppel
o Competing claims of ownership
 An assignee that is a good faith purchaser takes free of latent equities, but assignee that
takes in bad faith, with notice, or w/o giving value would be subject to latent equities
 Priority:
 New York Rule-1st assignee prevails and may recover from 2nd assignee that
obtained performance
 English Rule-1st assignee prevails UNLESS 2nd assignee notified obligor of
assignment before 1st assignee notified obligor
 Massachusetts Rule-1st assignee prevails unless 2nd assignee has done one of
following:
o Received payment OR satisfaction of obligation
o Obtained judgment against obligor
o Made new K with obligor by novation
o Obtained possession of symbolic writing
- Delegation: empowers another to perform obligor’s duty; does not relieve original (no special language)
o Party can escape right by assignment but cannot escape duty merely by delegating
  To be relieved of duty party MUST:
 (1) consent of obligor is necessary OR (2) performance by the delegate
o Effective delegation=oblige MUST accept performance by delegate as performance of duty owed
by delegating party
o Non-delegable performance:
 Grounds of public policy
 Clear K term prohibition delegation
 Choice of the person
 TEST: a performance is nondelegable to the extent the oblige has a “substantial interest”
in having the original promisor perform or at least control performance
o Mere delegation imposes NO duty on delegate to perform
 Assumption-occurs when delegate expressly promises to perform party’s duties
 Delegate is liable to oblige, but does NOT free delegating party of its obligation to
oblige (both are liable to obligee)
o Suretyship relationship
 Implied assumption-may infer assumption from delegate’s conduct
 Novation-discharge by consent (may be novation even if duty is nondelegable)
 Consent is insufficient MUST have actual assent to a novation
CONDITIONS
- Event, uncertain to occur, which must occur, unless non-occurrence is excused before performance
dueRestatement, Second, Contracts § 224-230
- Effects of non-occurrenceRestatement, Second, Contracts § 225
o Performance is not due UNLESS condition occurs OR non-occurrence is excused
o Unless excused, non-occurrence discharges duty when condition can no longer occur
o Non-occurrence is NOT breach UNLESS under duty that the condition occur
- Becomes condition by agreement OR term supplied by the courtRestatement, Second, Contracts § 226
- Standards of preference in resolving whether event is a condition of obligor’s dutyRestatement, Second,
Contracts § 227
o Prefer interpretation that reduces obligee’s risk of forfeiture UNLESS event is within obligee’s
control or circumstances indicate he assumed risk
o Interpretation under which event is condition of obligor’s duty preferred over interpretation under
which non-occurrence is ground for discharge of duty
- Satisfaction of obligor as a conditionRestatement, Second, Contracts § 228
- If non-occurrence would cause disproportionate forfeiture, court MAY excuse it UNLESSS occurrence
was a material part of agreed exchangeRestatement, Second, Contracts § 229
- Event that terminates a dutyRestatement, Second, Contracts § 230
o If event is to terminate obligor’s duty of immediate performance OR pay damages for breach
o NOT discharged if occurrence of the event is result of breach by obligor of duty of good faith and
fair dealing OR couldn’t have been prevented because of impracticability and continuance of duty
does NOT subject obligor to a material increased burden
o Obligor’s duty not discharged if, before event occurs, obligor promises to perform duty even if
event occurs and does NOT revoke promise before obligee materially changes position in reliance
- Classification of Conditions: (In re Carter’s Claim; Hudson v. Wakefield; Haymore v. Levinson)
o As to time:
 Condition precedent: precedes actual performance of K (P has burden)
 Nonoccurrence of a condition of an obligor’s duty may have two effects:
 o (1) obligor is entitled to suspend performance because performance is not
due if the condition has not occurred.
o (2) if time comes when it is too late for condition to occur, obligor is entitled
to treat duty as discharged and K as terminated.
o Possible to excuse condition by waiver, breach, or court avoiding forfeiture.
 Condition subsequent: defeating mechanism (D has burden)
 Concurrent condition: need a couple of things to happen
- Types: Express (written, oral, (words) you set it out in the K)/Implied (court may supply a term that
makes an event a conditionStewart v. Newberry; Poke Construction Co.)
- NOT conditions: Pre-contractual events (offer, acceptance)/ Events certain to occur (i.e. passage of time)
- Interpreting conditions
o 2 Questions: (1) Was party’s duty conditional or not? (2) If duty was conditional, what is event on
which it was conditioned?
o Same process as K interpretation (look to purpose, maxims, prior negotiations, usage of trade,
course of dealing, and course of performance).
- 2 preferences:
o Preference for interpretation that imposes duty to see that an event occurs, rather than one that
makes the other party’s duty conditional on occurrence of the event.
o Preference for interpretation that will reduce obligee’s risk of forfeiture if event does NOT occur
- Excuse of condition
o By waiver: after K was made, obligor promised to perform despite nonoccurrence of condition OR
despite delay in occurrenceBurger King Corp. v. Family Dining; Clark v. West; Lardas v.
Underwriters Insurance Co. (NO waiver)
 Only waive condition for your benefit
 If concurrent condition, BOTH parties must waive
 Requires assent (express or implied)
 To waive, the condition MUST be minor…NOT a major condition…but procedural and
technical conditions are easily waived.
o Breach: obligor may excuse condition of duty by committing a breach that causes nonoccurrence
of the condition. When the condition is excused, the obligor’s duty becomes absolute.
 Breach by prevention –can’t act to keep the condition from occurring.
 Breach by inaction –if must act under K to ensure condition occurs, inaction can be breach.
o Excuse to Avoid Forfeiture:
 Impracticability of condition that would result in forfeiture
 Disproportionate forfeiture would result if didn’t excuse condition
WARRANTIES
- Warranty = a risk allocation devise
- UCC § 2-313: Expressed Warranty (basis of the bargain)
- UCC § 2-314: Implied Warranty (merchantability/usage of trade/fitness)
o UCC § 2-315: Fitness
- UCC § 2-714: Accepted Goods
- Warranty Damages: (1) must be basis of the bargain and (2) basis relied on as inducement to purchase
- Alternative Product Rule: (1) effective alternative available and (2) would have bought if had not relied
- UCC 2-312: Warranty of Title Against Infringement; Buyer’s Obligation Against Infringement
- UCC 2-3-16: Exclusion of Modifications of Warranties
- UCC 2-317: Cumulation and Conflict of Warranties Express or Implied
o Warranties construed as consistent with each other and as cumulative UNLESS unreasonable, then
intention of parties determines which is dominant
  Exact/tech specifications displace inconsistent sample/model/general language of
description
 Sample from existing bulk displaces inconsistent general language
 Express warranties displace inconsistent implied warranties other than those of fitness
- UCC 2-318: 3P Beneficiaries of Warranties. Seller’s warranty, whether express/implied extends to any
natural person….
o In family/household of his buyer or who is a guest in his home if reasonable to expect person
may use, consume, or be affected by the goods and is injured in person by breach of warranty.
o Reasonably expected to use, consume or be affected by the goods and is injured by breach of
warranty.