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110 Cards in this Set

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In contracts what are intentions judged by?
Intentions are judged by an objective standard of what a reasonable person standing in the shoes of the addressee would conclude them to mean.
Offer means:
it must create reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.

Objective test: An offer is genuine if the Offeror creates in the Offeree the real and reasonable belief that the Offeree could conclude the bargain merely by accepting.
On an exam to decide whether an offer has been made you must...
analyze the situation from the reasonable person on the receiving end of the purported offer.
What condition must the parties be in to be able to contract?
· Dead people can’t enter into contracts
· To constitute an offer, the offeree must voluntarily assent to the actions that construe the offer. Moosehead Hypo: If you wave Work’s hand for him while he’s asleep, there is no assent. There can be no assent where the party was a “mere mechanical instrument.”
· Voluntary intoxication (Drunkeness) is not enough to create a lack of capacity.
o [Works Language] Voluntary intoxication would not provide ‘A’ with a defense, but ‘B’ would nonetheless have no enforceable claim if ‘A’ were so obviously intoxicated that a reasonably prudent person situated as was ‘B’ ought not to have formed expectations based on her statements.
What usually happens with K's between family members?
Typically the law does not enforce casual contracts between close family members. The presumption is that legal relations were not intended.
When do offers and counter offers become effective?
On reciept!
Do offers have to be definite?
Offers must be sufficiently definite to be valid. Otherwise, it is difficult to determine what the terms of the K are and whether or not a breach occurred. However, if both parties expressed a willingness to be bound, the courts usually hold that there was a K and do their best to reconstruct the terms.
Can advertisements count as offers?
Advertisements are generally not treated as offers. Advertisements are generally seen as invitations to treat.
When do advertisements act as an offer?
Where the advertisement is clear, definite and explicit, and leaves nothing open for negotiation...it constitutes an offer.
What should you look for to see if an advertisement is actually an offer?
· Look for words of commitment
o Ex: 100 men’s jackets at $26 apiece, first come first served starting Saturday—is so specific that it probably is an offer.
· Look for words of specificity. Ads can be offers if they are specific enough and invite the Offereree to take specific action in order to accept. They also need to imply that there is a specific quantity available for sale. Language that does this:
o Subject to prior sale
What power does the offerror have?
The Offeror is “Master of the Offer” and, as such, has the power to specify all the terms of the offer. If a particular term is not specified, then we gap fill.
· Offeror creates the power of acceptance only in the person(s) he invites to accept.
· Offeror may specify Permissible Mode of Acceptance (PMA).
What do you need to know when you are certain an offer has been made?
You need to find out the PMA!
What restatement section governs an offer that specifies acceptance by performance only?
Section 45
What do the three important parts of of section 45 say?
Irrevocable once Performance has commenced: Offer is irrevocable once performance has commenced. [§45]
· Mere preparations or detrimental reliance do not count as commencing performance. This means § 45 provides less than the full Promissory Estoppel protection. As currently framed, §45 provides less-than-full protecton of detrimental reliance by offerees on offers that can only be accepted by performance.
· What constitutes “beginning performance”: Commencing performance happens when some benefit is conferred to the other side. [Make sure you say what the “benefit” was.]
When should a lawyer care about commencing performance?
o 1) The offer may make commencement of performance a permissible mode of acceptance, either explicitly (Ever-Tite) or through gapfiller (§2-206(1)(b)), so that commencing performance is acceptance of the offer.
o 2) The offer may make performance the only permissible mode of acceptance, so that commencing performance will trigger an implied in law option contract under §45.
o 3) The offer may permit acceptance by promise, and commencing performance may operate as a return promise if:
o a) it is known to the offeror and reasonably could be understood that way by the offeror (Restatement First), or
o b) the offeree has no reason to know that the offeror will not receive notice of the commencement of performance (Restatement Second).
What happens generally when no PMA is specified?
If Offeror didn’t specify PMA and it’s not clearly performance only or promise only, then either is acceptable. [2-206 & § 32]
What section allows acceptance to come from prompt or current shipment of conforming, or non-conforming goods?
§2-206. Offer and Acceptance in Formation of Contract
[Acceptance by Prompt Shipment]
What restatement number allows acceptance by dominion?
Section 69
What is the mailbox rule?
Most courts follow the general rule that the acceptance is effective upon proper dispatch, provided that the mail is properly addressd and stamped, unless: (1) the offer stipulates that acceptance is not effective until received; or (2) an option contract is involved (an acceptance under an option contract is effective only upon receipt [Rest §63]).
 
Note: Since in most states a revocation is effective only upon receipt, under the mailbox rule if the offeree dispatches an acceptance before he receives a revocation sent by the offeror, a contract is formed. This is true even though the acceptance is dispatched after the revocation is dispatched and received after the revocation is received.
What is an irrevocable offer called?
Firm offer under UCC 2-205
or option K under 87
What is an option K?
An irrevocable offer is commonly called an option. (An option is itself a contract, sometimes called an option contract to distinguish it from the main contract to be formed on acceptance to the offer). Like any other offer, an option imposes no duty on the offeree. The offeree has unfettered discretion to accept the offer or not.
What applies to sale of goods/merchants in option K's?
If NO consideration exists, the parties must both be merchants involved in sale of goods

For non-merchants or non-sale of goods, Option contract must be supported by consideration—but even nominal consideration is okay
What are the effects of a option K's irrevocability?
o If an offer is irrevocable, a purported revocation by the offeror has no effect on the offeree’s power of acceptance. The offeree can accept despite the purported revocation and can sue for breach of the contract if the offeror fails to perform. The same is true of the offeror’s death or incapacity.
· Offeree’s power of acceptance is not terminated by rejection: The power of acceptance under an option contract is not terminated by rejection or a counteroffer.
 
Option Contract is NOT impacted by DEATH of offeror or offeree: If the offer is an option contract (i.e., an irrevocable offer), the offeree’s power to accept is NOT terminated by the death or incapacity of either party. Thus if the offeror dies before acceptance, the offeree can by accepting bind the offeror’s estate. Similarly, if the offeree dies before accepting, his estate may choose to exercise the option.
See R2k87
What are the basic principles of Revocation and rejection.
Rule: The offeror is free to revoke his offer at any time before it is accepted, except in the case of an option contract.
· Express Rejection: An express rejection is a statement by the offeree that he does not intend to accept the offer. Such a rejection will terminate the offer. [§36]
· Counteroffer as Rejection: A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms. A counteroffer serves as a rejection of the original offer, and also serves as a new offer to consider. [§39] This usually in two situations:
· Effective upon receipt: A revocation by the offeror does not become effective until it is received by the offeree. §42 states: “An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.
What is an indirect communication of revocation?
If the offeror behaves in a way inconsistent with an intention to enter the contract he has proposed and the offeree learns indirectly that the offeror has taken such an action, there is a revocation, even though the offeror never communicated directly with the offeree.

Where offeree learns of offer made to 3rd party:
Act not subjectively learned of by the offeree:
Death or Incapacity of Offeror or Offeree:
Lost or not-yet-delivered revocation—not effective:
Exceptions to the general rule allowing revocation:
How does rejection by offeree work?
Rule: A counteroffer automatically rejects offers, unless there is an option K on the offer.
Not effective until receipt: Counteroffers and rejections are not effective until they are received.
Must Accept Within Specified or Reasonable Time: The offeree must accept the offer within the time period specified, or if no time period is specified, within a reasonable time. If he does not do so, then he will have allowed the offer to terminate.
Termination of Offer upon death or Incapacity: Death, incapacity or insanity of either party, even if Offeree does not know of death, terminates offer by operation of law, unless it is an option contract.
How do bids and bid shopping play out in the K world?
Overview of Bid Shopping
· § 87(2) is promissory estoppel applied to offer/acceptance: Foreseeable detrimental reliance + actual reliance = temporary irrevocability. (Implied in law option K with reliance as consideration.)
· Limited to bids between general contractors and subcontractors.
· Abusive GC not protected by Drennan: General Contractor that abuses the rule by bid shopping loses its protection (Majority view).
o However, General Contractor is not bound under the rule (CAN bid shop, but loses irrevocability).
o General Contractor has only a reasonable time to accept SC’s offer after award of general contract.
o A General Contractor that submits a counteroffer to the SC does not lose the protection
· §87 Flows directly out of CA judge Traynor’s decision in Drennan, below. Far from universally accepted.
How do you apply standard forms, and what section do you use?
There are three alternate approaches for issues regarding the enforceability of a standard form contract: Steely Eyed View; Doctrine of Reasonable Expectations (DRE); and R2K’s §211 “middle ground.” Under the Steely Eyed view, the party is bound by all terms included in a contract that he signed. Under the DRE, the objectively reasonable expectations of applicants will be honored even though painstaking study of the provisions would have negated those expectations. The DRE approach has fallen out of favor, having been abandoned by its original users—CA and ID. §211 operares as the middle ground, and polices against unfair boilerplate terms of standard form contracts.
What section of the UCC is applied to battle of the forms problems?
2-207
How is 2-207 applied to standard forms?
Policy Criticism—Common Law Rule Hindered Commercial Transactions:
· Favored the “last shot”: Common law rule favored whoever fired the last shot, because variant term would be counteroffer and then performance would manifest acceptance.
UCC §2-207 trumps Common Law Mirror Image Rule for sale of goods, and is often used by judges in service cases as well.

§ 2-207(1) Applies by its terms to ALL sales of goods
“Definite and Seasonable”: A clear indication of acceptance which is timely. · A contract is formed if the return form indicates acceptance but has minor variations regarding nonmaterial things.
· A return form which has terms materially different from (price, quality, quantity, or delivery terms) the offer is not an indication of acceptance, but rather a counteroffer.
What is a merchant, and how does it apply to 2-207?
§ 2-207(2) Applies to merchants for the auto incorporation of terms
· “Merchant” (defined): A person who by his occupation holds himself out as having knowledge or skill peculiar to the goods. Can also be a person who holds himself out as having knowledge or skill peculiar to the practices of the thing in question.

Farmers are generally considered merchants
How does work's 2-207 approach go?
1. Is there an offer?
a. If “no,” end. If “yes,” go to 2.
 
2. Is there a responsive writing that is a “definite and seasonable expression of acceptance”? [“Additional” or “different” terms do not necessarily prevent the response from being a “definite and seasonable expression of acceptance.” However, express language in response making response conditional prevents response from being a “definite and seasonable expression of acceptance.”]
a. If “No,” go to 3.
b. If “yes,” there is a K composed of OR’s terms + 2-207(2) terms + gap fillers.
 
3. Is there a K formed by conduct of the parties?
a. If “No,” end.
b. If “yes,” there is a K composed of terms on which writings agree + gap fillers.
 
What are the alternatives to consideration? When there is no K there might still be a way of discovery?
1) Promissory Estoppel
2) Section 86
3) Restitution
What encompasses promissory estoppel?
PROMISSORY ESTOPPEL [R2K §90]
Elements of Promissory Estoppel: Defendant’s promise is binding to the extent necessary to avoid injustice if:
· (1) Defendant-Promisor could foresee that the promise would induce reliance; and
· (2) Plaintiff really and reasonably relied.
· (3) Enforcement is necessary to avoid injustice. (Don’t forget)
What is the basis of consideration?
benefit/ detriment
bargained for exchange

Works’ Consideration Language:
o The big issue is whether the promise is part of a bargained for exchange. Thus, we ask whether the promise was made in order to induce the other party to do something that the promissor wants. [Tell a story]
 
The requirement of consideration renders unenforceable these main types of transactions:
· (1) Promises to make gifts, which do not satisfy the “bargain” element; and
· (2) Past consideration: If something was already given or performed before the promise was made, it will not satisfy the “bargain” requirement. The courts reason that it was not given in exchange for the promise when made.
Does sham or nominal consideration count?
No.
Sham and nominal consideration doesn’t constitute consideration: Even though a deal looks on its face as if it is supported by consideration, the court may conclude that the purported consideration is sham or nominal, and thus not consideration at all.
· Nominal amount: Where the “consideration” that has been paid is so small as to be nominal, the court may conclude that as a factual matter that there is no real “bargain” present at all. Due to the lack of consideration, the promise will not be enforced.
According to consideration can you modify contracts?
This general [pre-existing duty] rule means that if both parties to an existing contract agree to modify the contract for the sole benefit of one of them, the modification usually will be unenforceable at common law, for lack of consideration. But §89 and UCC §2-209 depart from common law.
 
Common Law “Pre Existing Duty Rule”: Modification requires offer, acceptance, and new consideration. The primary purpose of the preexisting duty rule is to prevent a “hold up game.”
· UCC 2-209(1) “abolishes pre-existing duty rule” for sale of goods: Under §2-209, modifications untainted by duress and meeting the test of good faith may be enforceable even without consideration. (Same basic philosophy as §89)
· Modifications of a contract must be in writing to satisfy the SOF UCC §2-209(3) the requirements of the statute of frauds section of this article (§2-201) must be satisfied if the contract as modified is within its provisions.
What happens when there are unforeseen circumstances that come about, and both parties want out?
Unforessen circumstances: R2K §89(a) makes a modification binding if it is fair and equitable in view of circumstances not anticipated by the parties when the contract was made.
Are gratuitous promises enforceable?
No, there is not any consideration for these promises.
Is past consideration valid consideration?
No.
Does an agreement to accept partial payment on a debt count as valid consideration?
Maybe.
o C/L preexisting duty rule used to bar full satisfaction in these situations. Only applied when parties agree as to the amount owed (liquidated)
o If disputed, or “unliquidated” then relinquishing the dispute furnishes consideration.
How does modification of a contract fall under the pre-existing duty rule.
At common law there was no consideration for the modification of a contract.
· R2K §89: The Restatement and most modern courts follow this general rule but they make an exception where the modification is “fair and equitable in view of the circumstances not anticipated by the parties when the contract was made.”
· UCC 2-209(1) “abolishes pre-existing duty rule” for sale of goods: Under §2-209, modifications untainted by duress and meeting the test of good faith may be enforceable even without consideration. (Same basic philosophy as §89)
· Modifications of a contract must be in writing to satisfy the SOF UCC §2-209(3) the requirements of the statute of frauds section of this article (§2-201) must be satisfied if the contract as modified is within its provisions.
What is the effect that a negotiable instrument has in payment in full situations?
Unliquidated or Disputed Debts: If a debtor reasonably and in good faith disputes the amount of debt he owes (an unliquidated debt), then a settlement by which the creditor agrees to take less than the creditor thinks he is due is enforceable.
How does the cashing of a check to satisfy an unliquidated debt work?
· The check or accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as a full satisfaction of the claim.
· The claim was either unliquidated or was subjected to a bona fide dispute
· The debtor (person owing money) acted in good faith
· If the creditor is an “organization”, the debtor must make an additional showing: he must show that the agent of the creditor having direct responsibility with respect to the disputed obligation knew that the instrument was tendered in full satisfaction of the claim, or received the instrument and any accompanying communication.
How long does a person who recieved a check in 3-311 have to return the check?
Even if person satsified the good faith and conspicuousness requirements of §3-311, the other party, whether or not a merchant, still has 90 days during which it can choose to return the payment and avoid being tagged as having accepted the offer for an accord and satisfaction. [§3-311(c)(2)]
What are the elements of promissory estoppel?
· (1) Defendant-Promisor could foresee that the promise would induce reliance; and
· (2) Plaintiff really and reasonably relied.
· (3) Enforcement is necessary to avoid injustice. (Don’t forget) section 90
How does section 90 apply to charities?
· Was Defendant’s promise a promise to make a charitable subscription, so that no detrimental reliance need be shown? But even 90(2) requires that actual detrimental reliance be forseeable to the promisor.
What are the elements of restitution?
Defendant can be forced to disgorge benefit, if: [these elements are met]:
· (1) Plaintiff conferred measurable benefit on Defendant.
· (2) Plaintiff was not acting
o Officiously or
o Gratuitously.
· (3) Defendant had opportunity to decline benefit but did not decline. (If unconscious and necessary, acceptance implied by law.)
What are the elements of section 86?
(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.
(2) A promise is not binding under Subsection (1)
(a) If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
(b) To the extent that its value is disproportionate to the benefit.
When should you apply section 86?
Cases like Webb where you’ve almost got a Restitution claim but not quite. Beyond these, be very skeptical.
Only in restitution cases where the person did not have the opportunity to decline the benefit (ie saving someone's life)
What are the three statute of frauds relevant to contracts?
1) One Year statute of frauds
2) Sale of goods over 500 dollars
3) Suretyship
What must one do to satisfy the SOF for contracts that cannot be performed within one year?
identifies subject matter of k;

indicates k made or signer offered to k; &

"states with reasonable certainty the essential terms of the unperformed promises in the contract."



Full performance
by the Plaintiff.
What is the most common end run around the SOF?
· (1) Not enforceable as a Contract
· (2) Promissory Estoppel might work in some jurisdctions (NE = No; IL = Yes)

(3) Restitution
What one must do to satisfy the 500 dollar sale of goods statute of frauds?
o §2-201(1) requires signature + quantity term
o “All my corn” is a quantity term for purposes of §2-201
o §2-201(2) written confirmation of the contract given within a reasonable time satisfies the SOF, unless written notice of objection to its contents is given within 10 days after receipt.
o §2-201(3)(b) [Judicial Admissions] An actual contract can still be enforceable unless the party to be charged is willing to lie in judicial proceedings.
o §2-201(3)(b): A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable if the party against whom enforcement is sought admits in his pleading, testimony, or otherwise in court that a contract for sale was made.”
o §2-203(3)(c) [Part performance] An actual contract can still be enforceable “with respect to goods for which payment has been made and accepted or which have been received and accepted.”
What one must do to satisfy the Suretyship SOF?
Section 131: By a writing:
signed by/on behalf of party to be charged, which:

identifies subject matter of k;

indicates k made or signer offered to k; &

"states with reasonable certainty the essential terms of the unperformed promises in the contract."
What are the three basic descricptions of all of the Statute of Frauds?
· SOF: sometimes K’s are not enforceable because of the absence of a writing.
· Writing must be signed by the ‘person to be bound.’

If a fact pattern is within two or more statutes of frauds, both must be satisfied, not just the easiest one. “
What does rescission and restitution mean?
Rescission: A party’s unilateral unmaking of a contract for a legally sufficient reason. Rescission is generally available as a remedy or defense for a non-defaulting party and is accompanied by Restitution of any partial performance, thus restoring the parties to their precontractual positions.
What are the elements of misrepresentation?
Rescission and Restitution for Misrepresentation if: (all 5 elements are met)
1. Defendant made statement of past or present fact
2. Statement was false
3. Falsity was material or fraudulent (material is most important element)
4. Reasonable for Plaintiff to rely
5. Plaintiff did rely
What are the elements of nondisclosure?
1. Defendant had a duty to disclose information (based on a fairly intimate pre-existing relationship)
2. Defendant remained silent
3. Silence was material *
4. Reasonable for Plaintiff to rely *
5. Plaintiff did rely *
What are the element's of mistake?
1. Plaintiff made a material mistake of past or present fact
2. Plaintiff did not assume the risk of mistakes of that kind (Is the risk forseeable)
3. Possible to get Defendant back to status quo ante (no detrimental reliance by Defendant)
4. Either:
a. Defendant knew or had reason to know of Plaintiff’s mistake, OR
b. Failure to give R&R would result in an unconscionable "gross disparity of exchange" (the gross disparity must be a mirror image of one another)
How does the wedding dress hypo fit into the concept of mistake?
Works’ dead daughter’s wedding dress HYPO: Can Works rescind for mistake if she had already died before he bought the dress?
· Rabin says no because there’s no “gross disparity of exchange.
· There must be loss on one side and commensurate gain on the other side.
· Rabin would say this is like Restitution. Unjust enrichment on one side and we need them to disgorge the benefit.
What are the elements of Duress?
1. Threat against Plaintiff
2. Threat was improper
3. Threat induced Plaintiff’s assent
4. Threat left Plaintiff no reasonable alternative
What are some examples of types of Duress?
Types of duress: Threatening to blow out brains obviously constitutes duress. Other kinds of threats that may overbear will:
· Economic duress
· Foreclose on mother’s farm
· Evict mom from assisted living facility
· Bastardy court (Fiege v Boehm)
· Any economic threat is so severe that a reasonable person will be overwhelmed by it.
· Fighting Issue: Whether the threat was wrongful and sufficient to overbear someone’s will.
What are the Element's of Undue Influence?
[Undue Influence is like “Duress Lite”]
1. Persuasion of Plaintiff (persuasion is different than threat)
2. Persuasion unfair given relationship of persuader and persuaded (must be someone with special relationship)
3. Persuasion induced Plaintiff’s assent
4. Circumstances make it reasonable for Plaintiff to be persuaded
What are some examples of common situations involving Undue Influence?
· Discussion of transaction at an unusual or inappropriate time
· Consummation of transaction in an unusual place
· Insistent demand that the business be finished at once
· Extreme emphasis on untoward consequences of delay
· Use of multiple persuaders by dominant side, against single servient party
· Absence of third party advisers to the servient party

Statements that there is no time to consult financial advisers or attorneys.
What are the elements of Unconscionability?
“Shocking, shocking, shouldn’t be allowed” = Unconscionability
If a K or a term is unconscionable at the time the contract is made, a court may refuse to enforce the K, or may enforce the remainder of the K without the unconscionable term.
Oppressive conditions at the time the K was made.
The court can find the entire K unconscionable and not enforce the entire deal. Alternatively, the court might find that only part of the K was unconscionable—and not enforce just part of the deal.
Comment a: The determination that a contract or term is unconscionable is made in light of its setting, purpose and effect. Relevant factors include weakneses in the contracting process…”
What are the four types of unconscionability?
DISTRESS: (1) “My kingdom for a glass of water.” —or— (2) “My kingdom for brain surgery.”
UNFAIR PERSUASION: (1) Odorizzi: Jr. High teacher who resigned under pressure of potential sexual molestation charges.
PRICE IGNORANCE: (1) Tree Trimmers: Big snow-storm in NE came while leaves were still on trees. People went door-to-door offering to do tree removal. Many people agreed to pay $2,500 to $3,000. Among discussion of neighbors, it was realized that some people paid $2,500, whereas others paid $1,200.
· TRANSACTIONAL INCAPACITY: 22 year old HS grad is left in a will. She makes a bad deal based on her lack of knowledge in the area.
What is the basic rule in regards to interpretation?
Contra preferendum (profferor of language loses) is only available if term is ambiguous. If not ambiguous, then try trade usage, plain meaning, etc.
What are the three types of ambiguity?
· Semantic Ambiguity: ex is “Light Object”
· Syntatic Ambiguity: confusing statement when strung together;
o Ex: 3 Pizzas: Sausage, Green Pepper, and Onion
· Structural Ambiguity: person looking at thick packet of pages. Be skeptical about structural ambiguity. This remedy is stretching it. (ex: Flight Insurance but not on unscheduled flights).
What is step one in the interpretation flow chart?
1. At the time of contracting, did the parties have the same subjective understanding of the meaning of the term now in dispute?
 

 If " yes," go to section 201(1): that meaning prevails over other, even more "objective," meanings.

If no go to number number 2
What is step two in the interpretation flow chart?
2. At the time of contracting, did the parties have different subjective understandings of the meaning of the term now in dispute?


If "yes," go to sections 20 and 201(2): the meaning of party least well situated to prevent the misunderstanding prevails; if parties are equally responsible, then 201(3) contract fails for lack of definiteness.

If no go to number 3
What is the third step of the interpretation flow chart?
3. Does the term have a "plain meaning"?

If "yes," give the term its plain meaning.

If "no," go to # 4
What is the fourth step of the interpretation flow chart?
4. Does the "vagueness" of the term yield to the aids to interpretation in sections 202 - 204?
 

 If "yes," give the term that interpretation.
 
If "no," go to # 5
What is the fifth step of the interpretation flow chart?
5. Is the term "ambiguous"?

Be careful; often context will tell you which of several possible meanings to indulge. E.g., what do you understand when I tell you my brother is a criminal lawyer?
 

"yes," go to section 206; break tie between competing alternative meanings by choosing the meaning the profferor does NOT want.

If no go to number 6
What is the 6th step of the interpretation flow chart?
6. Resolve the dispute by either A) deciding against the party who bears the burden of proof; or B) declaring the contract void for vagueness and using restitution to return the parties to the status quo ante.
What is the Parole Evidence Rule?
Despite its name, the Parol Evidence Rule is more of an attitude (rather than an actual rule) pertaining to the sanctity of a piece paper, and to what extent that paper represents the enforceable terms of a contract. Some judges, such as Kozinski, have a steely-eyed view that the contract consists of the terms of the integrated paper. Other judges, such as Traynor, have a more flexible understanding of the PER, and are more likely to admit evidence to aid in interpretation of a final written agreement.
What are the two main approaches to the Parole Evidence Rule?
· Traynor: Liberal approach rejecting highly restrictive limitations applied to integration and interpretation cases. Allows for using extrinsic evidence to interpret. [Pacific Gas]
· Kozinski: Strict approach to PER forbidding interpretation of the terms in a contract. "Extrinsic evidence is inadmissible to interpret, vary or add to the terms of an unambiguous integrated written instrument." [Trident Center]
What is the Parole Evidence?
The parol evidence rule should NOT affect efforts to:
· Ambiguous Term Exception: Interpret or explain ambiguous terms of an agreement
· Additional Term Exception: Supplement a less-than-fully-integrated agreement with evidence of consistent additional terms or course of dealing or usage of trade or course of performance
· Enforce a subsequent agreement
· Establishing a Defense Exception: Attack the validity of an agreement. [Misrepresentation, Nondisclosure, Mistake—usually misrepresentation]
o Bertha buying chairs at Furniture Mart. Can introduce evidence to say agreement is voidable because of misrepresentation.
· Reform the agreement: Mistake about whether the document properly incorporated the terms of the deal. High standard for reformation (clear and convincing). Basically this is for when it’s obvious the K didn’t get the real terms in.
· Establish that a condition precedent to formation of an agreement was not satisfied
· Enforce an Implied or express warranty of quality (this is often misunderstood)
o Implied Warranty of Workman Like Quality
· Defend against attacks on the validity of an agreement
What is work's language regarding the Parole Evidence Rule
[Works’ Language] Was the written agreement fully integrated (so that it discharged any earlier agreement and can’t be added to or supplemented) or only partially integrated (so that it could be supplemented but not contradicted by such an agreement)?
What are the interests protected in remedies?
Which Interest Do We Protect? [Damages for Breach of Contract Duty]
· Expectation (R2K §347): Damages = Pl’s expected position ex post – Pl’s actual position ex post
o Expectation Damages for Breach of K
· Reliance (R2K §349): Damages = Plaintiff’s status quo ante – Plaintiff’s actual position ex post
o Reliance damages for Promissory Estoppel [§90]
· Restitution (R2K §371): Damages = Defendant’s actual position ex post – Defendant’s status quo ante
o Restitution damages for Restitution claim & Quasi-K claims [§86]
What are the four constraints on damages?
· Certainty [§352]: Court must refrain from submitting to the jury the issue of damages where the evidence is such that it cannot determine that issue without indulging in speculation and conjecture.”
· Forseeability [§ 351] [Hadley’s 2-Prong Test]: Where two parties have made a K which one of them has broken, the damages which the other party ought to receive in respect of such breach of K should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things...or such as may reasonably be supposed to have been in contemplation of both parties, at the time they made the K.”
o Foreseeability test operates at the time K is made.
· Avoidability [§ 350]: General rule is that the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. However, before projected earnings from other employment opportunities not sought or accepted by the discharged employee can be applied in mitigation, the employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived.”
· where economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, the damages which the lessor may recover are limited to the diminution in value resulting to the premises because of the non-performance.”
How where the foreseeability of damages?
The Hadley Test for Forseeability: A plaintiff suing for a breach of contract may recover damages only if the damages:
· Prong 1: Arise naturally out of the usual course of things, from the breach of contract itself; OR
· Prong 2: May have been in the contemplation of both parties (Forseeability) at the time the contract was made!
o Prong 2 allows Plaintiff to get greater special recovery if he discloses the special circumstances. However, this isn’t always available, especially when dealing with low-level members of a bureaucracy.
What is work's language regarding the Hadley test?
Explanation for Hadley Forseeability Test as the default rule: The most efficient default rule places the consequences on the person best situated to deal with them; that is, the person with knowledge of the situation. Hadley leaves the risk of idiosyncratic damages (the odd case) on the party responsible for the idiosyncrasy.
What are the four prongs of the parker test or avoidability of damages.
· Duty to mitigate The rule preventing recovery for avoidable damages is often called the “Duty to Mitigate.” If the plaintiff does not avoid his avoidable damages, he simply loses his ability to recover for them and nothing further happens. [R2K §350, Comment b].
· Standard of reasonableness: The avoidable damages doctrine merely requires the plaintiff to make reasonable efforts to mitigate damages. The plaintiff is not expected to enter into dubious contracts, incur considerable expense or inconvenience, disorganize his business, damage his reputation, or break any other contracts, in order to mitigate the damages done by the defendant’s breach. [R2K §350, Comment g]
· Highly Specialized Professional Type Employment—Requires Plaintiff only to do things that are comparable or substantially similar: Where the plaintiff is highly specialized, courts are especially lenient toward the plaintiff, and do not require him to accept any position that is substantially different from, or inferior to, the one contracted for. This is applicable when job choice may impact one’s career trajectory.
· 2 parts of the world—Impacting nature of Duty to Mitigate:
o Common garbage worker likely will have to accept highest paying job
o If you’re highly specialized, you only have to take work that is comparable. [Parker]
What does the law school summer employment hypo teach us?
· Does the student have a duty to mitigate? Yes
· What does the duty to mitigate require? Do things that are comparable or substantially similar (i.e., look for work with other law firms), but that probably doesn’t include accepting job as a garbage collector.
What are liquidated damages, and what is the fighting issue?
To be enforceable, the liquidated damages must be “reasonable” compensation at the time the contract was formed OR ex post. Damages construed as a “penalty” will be unenforceable on public policy grounds.
o Fighting Issue: Argument over whether it’s “reasonable” as an acceptable liquidated damage clause, or a penalty clause and, thus, unenforceable on grounds of public policy.
What does section 356 of the restatement say about liquidated damages?
§356 Liquidated Damages and Penalties
(1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on ground of public policy as a penalty.
(2) A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence.
What is work's synopsis and objection to efficient breach?
· Works’ Synopsis: these folks see the world in market-driven responses to everything. You should be completely untrammeled by the law to make the most economically rationale decision, taking into account that you’ll have to account Fulton for his dashed expectations.
· Works’ Objection to this Approach: Fulton promises to pay $125. Seller breaches because somebody else offers to pay $200. Posner says that Fulton will be made whole because he can find another horse for $125, but this is only valid reasoning if there is an inherent assumption that another horse will be available.
· Works sees this approach as an academic approach. It shouldn’t be seen as a real-world approach
What are are constructive conditions?
A party to a contract only has a present active duty to do something when all the conditions precedent to that duty have been satisfied. Some of those conditions are express; some conditions are constructive. When promises are exchanged, we assume they are dependent. Failure to satisfy a constructive condition has the same effect as failure to satisfy an express condition (except in a few circumstances such as substantial performance) and excuses a party’s duty to perform.
What is 2-601 and what does it mean?
UCC §2-601 Buyer’s Rights on Improper Delivery [“Perfect Tender Rule”]
…If the goods or the tender fail in any respect to conform to the contract, the buyer may
(a) Reject the whole; or
(b) Accept the whole; or
(c) Accept any commercial unit or units and reject the rest.
 
Use of §2-601: Improper delivery gives the buyer the right to reject. Then, under §2-509 and §2-510, the risk of loss remains with the merchant seller until cure.
 
If buyer accepts delivery, we are no longer under 2-601. If delivery accepted, then UCC 2-608 applies, which establishes a "substantial performance" gap filler if the issue is whether the buyer has a right to revoke an acceptance of goods (and a right to refuse to pay) after they are in the possession of the buyer.

Explanation: Once a buyer accepts the goods, §2-608 gives us a Jacobs & Young type analysis. This reflects the distinction in §237 and §241. The law says we need a different gap-filler if one party has the goods and the money because the power relationship is out of whack.
What is 2-609 and what does it mean?
§2-608. Revocation of Acceptance in Whole or in Part [Triggered by Acceptance of Goods]
(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it
(a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or
(b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances.
(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.
How does the perfect tender rule apply to non sale of goods stories?
It doesn't apply as long as the condition was material.
§241 Circumstances Significant in Determining Whether a Failure is Material
In determining whether a failure to render or to offer performance is material, the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived.
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances.
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
 
A duty of immediate performance with respect to a conditional promise does not become absolute until the conditions (i) have been performed, or (ii) have been legally excused because of failure to satisfy a condition. Examples of failure to satisfy a constructive condition include:
What is the substantial performance doctrine and who created it?
"The focus is on avoiding disproportionate forfeitures that were not among the risks allocated by the parties. The potential for disproportionate forfeitures is more likely, says Cardozo, when we are confronted with circumstances in the right-hand column.
Simple and uniform / Multifarious and intricate
Chattels (easy to fix) / Skyscraper (impossible to re-do once built)
Can be returned / United with the land and not returnable
Field of art (uniqueness is honored) / Field of Utility
(ex: plumbing, so we ask does it work just as well)
Wilful breach / Unintentional breach
What is anticipatory repudiation?
A party may make it unmistakably clear, even before his performance under a contract is due [before he has a present active duty to perform], that he does not intend to perform. When he does so, he is said to have anticipatorily repudiated the contract. Such a repudiation allows the other party to suspend, and perhaps to cancel, his own performance.
How does anticipatory repudiation work?
What constitutes repudiation: Sometimes a party will make it perfectly clear that he has no intention of performing the contract. Such a statement clearly constitutes an anticipatory breach. But in other situations a party’s statement regarding his intention or ability to perform will be more ambiguous. (Like Works’ ex: “I may need you, but I may not need you. The winds of the economy are changing. Just wanted to make you aware.”)
· Traditional view: Older cases often held that as long as the promisor left any chance open that he would perform, there was no repudiation.
· Modern view: Modern courts have generally held that a repudiation can be less clear than this. One commentator defines a repudiation as being any “positive statement by the obligor to the obligee which is reasonably interpreted by the obligee to mean that the obligor will not or cannot perform his contractual duty. [See Rest §250, Comment b]
What does UCC 2-610 say?
UCC §2-610 Anticipatory Repudiation
When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may
(a) for a commercially reasonable time await performance by the repudiating party; or
(b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and
(c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).
What is an installment contract?
UCC §2-612 finds an installment contract whenever possible, as opposed to a series of individual contracts. Where the contract authorizes or requires deliveries in separate lots, it is an installment contract. (The UCC assumes that all goods called for by a single contract must be tendered in a single delivery unless circumstances clearly point to a contrary intent, e.g., there are not enough railroad cars on the date of delivery. [§2-307])
What is the two prong test to determine whether an installment K substantially impairs you? (So that you don't have to take the next step)
In a business context, a failure to pay substantially impairs the value if:
· (1) You need the money to keep business afloat; or
· (2) Signal that you’ll never be able to pay again in the future.
· If the situation does “substantially impair the value” of the relationship, then §2-612 gives the injured party the right to terminate the whole contract
What does Works say about installment K?
Works says: that if “you take a step, they don’t take their step, you are still going to have to take your step.”
 
The non performance of a step in an installment contract is probably not a substantial impairment of one’s ability to perform….
 
Look to service contracts as well…lawn mowing example.
What is an express condition and what is the black letter law concerning it?
Black Letter Law: If the occurrence of an express condition is required by the agreement of the parties, a strict compliance rule applies. The parties’ bargained-for-expectation must be given effect. Failure to satisfy an express condition results in the other party having no duty to perform. §225(1)
o Strategy for getting around failure to satisfy Express Condition: You’re not permitted to attack black letter law [failure to satisfy express condition terminates the contract]. But you’re allowed to Interpret out of the dilemma.
 
Time-is-of-the essence clauses: Black Letter Law holds that breach of a time-is-of the essence clause automatically excuses the seller from performing his duty.
What can you do when an express condition is breached?
Failure to satisfy Express Condition—try different remedies:
· Play Cardozo: conclude the parties didn’t intend a constructive condition. The substantial performance doctrine only applies to constructive conditions. [Jacob & Youngs v Kent]
· Restitution: if non-breaching party got some benefit that he won’t have to pay for.
· Interpretation
o Purposive Interpretation
o Prejudice Rule
· Excuse [Excuse of technical conditions is available under Impracticability and Waiver]
o Impracticability
o Frustration of Purpose
o §229
o Waiver [Waiver is only available to excuse technical conditions]
o Estoppel [Equitable Estoppel can excuse core express conditions]
§ Reliance on a misrepresentation of fact (i.e., statement of business practices); can’t reasonably rely on a representation of the law [can’t rely on statement of what the courts will do in a certain situation]
What is Impracticality?
Mistake of Future Fact à Impracticability and Frustration of Purpose
Defense of Impracticability [Impracticability is generally a losing argument]
Key Question: [Assumption of Risk] Did you assume risks of that kind?
As a matter of technique Frustration of Purpose/Impracticability get framed as failure to meet constructive conditions. The excuse of Impracticability can only be used when the condition is technical (not core).
 
Classic Areas to Apply Impracticability
· Destruction of the subject matter [§263] [Taylor v. Caldwell]: Contracted to lease/license use of music hall. Music hall burned down. Held impracticable to perform and performance excused.
o Might also apply to destruction of crops, etc.
· Destruction of the person who is essential to performance [§262]
o Bazooka Bob: Former football star, Bazooka Bob Blanton, can’t perform the last 5 shows of his radio contract, because of pancreatic cancer. The contract expressly stated that he must complete all 16 shows before getting paid.
· Government edict [§264]
o Promise to sell automobile and then government says no more automobiles.
· It’s never impracticable to pay $. You can always pay. Thus, try Frustration of Purpose.
o Paradine v. Jane: Where German prince takes over the pasture which made it worthless to graze animals. Held still has to pay rent on it.
o Failure of market conditions doesn’t create a plausible argument for Impracticability or Frustration of Purpose.
What does the restatement require for Impracticality?
· That the event occurred after the contract was made;
· That the event was one whose non-occurrence was a “basic assumption” on which the contract the made
· That the event was not the fault of the party seeking the discharge
· That the language or circumstances don’t dictate the discharge should be denied (e.g. because the parties allocated the risk of the event to the party now seeking to use the impracticability doctrine.)
What is frustration of Purpose?
Impracticability and Frustration of Purpose are generally losing arguments. Contracts are predicated on assumption of risk; court is not likely to grant a remedy when one party “guessed wrong.”
What do you need to show for frustration of purpose?
· Key Question: [Assumption of Risk] Did you assume risks of that kind?
· Krell v. Henry: Main case in the ‘coronation cases’ series. Held that he didn’t have to pay rent on the flat with the window view of the parade when the prince was sick and the parade was cancelled. Not clear in Krell but in coronation cases taken as a whole, what’s going on is courts say they’re not going to change anybody’s position because of this. So the landlords get to keep deposit $, regardless of the amount, but they lose their claim on the remaining $. Tenants similarly lose the deposit but don’t have to pay the remainder.
· Could also mean courts say “we don’t know who bore the risk” and we’re not going to enforce without knowing that.
· Could be that courts see the high price of the rooms due to the coronation as an opportunity for splitting the extra rents. Windfall allocation / Risk allocation kind of thing.
What governs risk of loss in UCC cases?
· UCC § 2-615: Excuse by failure of presupposed conditions. This is the statutory basis to get involved in arguments about impracticability,
· UCC § 2-509: Risk of loss in the absence of breach (1) Says risk of loss in event of destruction between clearly buyer’s and seller’s (a) if obligation is not to deliver them then risk passes to buyer when delivered to carrier. (b): When the goods are there duly so tendered as to enable the buyer to take delivery.
· UCC § 2-510: (1) where a tender or delivery so fails to conform...as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance.
· Beer delivery hypo again: Buyer takes risk from moment they are delivered to the truck, but if there’s even one bigmouth in the wreckage, then the risk is still on seller during transportation.
· UCC § 2-509: (3) says if it’s not in (1) above, then risk of loss passes to buyer on receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. Be careful because of this: Tendered to you, and then you ask if you can leave it there and come back and get it. Risk is yours.
What does 2-615 say about the risk of loss?
Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:
 
(a)Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
 
(b)Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
 
(c)The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available to the buyer.
 
§2-615 comment 4. Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section.
What is waiver, how does it work, and why is it useful?
Waiver useful tool when you can’t prove actual detrimental reliance
· Low-level employee whose acts are beyond his actual or apparent control can’t effect a valid waiver
· Only excuses technical failure of express condition
· Unilateral decision to waive a known right
· Applies when: Call agent up “Is it okay to do this.” Agent says “Okay.” But waiver probably won’t work, because whoever is giving the waiver must have authority of the company.
· Retraction of Waiver: A waiver can be revoked until the other party has detrimentally relied. If the other party has detrimentally relied, then it’s too late to retract the waiver.
What do you do when express condition is breached in regards to estoppel?
Estoppel [requires actual detrimental reliance—can excuse a core condition]
ELEMENTS of Equitable Estoppel:
· [1] Representation of past or present fact (can’t detrimentally rely on misrepresentation of law)
· [2] For which it was reasonable the person would rely;
· [3] The person actually relied. (Requires showing that a change of position occurred)
 
How do you use non conforming goods to fight a breach?
Nonconforming Goods
If seller tenders non-conforming goods, the buyer has the right to reject the goods if they fail to conform in any respect. [§2-601]. Once the goods have been accepted, the buyer may revoke his acceptance only where the nonconformance substantially impaired the value of the installment. Such revocation must be made in a timely manner. [§2-608]
 
Use of §2-601: Improper delivery gives the buyer the right to reject. Then, under §2-509 and §2-510, the risk of loss remains with the merchant seller until cure.
 
Seller’s Right to Cure: The effect of the seller’s cure is that the buyer must perform when it would otherwise have been excused by the seller’s breach. If the party in breach doesn’t cure within an appropriate time, the injured party may terminate the contract.