Contracts II Outline - Prof. Cunningham (2010)
Is there a Dispute about Contract Terms? Parol Evidence Rule and
Exceptions
I. Did the parties intend their written agreement to be
completely integrated? If court finds they did, then parol evidence
is admissible. Courts should admit evidence of consistent
additional terms only if there is evidence that the parties did not
intend the writing to embody the entire agreement.1. Would the
alleged oral term be consistent with the written agreement?
1. Does it negate an express term of the contract? (broad) Jasen
in Long Island Trust
2. OR does it contradict an implied term of the contract? (R.2d
216 cmt. e)
3. OR does it contradict a silent gap-filler term? (stricter,
Hayden(troubling), Breitel in Long Island Trust)
2. Is it such that would naturally be included in a written
agreement?
1. Look to: completeness and detail of the writing (Andrews in
Mitchell, Hayden says only look to this)
2. AND The surrounding circumstances (Lehman in Mitchell,
Hatley)
1. parties with business exp. are more likely to intend
completely integrated deals.
2. parties represented by counsel are more likely to intend
completely integrated deals.
3. relative bargaining strength can influence parties to omit
essential terms.
II. Did the parties actually agree on the alleged oral terms?
Even if parol evidence is admitted by the judge, the finder of fact
still must decide this question. STRONGEST: BAR ALL
Four-corners approach: Look to contract only.
R.1, Andrews in Mitchell v. Lath, Hayden v. Hoadley, Breitel in
Long Island Trust, Ore. Stat. in Hatley,
Benefits: allowing parol evidence would decrease ability of
people to rely on written agreements, increase perjury, and give
juries an excuse to decide for the economic underdog.
Middle UCC approach: tougher on merchants, looser on
consumers.
Intentions approach: Look to context and surrounding
circumstances.
R.2d, Corbin, Lehman dissent in Mitchell, Hatley court
Benefits: contracts are very often part-oral and part-written,
and perjury is always an issue, even with the four corners
approach. It matters whether the parties intended the agreement to
be integrated.
WEAKEST: BAR NONE
Merger clauses: push writings up the scale, making the writing
indicative of its own completeness
III. Cases
1. Mitchell v. Lath (sale of land + alleged oral agreement to
remove ice house)
1. Majority denies (Andrews): here, the contract appears to be
an elaborate and complete bargain, and this implies that the oral
term could not have been part of the deal.
2. Dissent would disallow (Lehman): the document alone will not
suffice. Need to look to surrounding circumstances; here,
conveyance agreement appears complete, but ice-house is not
necessarily a part of conveyance.2. Hatley v. Stafford (land lease
reserving right to cancel + alleged oral agreement limiting
cancellation to first 30-60 days)
1. Court allows parol evidence. Not inconsistent: Does not
negate an express term, but is such that it would be naturally have
been included. Still, not a sophisticated business transaction
handwritten, and no counsel informal.
2. Literal reading of contract as having no time limit harsh
result, because the value to lessee grows over time, eventually to
$400 per acre when wheat is ready to be harvested.
3. Hayden v. Hoadley (Vt. 1920), p.400 (conveyance of farm in
return for improvements + alleged oral agreement as to time).
1. Court disallows parol evidence because it contradicts the
silent gap-filler term of reasonable time as bona fide term of the
K. troubling; court completing contract and then looking to its
completeness to determine it is unequivocal and complete4. Long
Island Trust (N.Y. 1976) (promissory note + alleged oral term that
all the guarantors have to sign onto the renewal. Guarantors
renewed w/ only four, and objected when the bank sued them to
recover the loan).
1. Majority allows (Jasen): Where contract is silent on
unconditional guarantee, oral terms imposing conditions are not
contradictory, so parol evidence is admissible. No concern about
reliability of promissory notes, because banking industry can
easily put that term in their promissory notes. Meadowbrook
case.
2. Dissent would disallow (Breitel): Promissory notes usually
are, and must be, complete on their face, so parties can
effectively rely on it. Common practice of banking community is to
assume that unconditionality is an implied term of promissory
notes.
IV. EXCEPTIONS
1. Fraud: Oral evidence of fraud is NOT allowed to enforce the
contract itself, BUT:
1. Allowed in order to rescind the fraud-induced contract.
2. Allowed in order to get out-of-pocket damages (tort damages)
(similar to reliance/restitution), BUT NOT expectancy.
2. Minority view: Oral evidence of fraud not allowed when it
contradicts an express term.
1. What if the parol evidence of fraud negates a Merger Clause?
Look to the clause to evaluate the manifestations of intention:
1. General, one sentence clause: Sabo v. Delman (parol evidence
of fraudulent intent admissible in action to render contract void,
despite merger clause)
1. Very specific to the term in question: LaFazia v. Howe
(specified that buyer did not rely on seller's representations of
profitability, as well as an as-is clause)
2. Damages: fraud in the inducement claims are tort actions, so
damages are limited to indemnity for the actual pecuniary loss
sustained as a direct result of the wrong (out-of-pocket rule), not
loss or benefit of the bargain. (contract expectancy damages).
2. Mistake
1. Hoffman v. Chapman (Court allows parol evidence to support
reforming the contract)
1. Policy concern about encouraging people to be careful? not
very significant here.2. No meeting of the minds? likely not a fair
argument in this case.Interpretation of Integrated Agreements
I. Most important factor is the plain meaning of the language
used. Judge interprets the plain meaning of an integrated agreement
as a question of law. R.2d 212(2).
II. If the meaning is ambiguous and not plain, the finder of
fact weighs any admitted extrinsic evidence to decide which
reasonable interpretation of the language to adopt. R.2d
212(2).
1. Plain-Enough Meaning Rule Judge decides ambiguity as a matter
of law
1. If the meaning of the words themselves is clear, the judge
may not consider extrinsic evidence that creates an ambiguity.
W.W.W. Associates (N.Y. 1990) Seller of real property exercised
cancellation clause, the meaning of which was so plain that judge
refused to let buyer argue that it was inserted solely for the
buyers benefit.
2. However, judge may determine that it is ambiguous, requiring
extrinsic evidence.
2. Context Interpretation Rule (Majority) Judge considers
extrinsic evidence
1. Judge must seek to ascertain the intentions of the parties,
by considering evidence of ambiguity consistent with the terms.
Pacific Gas & Electric (Cal. 1968) (trial court wrongly refused
to admit evidence supporting a certain meaning of an indemnity
clause)
1. Discussions & Circumstances of Negotiations
2. Trade Usage & Course of Dealing Columbia Nitrogen (prices
fell far below K price, but judge admitted evidence that price
readjustments were trade practice & consistent w/ past course
of dealing)
III. Language should be construed against the drafter,
especially in the case of one-sided contracts like insurance
policies, etc.
Excuses Under Original Circumstances
I. NON-DISCLOSURE: Was there a relationship creating a duty to
disclose certain information?
1. Arm's Length Dealing: No Duty.
1. Not legally bound to disclose information or intelligence
that is equally accessible to both parties, even if you know the
other guy doesnt know, as long as you dont make misrepresentations
or lies.
1. Laidlaw v. Organ (U.S. 1817) (buyer of tobacco failed to
respond to sellers inquiries for news because the Treaty of Ghent
had just been signed, jacking up the value of tobacco; remanded to
consider whether buyer imposed on the seller)
2. Policy: In the business world, people are entitled to benefit
from their dealings and are entitled to assume that the other party
knows the state of the world.
2. Fiduciary Relationship: Duty.
1. Legally bound to look out for the others interests and not
take advantage of even honest mistakes to their detriment. Applies
to status-based relationships, not contract relationships. (E.g.
trustees; lawyer-client; doctor-patient; guardian-minor;
minister-parishoner).
1. Jackson v. Seymour (Va. 1952) (brother/agent entrusted with
management of sisters affairs bought land from her cheap but failed
to disclose timber he found on it, instead harvesting it for his
own profit.
II. MISTAKE
1. A mutual mistake of fact is grounds for rescission.
1. Must be a fact relating to a basic assumption of both parties
on which the K was made. Fundamental to the deal.
1. Sherwood v. Walker (Mich. 1887) (Rescinded K for sale of cow
for value as meat when it was actually a pregnant pedigreed breeder
worth almost 10X as much difference of material fact as to exactly
what they were buying & selling. Not just how good the meat
would be, for example.
2. Dissent in Sherwood: No, breeding ability is a question of
predicting the future., on which both buyer and seller were
necessarily rolling the dice. Mistake of judgment; the seller was
assuming it was only good for beef & cutting losses, while the
buyer was clearly hoping it would breed. Doesnt work here b/c price
was so low that buyer essentially took no risk?
2. NOT mistake if there is manifested intent to allocate the
risk of loss to one party or the other.
1. If the adversely affected party assumed the risk, No
Rescission.
1. Lenawee County Bd. of Health (Mich. 1982) (buyer assumed risk
via an as-is clause in the contract, despite mistake of fact as to
condition of the dilapidated, unlivable property)
2. Beachcomber, if the parties were uncertain as to the nature
of the coin.
2. But if the deal contemplated no uncertainty or known risks,
Rescind.
1. Beachcomber Coins (N.J. 1979) (Rescinded sale of coin which
seller was certain to be valuable but was actually counterfeit)
2. Zimbalist (Rescinded sale of Stradivarius because both
thought that the violins were a Stradivarius and a Guarnerius).
Problematic as art w/o the warranty? Or is context here
sufficiently different from art show that buyer can rely on sellers
word?
3. Gartner v. Eikill (Rescinded sale of land because seller
represented it as zoned for development; buyer technically
uncertain, but this context is one in which the buyer should
generally expect to rely on the sellers representations).
4. In all these cases, parties can easily (and justly) be
restored to the status quo.
3. Even if mistake is not mutual, still rescind if the equities
favor it:
1. Honest Mistake of Fact (Elsinore: sub made clerical error;
not simply an ill-advised bid or serious negligence making
rescission unfair)
2. Prompt Notification (Elsinore: quickly asked to be released
from bid rather than holding out for some advantage AND ALSO bid
was so low that the non-mistaken party should have realized the
mistake)
3. No Reliance or Detriment (Elsinore: general simply gave bid
to another sub)
4. Prevents unfair outcomes: avoids unjustly enriching
non-mistaken party and avoids punishing honest factual mistakes (no
deterrence value).
III. EXPRESS WARRANTY
1. Positive & unequivocal statement concerning the thing
sold which is relied on by the buyer and understood to be an
assertion of fact ... not an opinion.
1. Tribe v. Peterson (No express warranty for horse even when
seller kept repeating how it was plumb gentle, because this was a
opinion of past behavior, not a guarantee that it would never
buck)
2. Johnson v. Healy (builder made factual statement that nothing
is wrong with the house AND buyer was reasonable to rely on it,
inferring that the builder had sufficient info and experience to
make that an assertion. really an express warranty case? what about
misrepresentation?
3. Zimbalist could see this as a warranty case: bill of sale
contained an express warranty that the goods would correspond to
the description.
2. Part of the contract; remedy is contract damages, not
rescission. ???
IV. IMPLIED WARRANTY
1. Contract for sale of real property limited to a certain use
implies a warranty that the property will be available for that use
& free of patent defects discoverable upon reasonable
investigation.
1. Hinson v. Jefferson (N.C. 1975) (covenants restricted land to
residential use, but swampiness prevented buyer from obtaining a
residential building permit)
2. Policy:
1. Fairer to allocate risks to the party who is best able to
discover the defect cheaply and efficiently with reasonable
diligence. (i.e., having every interested buyer order their own
termite inspection would be inefficient and wasteful).
2. Moves away from caveat emptor. Buyer beware still applies to
things the buyer should see, but undiscoverable things are the
responsibility of the seller to uncover and disclose.
Excuses Under Changed Circumstances
II. IMPOSSIBILITY (Traditional Doctrine)
1. Performance excused if it is functionally impossible to
perform
1. Generally, performance is excused if a basic assumption of
the contract is destroyed.
1. Taylor v. Caldwell (K.B. 1863) (Rescinded contract for rental
of the Surrey Gardens and Music Hall when the Hall burned down
before the rental date, making planned concert impossible).
2. American Trading (2d Cir. 1972) (No excuse when Suez Canal
Crisis forced ship to go around Cape of Good Hope, because K did
not assume the Suez Canal route, so ship owner would have had no
right to call off the deal at that point).
2. Personal services contracts excused if the persons involved
die.
1. Harrison v. Conlan (Mass 1865) (On priests death, Rescinded
contract for church organist to play for the priests services).
what if church got new priest?
III. IMPRACTICABILITY (Modern Conception)
1. Performance excused if supervening event makes it
impracticable without excessive and unreasonable cost
1. American Trading (2d Cir. 1972) (No excuse for shippers when
Suez Canal Crisis forced ship around Cape of Good Hope, incurring
31.6% higher costs, because that difference is not excessively
outside the normal risks of doing business in this context)
2. Mishara Constr. (Mass. 1974) (Commercial Impracticability
where labor strikes and picket lines drastically increased the
difficulty and expense of concrete delivery, and in this case were
so unusual and had such severe consequences [as to be] beyond the
scope of the risks assigned.)
IV. FOR BOTH OF THE ABOVE: Where is the risk? Performing party
must not have borne the risk of the supervening event.
1. When Contract Assigns the Risk, Follow the Contract:
1. Force Majeure Clauses must state the event with
particularity.
1. Kel Kim (N.Y. 1987) (No excuse when liability insurance
crisis of 1980s made it essentially impossible to fulfill
contractual obligation to obtain insurance)
2. Left out of the force majeure clause, which listed only the
type of emergencies that would actually interrupt physical,
day-to-day operations under the contract.
3. Not objectively impossible to perform.
2. A specified obligation obtain insurance can demonstrate
allocation of risk. Kel Kim.
2. When Contract is Silent on Risk or Obligations are
Generalized:
1. Performing party bears the risk of loss prior to
completion.
1. Tompkins v. Dudley (No excuse where schoolhouse burned down
when it was only 95% built and not yet delivered over).
2. American Trading (No excuse when Suez Canal Crisis forced
ship to go around Cape of Good Hope, because the silence of the
contract in this context implies that the owner took all the risks
associated with a long voyage into account in price
negotiations--pirates, storms, international crises, etc.)
2. BUT Performing party does not bear the risk with respect to
the amount of work which is wrought into the owners property and
has become so identified with it as to have actually improved it.
(American Repair Doctrine)
1. Carroll v. Bowersock (When owners warehouse burned down
during renovation work, contractor may recover for removing floor
and pouring concrete footings, but not for temporary forms or
materials not yet added to structure)
3. Seller of goods bears the risk of loss unless the contract
identifies specific goods (rather than just any goods of the same
type).
1. Bunge Corp. (8th Cir. 1975) (No excuse when frost destroyed
sellers bean crop, because the contract only specified beans grown
in the United States).
2. Snipes Mountain (Wash. 1931) (Impossibility when potato crop
failed because parol evidence showed parties intended to contract
for those specific potatoes).
4. Both Parties Bear Risk of Normal Shifts in Prices / Market
Conditions
1. Maple Farms (N.Y. 1974) (No excuse for seller where
USDA-fixed price of milk increased 20% during fixed-price one-year
contract)
1. Here, both parties are necessarily taking a risk with a
fixed-price K. Also, here the farmer knew that prices rose 9.5%
last year, and still made the contract.
3. How Highly particularized is the Contract?
1. The more highly specific and particularized, the more likely
to excuse.
2. The more general, the stronger the argument for leaving
parties in their predicaments.
V. FRUSTRATION OF PURPOSE
1. Rescission if the object of the contract is frustrated by an
event that the contract does not contemplate or allocate risk
for.
1. Krell v. Henry (K.B. 1903) (Rescission of contract to rent
balcony apartment during coronation when the coronation was
unexpectedly postponed, because the entire purpose of the rental
had been to view the coronation) (Advertised for this purpose, Only
rented for the daytime; parties did not contemplate
postponement).
2. Weyerhaeuser Real Estate (Rescission of lease granted to
company for strip-mining because a lack of approval for a permit
made mining impossible, though not rental) (parties contemplated
opposition, but not such a tremendously paralyzing public
outcry)
3. Chase Precast (Mass. 1991) (Buyer of concrete barriers
Excused from future purchases, because it had to agree not to set
up any barriers in order to get rid of an unexpected lawsuit) (risk
of major event slashing quantity was not allocated, even though the
record shows that recipient reductions in quantity were a
commonly-accepted occurrence)
2. Damages Prior to Frustration?
1. Traditional English View: NO Freeze parties in the position
at which the event occurs.
2. American View: YES - Allow restitution for benefit conferred
prior to frustration AND for reliance work done by the other party.
(contra Fibrosa)
Judicial Supervision: Policy Limits
>> Impulse to protect people who are not competent to form
contracts.
I. COMPETENCY OF MINORS
1. Minors have an absolute right to disaffirm the purchase of
items which are not necessities. Purpose: protect minors from
foolishly squandering their wealth through improvident contracts
with crafty adults.
1. Halbman v. Lemke (Wis. 1980) (Kid allowed to rescind his
purchase of a car when he paid most of the installments before the
engine broke and it subsequently lost all value)
2. Webster Street Partnership (Neb. 1985) (Kids allowed to
disaffirm rental of an apartment; shelter is not a necessary
because the minors had potential shelter with their parents).
3. This right only survives for a reasonable time after reaching
age of majority.
2. Minor must restore as much of the consideration as remains in
the minor's possession. R.2d 14. Where this is not possible,
disaffirmance may still be made (Halbmann). Purpose: prevent minors
from profiting by disaffirming purchase agreements.
3. Parents have the power to enter into contracts on behalf of
minors.
1. Sharon v. City of Newton (571) furthers policies of parental
authority and vibrant athletic programs; though some courts see
danger in neglectful parents waiving kids' tort rights.
II. COMPETENCY OF THE MENTALLY ILL
1. No longer totally void under R.2d 15
1. Persons contract duties are voidable if:
1. He is unable to understand in a reasonable manner the nature
and consequences of the transaction.
2. He is unable to act in a reasonable manner in relation to the
transaction, IF the other party had reason to know. i.e., would the
deal seem reasonable?
2. Persons contract duties are not voidable to the extent that
the contract has been performed, OR the circumstances have changed
so that voidance would be unjust, IF the other party did not know
of the defect. Fairness impulse to innocent party.
2. Ortelere (N.Y. 1969) (Void where retired school teacher with
psychosis irrationally altered her post-death retirement payments
two months before her death, because her husband would need that
money to get by, and the retirement board should have known her
condition could mean that she was unable to form contractual
intention). (Dissent though it rational)
3. Moment of Lucidity not enough; must be able to understand
what they are doing enough to make deal on rational terms. Farnum
(Mass. 1989) (Person with erratic mental condition may have signed
a deed during a lucid interval, but she not understand the context
because she made an irrational sale to a person who knew of her
impairment.)
III. UNDUE INFLUENCE
1. Elements
1. Undue susceptibility E.g., emotional anguish, lack of full
vigor due to age or physical condition, total weakness of mind
2. Over-persuasion Evidence of the excessive strength of one
party influencing a much weaker party, crossing boundaries of
permissive persuasion & eliminating their free will.
1. Unusual Time / Place; Insistence of Immediacy / No Delay;
Multiple Persuaders; No Third-Party Advisers; Insisting no time to
obtain attorneys.
3. Not necessarily a strict two-part test, but the second part
seems to presuppose the first.
2. Ordorizzi (1966, 578)
1. Vulnerable due to stress & lack of sleep in his recent
arrest, questioning, and release.
2. Overpersuasion in that they talked to him alone, at night, in
his home, and gave him no chance to delay his decision or get an
attorney.
3. Von Hake (Utah 1985)
1. Old man who sold his ranch to con man showed no evidence of
vulnerability and no evidence of urgency or pressure. He was simply
duped, which makes it fraud, not undue influence.
IV. PUBLIC POLICY
1. Court can declare certain types of contracts to be illegal
bargains and unenforceable.
2. States vary. In re Baby M (N.J. 1988) (announcing New Jersey
public policy against surrogacy contracts).
Judicial Supervision: When Can Courts Declare Modified
Agreements Invalid?
I. When Not Supported by Consideration (Traditional Method)
1. Modification of an agreement must be supported by
consideration, whether it is seen as a modification or an entirely
new contract.
1. But See UCC 209(1), which allows modification without
consideration for sale or exchange of goods!2. Preexisting Legal
Duty Rule A subsequent agreement must rest upon a new and
independent consideration. Anything due as a legal duty cannot
count as consideration for any subsequent agreement. Consideration
as a tool for policing the bargain.
1. Levine v. Blumenthal (1936, 597) (no consideration where
lessee promised to pay new agreement in dire financial
circumstances of Depression) (would have been stronger to argue
that he was giving up right to go out of business in exchange for
lessors security)
2. Alaska Packers (1902, p601) (no consideration where
contracted fishing workers went on strike mid-performance and
demanded double wages for the same work. They had already waived
their rights to walk off the job by signing the contract)
3. Consideration must be present; mere inadequacy not sufficient
to void it. Enforceable as long as the the person knew exactly what
they were bargaining for.
1. Batsakis (p591) (sufficient consideration: loan during WWII:
$25 $2000+interest)
II. When Obtained under Duress
1. Elements:
1. An unlawful/improper threat,
1. Was this action necessary for the party to protect its
reasonable expectations under the contract? Austin Instrument: No;
blatant chiseling & extortion.
2. depriving the other party of free will,
3. when no legal remedy is available. A mere threat to breach is
not enough; rather, it must be plain that there was no other
recourse, whether turning to some other source or initiating an
immediate lawsuit.
4. Adding to duress: breach in middle of time-sensitive
performance (Alaska; Austin)
5. Diminishing duress: careful formalities associated with the
breaking of the first agreement like tearing off sigs, etc.
(Schwartzreich)
2. Austin Instrument (1971, 606) (Duress where sub breached
radar contract in bad faith, demanding more $$ and additional work
before resuming, and general was on a strict government deadline
with no opportunity either to take another option or seek legal
remedy).
3. Alaska Packers YES where Bad faith + deprivation of free will
& legal remedy with no chance for other workers or legal action
in Alaskan wilderness on short season.
4. Batsakis NO. Parties knew what they bargained for and the
outcome was very uncertain.
5. Embola NO. Court considered $50 $10,000 (2000%!) an
investment by which the person would only get $10K on the small
chance the borrower both got back to Alaska and got his mine
back.
6. Schwartzreich (1921, 605) NO, where boss was simply willing
to renegotiate the employment contract after he got a better offer.
No beginning of performance, no evidence of ceremony and
intentionality, and none of the three elements of duress.
7. Hackley v. Headley (1881, 623) NO. Exacting partial release
of a debt to take advantage of the other partys immediate need for
cash is not duress because the debtor is not actually causing the
threat. Policy: need to protect freedom of contract to enter
releases.
III. UNLESS Otherwise Fair and Equitable (Unanticipated
Circumstances & Reliance)
1. R.2d 89: A promise modifying a duty under a contract not
fully performed is binding:
1. (a) if the modification is fair and equitable in view of
circumstances not anticipated by the parties when the contract was
made; or
2. (b) to the extent provided by statute; or
3. (c) to the extent that justice requires (i.e., reliance)
2. If there arises unforeseen, burdensome conditions on the
original performance, it is a valid consideration for a promise of
additional compensation for the original performance.
1. Brian Constr. (1978, 612) (Unanticipated Rubble =
Consideration, where sub began work but discovered substantial
buried rubble, and general orally agreed to pay extra).
2. Alaska Packers: If the nets really were faulty, could provide
consideration for demand of more $$ if it really impacted their
productivity and pay enough.
3. If sub promises 3P owner to do what it promised to general,
its new contract with new consideration.
1. When McDevitt v. Stokes (1917) reaches opposite result
(jockey in race: winning $1K) , seems like its really about public
policy: gambling nature of the bargain hints at interference with
contract in a regulated, sensitive setting. Also, 3P beneficiary
theory might make this problematic, if the original promise was
already intended to benefit the 3P who was the legitimate recipient
of the second promise.
Two Special Kinds of Modifications that are OK:
I. Waiver:
1. Must be a voluntary relinquishment of a known right that is
not a material part of the agreed equivalent (cant waive heart of
the bargain, b/c would turn K into gift promise)
1. Moon Motor Lodge (1968, 617) (implied waiver of a
no-oral-modifications clause, where owner saw contractor perform
extra work and promised to pay for it,, making oral promise to pay
enforceable as a modification for consideration). Equitably, doesnt
matter whether it was technically waived before the oral promises
were given.
2. Quigley v. Wilson (1991, 621)
1. modification, not waiver, where buyer and seller of land
renegotiated payment structure when buyers could no longer pay. Too
material to be a waiver.
2. Consideration? Court finds it in unanticipated circumstances
of dramatically plummeting land values + buyers unanticipated
inability to make $$ off the land.
3. There may be a problem with whether this risk was allocated,
but the fact that the parties manifested intention to be bound to a
new agreement cuts the other way.
2. No need for consideration for the actual waiving of the
right.
3. A waiver cannot be revoked at common law, though UCC allows
if no reliance.
4. A condition is considered waived by a party when partys
conduct would otherwise be fraud under that condition. Moon Motor
Lodge.II. Accord & Satisfaction1. Negotiated settlement of a
good-faith dispute over money actually due is enforceable, because
each party is giving up their right to stand on their good faith
belief.
2. Martin Remodeling (627) (Valid A&S, where debtor sent
check with written paid in full condition and seller cashed the
check. Cashing = acceptance, and irrelevant if creditor crossed out
the condition.
3. School Lines (628) Where price was clearly stipulated,
cashing insufficient paid in full check is not A&S; dispute was
about separate money owed, not the price itself.
RECAP:
Modification Needs Consideration. Unanticipated circumstances
can count ( 89).
Estoppel Needs Reliance; Retractable & and could be
cured
Waiver Does not need Consideration OR Reliance. If Reliance is
present, Agreement binding; waiver does not apply. Relinquishment
of right cannot be retracted, BUT: UCC 2-209(5) waiver can be
retracted unless other party has relied! turning into estoppel?
Judicial Supervision of At-Will Employment
I. Common Law Rule: Employment contracts are at-will and are
terminable by either party for any reason or for no reason at all.
Purpose: economic flexibility.
II. Exception: Wrongful/Retaliatory Discharge
1. Cant fire someone in retaliation for actions that are
beneficial as good public policy.
1. Need to balance interests of managerial discretion with
protecting employees in their societally valuable duties like
quality control. Teddy's Frosted Foods (1980, 640) (company liable
for firing of food quality control officer for
whistle-blowing.)
1. Discrimination; Failure to commit perjury, etc. violates
statutes directly
2. Whistleblowing violates public policies implied in statutes
(consumer protection)
2. Some courts draw narrowly; grievance must not be too private
and individual. Price v. Carmack Datsun (Ill. 1985, 645) (company
not liable for firing employee with $7K medical expenses who filed
a claim under company health insurance)
3. Some would argue that legislatures are competent enough to
handle this problem with whistleblower statutes, without the courts
creating broad causes of action which could easily be exploited by
employees.
4. New York rejects wrongful discharge cause of action
entirely
III. Exception 2: Employee Handbook Cases
1. Where employer did not intend binding contract, outward
manifestations in an employment handbook can be sufficient to lead
an employee to believe that it intended to create an employment
contract modifying the at-will relationship.
1. McDonald v. Mobil Coal (Wyo. 1991) (handbooks disclaimers
indicated employment was at-will, but court found them too
inconspicuous compared to all the promises that company would take
care of employees and work through any concerns).
2. Need to show that the handbook is either a contract w/ mutual
assent & consideration, or that there was sufficient reliance
to invoke promissory estoppel: Giving up the right to unionize
could be consideration for promise to look out for employees needs,
and showing up every day could be acceptance of unilateral promise
meant to induce that behavior.
Judicial Supervision: When are Standardized Terms Void?
Should general tests of mutual assent be applied to situations
where fine print makes the deal excessively one-sided?
I. R.2d 211 Standardized Agreements
1. Party is bound by standardized terms as integrated if he
accepts them and has reason to believe that they are regularly used
to embody terms of agreements of the same type,
2. UNLESS the other party has reason to believe that the
assenting party would not assent if he knew that the writing
contained the term in question.
3. Doesnt matter if he knows or understands the standard terms,
as long as they are interpreted as treating equally all those
similarly situated.
4. Cmt e. Standardized terms should be construed to effectuate
the reasonable expectations of the average member of the public who
accepts it. The result may be to give the advantage of a
restrictive reading to some sophisticated customers who contracted
with knowledge of an ambiguity or dispute.
II. WARRANTY DISCLAIMERS
1. Key: Is language clear enough to put reasonable people on
notice of the warranty disclaimer?
1. Weisz v. Parke-Bernet Galleries YES
1. At art auction, a legal authenticity disclaimer on page 1
sufficient b/c reasonable art-auction patrons should know that
caveat emptor applied).
2. Henningsen v. Bloomfield Motors (N.J. 1960) NO: Standardized
terms were against public policy because they disclaimed all
warranties, including injury liability, and limiting liability to a
90-day defective-part-replacement guarantee)
1. Phrased in such a way that reasonable people would not infer
that they waived their tort liability as well as liability to fix
mechanical deficiencies in the car.
2. Disclaiming a provision as important as the Implied Warranty
of Merchantability requires more equal bargaining strength and
clear mutual assent.
1. The fact that all manufacturers used this clause diminished
buyers bargaining power and placed them in the unequal
take-it-or-leave-it situation in which members of the public have
no other means of fulfilling the specific need represented by the
contract.
2. Not specifically drawn to the consumers attention.
3. Modern UCC generally follows the spirit of Henningsen. Must
be clear to the consumer rather than hidden.
III. EXCULPATORY CLAUSES
1. Factors to weigh interest in freedom of contract against
interest in tort liability:
1. Ascertainability/Conspicuous-ness To what degree is purpose
of contract unclear?
2. Scope: Is the contract overly broad / all-inclusive?
3. Adhesion: To what degree is the contract standardized,
creating an imbalance of bargaining power?
1. Richards v. Richards (Wis. 1994) (exculpatory contract
invalid because it was misleadingly labeled authorization instead
of disclaimer, covered all time and place, and was very
standardized with zero opportunity to negotiate or discuss with a
live person).
2. Economic loss doctrine Mfrs. of defective products can
exculpate themselves from liability for economic loss--damages to
property and business--but not from strict liability in tort.
Superwood (Minn. 1981, 670)
IV. ARBITRATION CLAUSES
1. Agreements to arbitrate have been held enforceable if they
fell outside the assenting partys reasonable expectations or are
unconscionable
1. Broemmer v. Abortion Services of Phoenix (Az. 1992, 676)
Standardized form, the purpose of which was not explained to a
high-school plaintiff under emotional stress. It was also
unreasonably favorable to the defendants because it required the
arbitrator to be a licensed OB/GYN.
Judicial Supervision: When are Terms Void for
Unconscionability?
I. Bargain must be such that no fair-minded person could
propose, and no rational person could agree to. Excuse of last
resort, when the other policing devices fail to work. Lopsidedness
is not by itself sufficient.
1. Woollums v. Horsley (Ky. 1892) YES. Hillbilly hermit induced
to sell mineral rights to the land for 40 cents / acre, when it was
really worth 3700% more (about $15.00/acre).
1. Here, arms length dealing with no mistake, no undue
influence, no incompetency, no misrepresentation, and no problems
with consideration.
2. BUT contract is simply irrational and ordering specific
performance would be unjust.
2. Kleinberg v. Ratett (N.Y. 1929) SORT OF? No rescission of
contract to buy land because there was no fraud, but specific
performance would nevertheless be unconscionable dues to the
presence of unforeseen water pipe easement just under the surface
of the land, prohibiting useful development. why not a mutual
mistake case? Why no damages for innocent breach of express
warranty?
3. Waters v. Min Ltd. (Mass. 1992) YES. Seller was induced by
her boyfriend to sell an annuity investment contract for less than
a third of its present value. No rescission on other theories
because any inducements/influence came from 3P, but unconscionable
because no way that any fair-minded person would accept this.
4. Batsakis (WWII loan case) Perhaps, if all else failed, one
could try to argue that the $2000 was interest on $25 loan and that
such high interest (10,000%) is unconscionable.
II. Generally, Two aspects of Unconscionability Required
1. Procedural Unconscionability How was deal concluded? Elements
of undue influence, unfair dealings, or questionable circumstances?
Look to fine print, strange clauses, etc.
2. Substantive Unconscionability What are the actual terms of
the exchange? Is it a fair exchange that reasonable people would
agree to?
3. Courts may be willing to sustain a claim upon only one if it
is so out of proportion. See Williams v. Walker-Thomas Furniture
Co. (1965, 693)
1. Shop operated with a cross-collateralization clause in the
obscure fine print, distributing any debts across all items that
consumer had bought from them until everything was paid off.
Thereby, the shop retained the right to repossess all the items if
the buyer defaulted.
III. Every contract imposes upon each party a duty of good faith
and fair dealing in its performance and its enforcement. R.2d 205
Examples of bad faith: evasion of the spirit of the bargain, lack
of diligence and slacking off, willful breach, abuse of a power to
specify terms, and interference with performance.Conditions Is
there implied conditionality?
I. Constructive Conditions What Sort of Conditionality is
Implied in the Contract?
1. Even without express conditions, conditionality may be
implied as a matter of law if:
1. It appears that the parties reasonably would have intended
their performance to be conditional, OR
2. A condition should exist as a matter of policy. When it is
simply unfair that one party should bear the performance risk of
the other.
2. CONCURRENT PERFORMANCE
1. In exchange transactions, performances are concurrently
dependent; no breach occurs until one party tenders performance and
the other doesnt.
1. Bell v. Elder (Utah Ct. App. 1989) (No rescission/recovery of
down payment when sellers failed to furnish water, because buyers
did not tender their promised performance of acquiring a building
permit and paying hookup & installation fees).
2. R.2d. 234(1) Where all or part of the performances to be
exchanged under an exchange of promises can be rendered
simultaneously, they are to that extent due simultaneously, unless
the language or the circumstances indicate the contrary.
3. Cmt b. Simultaneous performance is possible under agreement
when:
1. (1) where the same time is fixed for the performance of each
party;
2. (2) where a time is fixed for one partys performance and no
time is fixed for the other;
3. (3) where no time is fixed for the performance of either
party;
4. (4) where the same period is fixed within which each party is
to perform;
5. (5) where different periods are fixed within which each party
is to perform (the requirement of simultaneous performance does not
apply here)
4. R.2d. 238 ...[I]t is a condition of each party's duties ...
that the other party either render or, with manifested present
ability to do so, offer performance of his part of the simultaneous
exchange.
5. Rule still applies in transactions where defects may be
apparent ahead of time (e.g., real estate closings). Seller gets a
reasonable chance to cure; breach is not automatic unless defects
are impossible to cure without difficulty in a reasonable time.
Want to promote free alienability of property whenever
possible.
1. Ziehen v. Smith (N.Y. 1896) (No rescission/recovery of down
payment when buyers discovered a foreclosure action against the
property, because the buyer never actually demanded
performance.)
1. Doesnt matter if it seemed incurable, because the seller
could have paid the mortgage or negotiated the lien to cure the
problem.
2. Cohen v. Kranz (N.Y. 1963) (No rescission/recovery of down
payment when buyers discovered covenants on title and problems with
fence and pool, but rescinded rather than listing defects and
giving seller opportunity to cure).
1. Title with curable defects was not a breach until buyer
demanded good title. Buyers rejection of title was an anticipatory
breach.
3. Caporale v. Rubine (1981) (Rescission where seller conveyed
the promised land to someone else; however, buyer cannot sue for
damages, since he was also unable to tender performance at the
time.
4. Time is of the Essence Clause cuts against giving reasonable
time to cure.
3. SUBSEQUENT PERFORMANCE
1. A promise is a condition precedent to anothers performance
when one partys performance is to be rendered prior in time to that
of the other, OR when the nature of the agreement makes it
reasonable that one partys contractual obligation is conditioned on
the other party performing first.
1. Conley v. Pitney Bowes (8th Cir. 1994)
1. (Employees obligation under benefit plan to exhaust all
appeals depends on employers obligations under the plan to notify
him of appeal procedures).
2. Wholesale Sand & Gravel (Me. 1993)
1. Contractor hired to install driveway left job and failed to
return; when it repeatedly failed to come back in response to to
owners calls, owner was justified in declaring repudiation and
hiring someone else, because contractors performance was a
condition precedent to owners payment.
3. K&G Construction (Md. 1960) (Sub in partial breach was
not released from the rest of its obligations, so leaving the job
was a repudiation and sub was not longer entitled to restitution
and lost profits)
1. Intent of the parties seems to be that subcontractors promise
to perform in workmanlike manner was a condition precedent to
contractors promise to make monthly progress payments on work
completed. This is inferred because it seems clearly intended to
prevent general from being on the hook for substandard work.
2. Sub negligently causes major site damage Material breach, so
general has no further obligations under the contract. However,
instead of declaring total breach, general declares partial breach
and suspends some of its obligations (here, progress payments).
DOES NOT RELEASE sub from continuing with the rest of its
obligations under the contract. DOESNT MATTER that the progress
payments withheld were for other work already done; progress
payments do not turn one contract into multiple little
contracts.
3. Sub leaves job altogether total, wrongful breach; sub no
longer entitled to any restitution whatsoever.
4. Stanley Gudyka Sales (1990)
1. No rescission, where partner tried to use a failure to pay a
$3K debt as justification for invoking just-cause provision to
rescind the contract under which he owed $46K. Must give notice and
opportunity to cure the breach, and should have at most deducted
the $3K from his own debts.
2. May not manipulate condition doctrine to breach ones own
contract obligations in bad faith. Condition doctrine meant to
facilitate self-help, not bad faith.
4. PARTIAL OR TOTAL BREACH?
1. For a material breach of a condition precedent, the aggrieved
party has the opportunity to either (a) completely rescind
contract, OR (b) declare partial breach so it can continue in K and
give the other party a chance to cure the defects.
2. Repudiation is total and material breach. Wholesale Sand
& Gravel (1993) Contractor repeatedly failed to show up to
driveway job, and owner finally hired someone else. Repudiation
when the partys statements or actions can be fairly interpreted to
mean that the party will not or cannot perform its contractual
obligations (Definite and unequivocal manifestation of an intention
to repudiate). Here, contractor left job & repeatedly blew
owner off.
3. If contract was substantially performed, no material
breach.
5. IS THE CONTRACT DIVISIBLE?
1. Non-performance of the bargain entirely relieves the other
party of its duties under the contract, unless the contract can be
seen as divisible.
1. Was it the basis of the parties bargain that the contract be
performed in its entirety? If not, the portions of one partys
performance may be impliedly conditioned on the other party
rendering part performance, even if it was not in the
agreement.
2. Traditional Common Law
1. Wary of imposing hard-and-fast conditions that the parties
never actually agreed to.
2. Stewart v. Newbury (N.Y. 1917)
1. Where construction contract is silent on manner of payment,
contract was entire and jury should not have been instructed to
impose duty to make progress payments. Plaintiff who left job early
is in breach.
2. Recovery for benefit conferred? Look to see whether payment
was meant as compensation for the completed work, OR for work done
along the way.
3. Kelly Construction (N.J. 1918)
1. Where contract for all the hard brick required at $7 per
thousand was silent on manner of payment, contract was entire and
seller halting supply was breach, because a failure to pay when a
part delivery has been made does not excuse seller from completing
delivery.
3. Restatement - APPORTIONMENT
1. How to apportion? Can performance/payment be paired up so as
not to damage the parties? Look to express K, practical structure
of the performance, the sense of the deal & intention of the
parties, custom, what seems to make most commercial sense, etc.
E.g., concrete hard to apportion, but logically separate from
windows.
1. By Time (Installments) (R.2d 233)
1. Performance is all due at one time, unless not possible or
otherwise provided.
2. When partially due at one time, other partys performance (by
default) is also due if it can be so apportioned that there is a
comparable part due then.
3. Kelly Constr. would probably have come out differently: $7
per thousand delivered as needed. this can fairly easily be
apportioned, AND it is fairer to the type of deal the parties
have.
2. By Agreed Equivalents (R.2d 240)
1. Divisible if performances can be apportioned into
corresponding pairs of part performances that are properly regarded
as agreed equivalents, such that part performance triggers a duty
in the other party.
2. If court finds agreed equivalents, a party may be in partial
breach of the contract but still be able to recover on the contract
for a different agreed equivalent.
1. Tipton v. Feitner (N.Y. 1859) (Single Contract to deliver
dressed hogs at one price and live hogs at another price several
days later; otherwise silent. When buyer withheld payment for the
dressed hogs when seller failed to deliver live hogs, seller could
still sue under K and buyer could collect damages for breach of
second contract)
4. UCC 2-307 GOODS
1. All must be delivered in a single delivery, and payment is
not due unless the entire delivery is made, unless circumstances
give either party the right to make or demand delivery in lots, in
which case the price may be apportioned. circumstances may imply
installment contract.
Conditions Is there express conditionality?
I. Express Conditions
1. Condition Defined ( 224) An event, not certain to occur,
which must occur before performance under a contract becomes due,
unless non-occurrence is excused.
2. Effects of the Non-Occurrence ( 225)
1. Performance of a duty subject to a condition does not become
due.
2. Not a breach unless the party is under a duty that the
condition occur.
2. Classification Howard v. FCIC; Conley v. Pitney Bowes
1. Promise?
ORCondition?
2. creates duty
defers duty
3. perf. discharges duty
occurrence creates duty
4. non-perf. breaches
non-occurance excuses duty
5. Contract Damages
Restitution
3. Challenge here is interpretation of the contract language, as
well as an attempt to ascertain intention to determine whether the
parties intended there to be condition.
4. Conditions of Satisfaction
1. Third-Party Condition of Satisfaction Other partys commitment
to accept depends on third-party certification of condition.
2. First-Party Conditions of Satisfaction obligors own
commitment depends on him being satisfied.
1. Objective (utility) OR Subjective good faith (fancy)
5. Time is of the Essence Clauses
6. When May a Condition be Excused?
1. Prevention Parsons
2. Disability - Royal Globe; Semmes
3. Impracticability Grenier
4. Estoppel induced reliance (Gilbert)
5. Waiver voluntary relinquishment of a known right at a moment
in time.
7. Nonperformance grounds for rescission IF so material as to go
to the essence and amount to a repudiation of the contract. If not,
damages possible, but not rescission.
LEVEL OF PERFORMANCEREMEDY
Substantial
(Small breach; Material part of agreed equivalent
delivered)Contract Price Damages
Cost of Performance OR Difference in Value
No breach of constr. condition if substantial performance
Insubstantial
(Significant, material breach; not even a material part was
delivered)Rescission + Quantum Meruit (Off-contract just
restitution)
Even a breaching party can recover in quantum meruit if
performance is substantial, because perfect performance is not
generally a condition to payment.
[Willful Bad Faith]None?
V. PROMISE OR CONDITION?
1. Is this linguistic expression a condition, the nonoccurrence
of which justifies rescission and excuses further performance, or a
promise, the breach of which creates liability for damages?
2. R.2d 227(1) In resolving doubts as to whether an event is
made a condition of an obligors duty, and as to the nature of such
an event, an interpretation is preferred that will reduce the
obligees risk of forfeiture, unless the event is within the
obligees control or the circumstances indicate that he has assumed
the risk.
3. Key factor is whether party subject to condition assumed the
risk of events non-occurrence.
VI. CASES
1. Gladholm v. Hays (England 1841) (promised date of departure
is CONDITON)
1. TEXT: distinct from rest of terms because all the terms use
the word shall, while the clause in question uses the word to leave
on [this date].
2. CONTEXT: Date of departure for a boat charter goes to the
very root and the whole of the consideration of the contract
2. Howard v. FCIC (4th Cir. 1976) (shall not destroy stalks is
PROMISE)
1. TEXT: Did not use the terms condition precedent or similar
words like warranty, when elsewhere it explicitly claimed that
proof of loss is a condition precedent.
2. CONTEXT: No evidence that farmer fraudulently plowed his
stalks under; rather, reasonable evidence suggests he was used to a
different policy and simply didnt know about the provision because
this clause was only added three years prior. Serious forfeiture
risk of finding a condition, while finding no condition still
allows a trial to proceed to determine damages, fraud, etc.
3. POLICY: Insurance policies are to be construed against the
insurer, because general principal of contract law is to construe
language against the drafter
3. Ewell (repayment when he had sold his timber is timing,
PROMISE)
1. TEXT: not clear?
2. CONTEXT: in loan contexts, payment is not usually
conditional! Simply cannot be that the understanding was that If I
do not sell my timber, I do not have to repay you.
4. Aimes (payment of brokers fee upon closing is CONDITION)
1. CONTEXT: It is the brokers job is to ensure that closing
occurs. Broker has assumed the risk that there might not be a deal,
which is the purpose of brokers. Circumstances indicate that
brokers took that risk here
5. Assumption of the risk illustrations from 227.
1. Illus. 1. (Generals payment to Sub due no sooner than five
days after Owner shall have paid General therefor. PROMISE. Sub
should not have to bear Owners credit risk. Subs do not typically
have the luxury of checking out owners credit risk when contracting
with the general.
1. BUT SEE Mascioni, where payments to be made as received from
owner was sufficient to put the Sub on notice that it was agreeing
to assume the risk of Owners nonpayment, especially in the context
of the Depression.
2. Illus. 2. (promising payment to Engineer as soon as the mine
is in successful operation. is PROMISE) Engineer did not assume the
risk that the mine wont open. Hes just doing a job and has no real
control over opening.
3. Illus. 3. (promising additional payment to Inventor of
untested process as soon as the mine is in successful operation. is
CONDITION), because in a deal like this, reasonable to see the
inventor has assumed the risk for two reasons: (1) inventor has
some contro AND (2) seems like taking risk for bonus payout.
VII. CONDITION EXCUSED DUE TO PREVENTION?
1. A party who prevents fulfillment of a condition of his own
obligation cannot rely on such condition to defeat his liability
Parsons.
2. Parsons v. Bristol Dev. (Cal.) (payment of architect fees
only from construction loan funds makes architects payment
expressly conditional on Bristol obtaining a loan.)
1. No Prevention? No; the loan was denied because they did not
have clear title, but the architect did not make any showing to
contradict the apparent fact that Bristol made proper and good
faith efforts to obtain the loan.
VIII. CONDITION EXCUSED DUE TO DISABILITY?
1. Announcement of disability/impracticability is a legal
announcement/ legal intervention excusing performance. If the
disability voids the occurrence of a condition at all, condition
does not revive when disability is removed.
1. Semmes (the fact that the Civil War was going on at the end
of the limitations period voided the limitations period entirely;
insurance claim may still be brought more than year after war
ended.)
2. Royal Globe Ins. v. Craven (impossible to notify insurer of
accident within 24 hours, but the second term requiring of prompt
notification in any case was nevertheless violated, because she
didnt actually notify until five months later)
2. Should a reasonable time requirement spring up if the express
time condition is defeated? Not clear from the cases.
IX. CONDITION EXCUSED DUE TO ESTOPPEL OR WAIVER?
EXCUSED BY ESTOPPEL
(induced detrimental reliance)EXCUSED BY WAIVER
(voluntarily relinquishing known right)
Traditional Common Law:Requires Reliance; Usually RevocableDoes
not Need Reliance;
Not usually Revocable
Actions/signals inducing the other party to rely, which
naturally may be pulled back, so long as other party is
protectedActions/signals manifesting intention to give something up
forever and always, not really about reliance at all.
ExamplesGilbert v. Globe & Rutgers
(12-month suit clause)
1. Insured relied on statements
2. Insurer can revoke, while protecting insured by restarting 12
month period
Porter v. Harrington (prompt pay clause)
Clark v. West (sobriety clause)
1. Obligee relied on statements
2. Obligor cannot revoke, because obligee would be unprotected
(forfeiture; cannot cure late pay, cannot un-drink).
UCC 2-209 recognizes the possibility of:(2) but if
reliance...
(1) waiver revocable by default....
(3) then, irrevocable.
1. ESTOPPEL: Gilbert v. Globe & Rutgers
1. Insured filed claim; insurer stonewalled for a year before
finally denying claim. Insured sued a couple years after that.
Insurer claims that a condition of its liability in any suit is
that the suit be brought within 12 months of the date of the
incident. Insured claims estoppel, because they were induced not to
sue by stonewalling. Court rejects, because Estoppel can be
retracted/removed and the relevant condition revived/reignited.
2. Estoppel instead of waiver because if the agent had been out
there waiving the 12-month clause, the clause would be gone &
not reinstated.
3. Parsons v. Bristol Dev.
1. Not estoppel; Bristol did nothing to induce him to believe
that it had obtained the funds, and architect did not rely on any
belief that the funds had been obtained.
2. WAIVER: Clark v. West (N.Y. 1908)
1. TEXT: Stipulated that full payment for the work (2/3 of total
fair rate) is conditional on the performance of a clause
stipulating that the author abstain from alcohol.
2. FACTS: Author did use alcohol, but publisher said he could
drink some and it would be okay. The use was not excessive and did
not prevent or interfere with the due and full performance by the
[author] of all the other stipulations of the contract.
3. Held, Author is entitled to be able to put on evidence of
waiver at trial, namely that publisher knew he was drinking, urged
him to continue writing, and assured him he would still get the
full money.
4. Cant waive heart of bargain, so the thing waived must be a
condition and not the consideration in the agreement. Here,
argument that abstinence was consideration flops, because a book
was the material part of the agreed equivalent bargained-for, not a
sober author. IF he abstains, then his book is worth the full
rate.
3. Schultz (team treating injured player is WAIVER of reporting
requirement)
1. TEXT: If football player is discharged due to injury and
written notice of such injury is given within 10 days of sustaining
it, then player gets full salary.
2. CONTEXT: Injured player missed the 10-day deadline because he
reported his injury orally to his trainers, and the team treated
him and watched the injury for a period of time before determining
he could no longer play & filing (by then, late)
notification.
3. In this context, the verification and opportunity-to-treat
reqts. of the 10d rule were met.
4. Platt Pacific (when condition is an action, failing to do it
is WAIVER of condition)
1. Parties agreed that a demand for arbitration must be made no
later than August 12.
2. Held, the contractual duty to submit to arbitration is
conditional on meeting that deadline; otherwise, no duty
arises.
3. Plaintiff argues that failing to meet the deadline has no
effect on the duty to submit to arbitration unless the plaintiffs
intended it to be a breach. Court disagrees: When a party fails to
perform a condition that is within its power to perform, it is not
an excuse that the party did not thereby intend to surrender any
rights under the agreement.
4. Term waiver generally indicates voluntary relinquishment of a
known right, but here, waiver occurs upon the simple failure to
perform an obligation.
X. WHEN IS TIME MATERIAL? TIME IS OF THE ESSENCE CLAUSES
1. Typical time is of the Essence case occurs with a contract to
pay money on a stated date. The question of whether time is of the
essence (whether performance is expressly conditional on timely
payment) is a question of the intent of the parties; merely
inserting the words is not enough.
2. Porter v. Harrington (Mass. 1928)
1. Borrower suing lender for specific performance on a contract
to sell land. Trial court orders specific performance; this court
affirms.
2. Installment payment plan on the land, where the contract
makes timely payment an express condition, and gave the lender the
right to void the contract when payments are late and retain all
payments as liquidated damages. Borrower fell behind on payments,
and lender got fed up and exercised the option to close the
account.
3. TEXT: Contract also included clause: prompt performance and
time are the nature and essence of this contract and each of its
conditions. C: hard to make this clearer...
4. Lender tried to argue that its duty to convey the land was
extinguished when the buyer fell behind on payments, because it was
a condition precedent.
5. Court holds that When a party without objection has accepted
overdue payments not made in accordance with the strict terms of
the contract, an order of business has been established
inconsistent with rigid insistence upon a clause of the contract
which in effect is a forfeiture. i.e., accepting delinquent
payments is waiver of forfeiture clauses. Reliance? Yes here, but
not required. Not Revocable.
6. Waiver of one condition is not a waiver of the rest of the
obligations. common default rule in contracts; just b/c waived one
month has nothing to do with the next month. In bank lending
agreements, accepting late payments doesnt mean giving up other
rights! Porter may not be completely accurate, but it makes sense
to not allow Lender to get all his remedies when he has waived some
of his rights already.
3. Notes
1. Buyer obligated to accept late deliveries when it failed to
reject the goods or notify seller of the problems, because the
court determines intent by looking to the conduct of the parties
after the sale but before the formal rejection.
2. The Buyers silence in the face of sellers deliveries now
precludes it from complaining about defects, such as delay in
delivery, that were readily apparent at the time of tender.
XI. CONDITIONS OF SATISFACTION
1. Purpose of the COS is to protect the owners interests,
ensuring that contractor has sufficient incentive to follow the
plans exactly and correct mistakes.
2. What Standard?
1. Reasonable standard should be used for matters of operative
fitness, utility, or marketability
1. Haymore v. Levinson awarding recovery to construction company
even though owners were not satisfied with the work, because the
owners were asserting many arbitrary problems with taste and style.
Building Contracts generally fall into a class where taste, fancy
or sensibility is not of predominant importance.
2. Breslow Granting SJ, because attorney-client relationship
falls into operative fitness rather than taste-and-style category;
client is not allowed to decline payment merely because quality of
service did not measure up to that rendered to defendant by
previous attorneys.
2. Subjective standard is used for matters of satisfaction where
it means fancy, taste, sensibility, or judgment.
1. Fursmidt v. Hotel Abbey: hotel owner can terminate on its own
determination of sufficiency and propriety of drycleaning services.
Purpose of such a clause in the contract is consistent with the
hotel owners full discretion over the type and quality of services
provided in the hotel.
3. 3P Conditions of satisfaction clauses create an expectation
of the exercise of professional judgment in the umpire role. Need a
range of discretion in applying standards of perfection, but cant
collude with other party or simply decline to show up.
3. May be Excused:
1. Waiver Maurer v. School Dist. (Owner effectively waived COS
by making progress payments and everything without requesting COS
until the very end. Or estoppel?)
2. Impracticability Grenier v. Compratt Constr. Co. (Conn.
1983)
1. Where payment was explicitly conditional on receiving a
certain municipal officials certificate, Subs inability to obtain
the letter from the proper person excused any duty to obtain the
letter from that particular person..
2. An alternate method of fulfilling the intent of the condition
would be acceptable, because the intent of the condition was to
ensure valid certificates of occupancy, which were in fact promptly
issued.
3. FACTS: Sub completed work and tried to get certificate. Turns
out that that particular official did not write such certificates,
so one of his assistants authorized another official who then
issued them. BUT general still refused to pay, and claimed
substantial liquidated damages under the contract.
4. Failure to Meet = Breach
1. Where architects certificate was an explicit condition
precedent, it may only be set aside for fraud or a mistake gross
enough to imply bad faith, and simple conformity to specifications
cannot be made the test of whether certification was granted in
good faith. Second Natl Bank v. Pan-American Bridge.
5. Breaching Party May Recover Off-Contract if Substantially
Performed. The refusal of approval does not enable the buyer to
obtain the sellers property without payment.
1. Van Iderstine (Where payment conditional on whether an
independent broker certified the quality of the 21,000 vealskins,
buyer does not have the right to take all but fail to pay for the
ones not approved)
1. No risk of forfeiture in making them pay for substandard
skins, because buyers can easily resell them for market value at
probably small loss.
6. May not be Unfairly Withheld (QUESTIONABLE TO FIND THIS;
NOLAN CLOSE)
1. Nolan v. Whitney (Work completed and agreed-upon progress
payments made. But much of the work was improperly done, and the
architect did not approve, and the final payment was withheld)
1. RULE: It is sufficient if the party bound to perform, acting
in good faith, and intending and attempting to perform his
contract, does so substantially, and then he may recover for his
work [minus compensation for] slight or trivial defects...
2. Holding: When he had substantially performed the contract,
the architect was bound to give him the certificate, and refusal to
give it was unreasonable
What Happens After Breach?Performance
Remedy
Substantial (small breach)
Contract Price Damages
(Small breach; Material part of Cost of Performance, OR
agreed equivalent delivered) Difference in Value
Insubstantial
Quantum Meruit
(Significant breach; not
(Off-contract just restitution)
even a material part)
[Willful Bad Faith]
None (?)
Standard substantial-performance case is a performing party
(e.g., contractor) who is seeking payment for work already
completed. Two Issues:I. Has substantial performance occurred?
1. How much physical work been done/delivered, measured by total
amount of work & by total contract price. If alleged damages
are very large compared to the contract price, easier argument to
say performance wasnt substantial.
II. How should contract damages be measured?
1. Cost of Performance, OR Difference in Value?
I. SUBSTANTIAL PERFORMANCE (813-822)
1. Plante v. Jacobs (Wis. 1960) (Substantial Performance,
because while there were many things wrong with the house, but in
the end none of them went to the essence of the bargain or were
very important to remedy except the living room wall)
2. Jacob & Youngs v. Kent (N.Y. 1921) (Substantial
Performance, rejecting owners argument that the use of the correct
pipes is a condition, and that because the wrong pipes were used,
all obligations excused.)
3. Reynolds v. Armstead (Colo. 1968) (NOT Substantial
Performance where color of veneer bricks was wrong; lower court
erroneously still awarded contract damages because quantum meruit
was zero.
4. Worcester Heritage Society, Inc. (Mass. Ct. App. 1991)
(Substantial Performance where buyer completed most of the promised
exterior restoration of the historic house and also gutted interior
before running out of money and halting the work, but not expressly
repudiation, which would have been a total breach. Here, forfeiture
risk is great if Society is allowed to reclaim the house rather
than simply hold him liable for cost of completion. Tichnor Bros.
v. Evans (Vt. 1918) (Substantial Performance where buyer receives
goods, but refuses to pay because seller breached promise not to
sell to other merchants. Seller is entitled to the contract price
minus any damages)II. ASSURANCE OF DUE PERFORMANCE
1. If one has grounds to believe that other party will commit
total breach, may suspend performance and demand adequate assurance
of due performance under R.2d 251.
2. Failure to give assurance within a reasonable time counts as
repudiation.
3. BUT any independent suspension of performance in anticipation
of a likely breach will be done at partys own risk. Reasonable
belief that the other party will not be able to perform is not an
excuse for nonperformance.
1. Hathaway v. Sabin (1891) (performer suing venue owner after
venue owner failed to prepare for concert due to snowstorm,
assuming performers would be held up. Court finds total breach and
awards contract price. Risk should fall on venue, not
performers.III. GOODS: PERFECT TENDER RULE
1. Buyers have the right to reject all goods if they fail in any
respect to conform to the contract UCC 2-601 Llewellyn wanted to
say material respect, which would reject the perfect tender
rule.
2. Conformity means perfect performance of contract, NOT perfect
goods. Substantial performance rule does not apply in commercial
contracts for goods.
3. TEST:
1. Goods or Services?
1. Look to the primary thrust of the contract: primarily the
delivery of a good with labor incidental (custom computer
software), or primarily the rendering of a service with a delivery
incidental (installing a roof on a house)?
2. If Goods, determine the obligations under the contract,
including implication from circumstance, particular course of
dealing, and trade usage.
3. Determine whether the goods actually meet the standard.
4. If they fail, the buyer may reject in good faith.
5. Must consider forfeiture risk.
4. Printing Center of Texas, Inc. v. Supermind Pub. Co. (Tex.
Ct. App. 1984)
1. Publisher/buyer suing printer/seller for breach of contract
for printing 5000 of its books, alleging defects and seeking return
of deposit. Jury found for Publisher/buyer. This court affirms.
2. Goods or Services? Contract to print books is arguably
services governed by common law, but here plaintiff sued under
UCC.
3. Obligations: contract specified only quantity, trim size,
type of paper, & cover.
4. Met Standard? number of books had off-center artwork,
wrinkled pages, etc. Held, falls under implied warranty of
merchantability, 2-314.
5. Good faith rejection? here, yes. Defects were not minor.
Still contestable, and under CL court would scrutinize perf. more
closely; how many were damaged, etc.
6. Forfeiture Risk must be considered here, because the books
are manufactured specially for this publisher.
5. Cant prevent rescission for impracticability/force majeure:
any imperfect delivery entitles the buyer to rescind & refuse
all. Prescott v. J.B. Powles (Wash. 1920)
1. Obligations: contract specified sale of 300 crates of
onions.
2. Defective? Only shipped 240 crates because the only ship was
requisitioned.
3. Good faith rejection? Yes. Seller may not force the buyer to
accept incomplete performance due to impossibility.
4. Forfeiture Risk was assumed by seller in a situation like
this. If all onions had gotten on board, but rats ate 60 crates,
cant force buyer to accept the rest.
6. Time is not of the essence under UCC unless it appears that
the parties intended time to be a strict condition. Beck &
Pauli Lithographing (8th Cir. 1892)
1. Seller/Artist suing Buyers for contract price on
sale-of-goods contract when buyers refused to accept. Court
directed verdict for buyers; here reversed.
2. FACTS: Lithographing contract provided that artist would
prepare the designs, submit them for approval, engrave them in
first class style, and furnish the printed materials within 1889.
Expensive and drawn-out process finally wrapped up in December, but
the shipments did not arrive until the first few days of January
1890.
1. Obligations: design, engrave, and print custom papers;
furnish within 1889.
2. Defective? A few days into 1890.
3. Good faith rejection? not justified by the trifling delay,
time is not a material part of the bargain here, and was clearly
not a strict deadline. Substantial performance.
4. Forfeiture Risk is very significant. In a contract for
artistic work and skill, the items are unique, and they cannot
simply sell them elsewhere.
7. Substitute of conforming tender must also be perfect.
Worldwide RV Sales & Service
1. Rescission where contract for motor home specified clearly
that it would be outfitted with dual roof air conditioning, but
they only built it with one.
2. Dealers offer to fix it by installing two more in the proper
places, and taking the original out would leave a hole in the
roof!! Not perfect under PTR. Rescission.
IV. GOODS: ACCEPTANCE & INEFFECTIVE REJECTION
1. Acceptance in the face of nonconformity effective when the
buyer has a reasonable opportunity to inspect the goods and
signifies to the seller that it will take them in spite of
nonconformity, OR when buyer fails to make an effective
rejection.
2. After Acceptance, Buyer may only revoke if it can demonstrate
that any nonconformity substantially impairs [their] value to
him.
1. Fortin: Look to the subjective needs of the buyer, and the
totality of the circumstances in each particular case. Even
cosmetic defects can qualify if they go unrepaired despite numerous
complaints, or are such that they make unusual or excessive
maintenance necessary for use. Even if they are curable, they
reduce the value if they occur in a series and shake the buyers
confidence and raise his apprehension of the good.
2. Plateq Corp. (Conn. 1983) Judge Peters
1. Contract to custom-build tanks. Builder/Seller was in breach
for major delays. BUT buyers inspector looked them over and noted
only a few more deficiencies, which seller promised to remedy by
the next day. Inspector implied that a truck would arrive soon to
pick them up. Instead, buyer issued general cancellation.
2. Acceptance Valid under UCC.
1. Inspector knew about the nonconformity and still manifested
willingness to take them. Waived. 2-606(1)(a)
2. AND buyers failed in their nastygram to offer an alternative
means of and opportunity to cure. 2-606(1)(b)
3. Revocation Wrongful.
1. No impairment of value.
2. Forfeiture risk was very great. Tanks could not be
resold.
3. Fortin v. Ox Bow Marina (Buyers revoked acceptance of
powerboat after 4 months).
1. Valid Revocation:
1. Massive problems impairing value, and not cosmetic or
insubtantial: engine overheating twice, pumps defective,
electronics malfunctioning, toilet not working, etc. Some were
repaired by seller, but many were not despite repeated complaints,
despite the fact that the seller manifested an intention to repair
it and attempted to do so.
Third-Party Beneficiaries (843-854)
I. Intended Beneficiaries (Creditor/Donee) R.2d 302(1)
1. Recognizing the beneficiarys right to performance must be
appropriate to effectuate the intention of the parties.
1. Where there is doubt as to whether reliance is reasonable,
considerations of procedural convenience or public policy may
require recognizing the beneficiaries right even if the parties did
not explicitly so intend
2. Need either (a) a money obligation by promisee to beneficiary
which the promise would satisfy (creditor beneficiary) OR (b)
evidence of promisees intent to give the beneficiary the benefit
from promisors performance (donee beneficiary)
1. Examples of Such Evidence: Promise is to to perform promisees
duty to beneficiary; to discharge beneficiarys lien on promisees
property; to satisfy duty of third person; to make a gift to
beneficiary, etc.
2. Bottom line: beneficiary is intended if, under the
circumstances, beneficiary is reasonable in relying on these
manifestations to confer a right on it.
3. Illustrations :
1. 8. A conveys land to B in consideration of B's promise to pay
$15,000 as follows: $5,000 to C, A's wife, on whom A wishes to make
a settlement, $5,000 to D to whom A is indebted in that amount, and
$5,000 to E, a life insurance company, to purchase an annuity
payable to A during his life. C is an intended beneficiary under
Subsection (1)(b); D is an intended beneficiary under Subsection
(1)(a); E is an incidental beneficiary...
2. 10. A, the operator of a chicken processing and fertilizer
plant, contracts with B, a municipality, to use B's sewage system.
With the purpose of preventing harm to landowners downstream from
its system, B obtains from A a promise to remove specified types of
waste from its deposits into the system. C, a downstream landowner,
is an intended beneficiary under Subsection (1)(b).
3. 12. B contracts to build a house for A. Pursuant to the
contract, B and his surety S execute a payment bond to A by which
they promise A that all of B's debts for labor and materials on the
house will be paid. B later employs C as a carpenter and buys
lumber from D. C and D are intended beneficiaries of S's promise to
A, whether or not they have power to create liens on the house...
(????)
4. 15. A buys food from B, a grocer, for household use, relying
on B's express warranty. C, A's minor child, is injured in person
by breach of the warranty. Under [UCC 2-318], without regard to
intentions of A or B, the warranty extends to C...
II. Incidental Beneficiaries R.2d 302(2)
1. If someone is not an intended beneficiary, then there is no
duty to them and they have no right to sue on the promise.
1. Illustrations :
1. 16. B contracts with A to erect an expensive building on A's
land. C's adjoining land would be enhanced in value by the
performance of the contract. C is an incidental beneficiary. . .
.
2. 19. A contracts to erect a building for C. B then contracts
with A to supply lumber needed for the building. C is an incidental
beneficiary of B's promise, and B is an incidental beneficiary of
C's promise to pay A for the building.
2. Lawrence v. Fox (N.Y. 1859)
1. Third-party creditor suing promisor for breach of promise to
pay third party $300. Court denys a motion to dismiss and the jury
finds for the third-party. Affirmed.
2. FACTS: Holly $300 loan Fox, in consideration of promise to
give to Lawrence.
3. Issues:
1. Lack of Consideration?
1. Court: no consideration problem here; these are bargains, not
gifts; a promise to pay the other persons debt is historically
valid as consideration in an exchange.
2. Lack of Privity?
1. No mutual assent; Fox argues that he cant be sued by Lawrence
because Fox didnt promise Lawrence anything.
2. Court holds that the express promise to Holly created an
implicit promise to Lawrence to pay him $300.
3. Efficiency argument that they should be able to settle the
debt between themselves rather than involving the original
promisee.
4. Concurrence is of the opinion that Foxs promise to pay back
the $300 was actually made to Lawrence back through Holly as agent.
No basis in the facts for an agreement between Lawrence and Holly
authorizing Holly as agent. BUT: Lawrence arguably ratified that
authority after the fact by suing.
5. Dissent argues that the trust concept is a more viable &
reliable way to enforce promises on behalf of third-party
beneficiaries; however, requires a special intention on part of the
recipient to be the custodian, rather than simply the recipient of
a loan. Here, the money was not explicitly a trust fund given to
Fox in Lawrences name
3. Seaver v. Ransom (N.Y. 1918)
1. Niece suing uncles estate on promise by uncle to aunt to pay
niece in his will. Trial court awarded judgment to niece; here,
affirmed.
2. Wife wanted to change her will to leave house to niece
instead of husband, but was afraid she would die before it was
ready for her signature. Husband/uncle promised her that if she
would sign it and leave the house to him, he would leave niece a
corresponding amount in his will. He didnt, and niece sued.
3. Court finds no significant difference between this case and a
case where either there had been no promise but the niece was
actually their daughter (legal obligation), or a case where the
will had expressly provided that the money was going to the uncle
on condition that he give it to the niece in his will.
4. Donee beneficiary case; i.e. spouse relationships imply that
a promise made to the husband will benefit the wife, giving her the
right to sue the 3P promisor even though there was no other reason
to believe that husband owed the wife anything.
1. Seaver v. Ransom expands this to extended family
situation.
2. Also, If this was merely a promise to make a gift, it is not
enforceable. Rather, she extracted from the uncle a promise to
complete the gift in her stead her signature on the imperfect will
was consideration.
5. Key is that there is a strong basis for inferring that they
intended the 3P to have the gift; even more key in cases of donee
beneficiaries.
Assignment and Delegation (875-882)
Assignment = Transfer of rights Obligees: Assignor Assignee
Delegation = Transfer of duties Obligors: Delegator Delegate
I. Elements of Assignments
1. Voluntary manifestation of intent by the owner of a right to
transfer it immediately and irrevocably to another person. Assignee
may then enforce that right against the other party.
2. Must be complete relinquishment. Assignor cannot retain
anything.
3. No formalities required unless the right is embodied in a
negotiable written instrument.
4. Obligor (other party to original deal) need not consent,
though must be given notice.
II. Elements of Delegations
1. Assumed in an assignment unless clearly indicated or
assignment is the right to buy land.
2. A promise to the delegator to perform the duties intends the
obligee as 3P beneficiary.
3. This promise is enforceable by either the assignor or the
other party to the original K
III. Limitations
1. Invalid if contract specifically prohibits it, if contrary to
public policy, or if the nature of the contract means that
assignment would infringe on the other partys rights (kosher meat
contract non-kosher packer), place an undue burden on the other
party, or defeat a substantial interest in having the original
obligor himself render or control performance (i.e., contract for
very personal services).
2. Balance interest in free assignability with the reasonable
expectations of parties.
3. Only already-existing rights and duties may be transferred.
May not transfer, say, a power of acceptance to an offer.
IV. INTERPRETATION AND INTENTION: What do the words mean?
1. Clear language of Assignment of rights & duties
controls.
2. Generic, Ambiguous Assignments: Buyer hereby transfers this
contract to A
1. Land: Assignee gets the option to execute the contract, but
is not forced to do so.
2. Everything else: Ambiguous instruments of transfer are
interpreted, when in doubt, as including the transfers of the
rights and the delegation of the duties. Assignee/Delegee is
promising to perform the duties, with the original other party as
the intended third party beneficiary. R.2d 328
V. EFFECT:
1. Assignee now owes duties to other party as 3PB of Assignment.
[Other Party v. Assignee]
2. Other party now owes its duties to assignee, not assignor
[Assignee v. Other Party], provided notice of the assignment is
given.
1. Dinslage v. Stratman (Neb. 1920)
1. Administrator of creditors estate suing debtor. Stratman owed
his mother $1,400; she orally assigned the right to $1000 of that
debt to her granddaughter. Stratman paid the assignee. When
grandmothers estate sued him, the court held that there had been an
effective assignment and an effective discharge of his
obligations.
2. Valid intention to relinquish all rights, plus notice. Oral
assignment OK (especially in the family context) because debt was
never formalized to begin with.
3. **Enough for intent to assign that there is a lack of
manifest intention to retain**
2. Herzog v. Irace (Me. 1991)
1. Promisees assignee is suing obligors for payment of
settlement agreement.
2. FACTS: Obligors were retained as plaintiffs lawyers in a tort
suit. Plaintiff incurred unrelated $doctor bills he couldnt pay,
and so he paid with a note assigning to the doctor right to payment
out of the proceeds of his tort action. A year later he got a $20K
settlement. Plaintiff told obligors he would pay the doctor
himself, but never did.
3. HELD, Assignment of rights to the doctor was effective.
Enough that the letter does not manifest intent to retain any
control.
4. Assignment cannot be revoked unilaterally by Assignor;
statements purporting to revoke were ineffective.
3. Exception: Real property contracts require clear and
unequivocal manifestation of As assumption of duty to go through
with the sale.
1. WHY? greater difficulty on issue of payment in real property
transactions, because of the larger sums involved and need to
assume mortgages.
2. Langel v. Betz (N.Y. 1928)
1. Seller suing buyers assignee for specific performance of
contract to buy land. Trial court awards specific performance; here
reversed.
2. FACTS: assignee asked for more time to close the deal; seller
argues that this operated as an implicit promise to assume the
assignors obligations under the contract. (Cohen v. Kranz; Ziehen
v. Smith)
3. Held, NO. Needs to be an unequivocal act; however, this was a
request, not an assertion of rights to the deal. May not infer a
promise to assume assignors duties without circumstances indicating
to the contrary. Assignee is not bound; it has an option
contract.
1. WHY?
1. No bargain between the assignee and the other party or
promise to assignor of which other party is 3P beneficiary. Court
here weighs the circumstances and finds them not sufficient to
imply a promisor/promisee relationship between other party and
assignee.
2. Court suggests that if the assignee sued to enforce the deal,
that would operate as an implied assumption of the duty to
perform.
4. Assignee now has a right of action not only against the
Obligor, but also against the Assignor.
VI. Misc.
1. Gratuitous Assignments are revocable unless in writing; This
is a harder line than in Dinslage and Seaver in the context of
family relationships.
2. When making the assignment breaches an express contract
provision banning assignment, assignment invalid in some cases, but
in other cases it should be upheld with appropriate damages.
Statute of Frauds (907-930; case examples not assigned)
I. Agreements which are unenforceable without some memorandum or
note thereof in writing and signed by the party to be charged
or