1 Contracts Outline

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Contracts Outline

Introduction Two key elements of a K

· A promise or promises and· Enforcement

A contract is an agreement the law will enforce.Hill v. Gateway

· Judge Easterbrook pro-business opinion (U of Chicago)· Ks are formed when expectations of both sides are met· Law looks to protect those expectations· Law and Economics solving the problem through the most cost

effective method with wealth maximization in mind· Businesses can operate more efficiently when the terms of the K may

be included with the product· Overlooks the application of UCC § 2-207- additional terms to a K aren’t

applicable unless the consumer explicitly agrees in merchant-consumer transactions

· Compare with Klocek

I. Has a deal been made?A. Determining the meeting of the minds

Gozo places little weight upon an actual meeting of the minds.Lucy v. Zehmer

· Objective theory of Ks; modern theory· Reasonable meanings of actions of parties· Outward expression manifests intention over secret,

unexpressed intention· Literal meeting of the minds not required· Reduce business risk and enhance predictability

Undisclosed intentions are immaterial· Not what the offeror meant but the reasonable impression

createdPolicy: This decision paves the way for a more predictable businessenvironment. Businesses risk less when creating a K as the other partycannot bring in their inward intents.Leonard v. Pepsico

· An advertisement doesn’t represent a valid offer unless specificconditions are included

· Reasonable assessment of offers is required· Jokes don’t count as valid offers· Restatement § 26- most advertisements aren’t offers to sell

because they don’t contain sufficient words of commitment· Preliminary negotiations

1. Advertsising2. Invitation of bids or other offers

Smith v. Boyd· Each party must have an objective intent to be bound· Trade practices imply knowledge of parties to what is typically

required (Real estate requires written agreement)



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· Expectation of informed participants- parties entering into abusiness arena are expected to have knowledge of the rulesand customs that govern

· Nature of real estate requires writing (Statute of Frauds)· Subjective intent may be indicative of objective intent· Considerations of objective intent

1. trade practices2. prior dealings between parties3. who drew up the agreement4. statements made during negotiations

B. OfferAn offer is a statement or act that creates a “power of acceptance.”When an offer is made the offeror is indicating that he is willing to beimmediately bound by the other’s acceptance, without furthernegotiation.Assent typically occurs by a mutual concurrence and understanding of the parties. Important to note the context in which the agreementtakes place.Invalid offers:

· Made in jest· Expression of opinion· Preliminary negotiations· Statement of future intentions· Solicitations of bids (auctions with reserve)

Rest § 24 Offer Defined· An offer is the manifestation of willingness to enter into a

bargain, that is made in a way that justifies another person inunderstanding that his assent is invited and will conclude it

· The offer itself is a promise, revocable until acceptance

·Proposal of a gift is not an offer, it lacks the elements of exchange

Rest § 26 Preliminary Negotiations· A manifestation of willingness to enter into a bargain isn’t an

offer if the offeree knows or should know that the deal isn’t tobe closed until the offeror has made a further manifestation of assent

· Reason to know depends on words and conduct, previouscommunications, and the trade usages involved

· Advertisements aren’t offers without sufficient language of commitment

· A price quote is usually intended to invite an offer but relevantfactors such as previous inquiry, completeness of terms, andnumber of parties to which the communication is addressedcould render a quote an offer

Rest § 27 Existence of a K where a Written Memorial is Contemplated· Manifestations of assent that are sufficient to create a K are not

prevented from becoming so because the parties manifest anintention to prepare a written document

· The circumstances may show that the prior agreements werepreliminary negotiations

Rest § 28 Auctions



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· Unless a contrary intention is manifested, an auctioneer invitesoffers from the bidders which he may accept or reject

· When goods are put up without reserve, the auctioneer makesan offer to sell at any price to the highest bidder, and after theauctioneer calls for bids the goods cannot be withdrawn unlessno bid is made within a reasonable time

· Whether or not the auction has a reserve, a bidder maywithdraw his bid until the completion of the sale, but the bidcannot be revived by retraction

· Unless a contrary intention is manifested, the terms of theauction are embodied by the advertisements and other postingswhich may be modified by auctioneer’s announcement

· Explicit auction rules prevail over these general rules· Without reserve typically means the goods won’t be withdrawn

Lonergan v. Scolnick· There is no valid offer if party accepting knows that some

further expression of assent is needed· Advertisements are requests for offers unless specific conditions

are added· DETERMINATIVE FACTS

1. First letter form letter2. Second hopes for a buyer soon

Fairmont Glass Works v. Grunden-Martin Woodenware Co.· Express language can invoke a binding offer· Offer cannot be withdrawn after acceptance· Price quotes aren’t offers unless specific words of commitment

are present· Trade customs relevant to determination· Test for offer under UCC: whether it induces the recipient to

reasonably believes that acceptance is all that is necessary toclose the deal· DETERMINATIVE FACTS

1. Wasn’t an advertisement2. Specific inquiry3. Language of the quote “for immediate acceptance”

Donovan v. RRL Corporation· Statutes can cause advertisements to become offers· Reasonable expectation of seller’s intent created by regulatory

guidelines· Tender of purchase price creates a unilateral K · Specific language such as first come, first served constitutes a

binding offerC. Destroying the Offer

Offers create the power of acceptance in the offeree. When an offer ismade in face to face conversation, the default rule is that it expireswhen the parties part company.Rest § 35 Power of Acceptance

· An offer gives the offeree a continuing power of acceptance· Offeree cannot accept until the offer is complete

Rest § 36 Methods of Terminating the Power of Acceptance



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· Termination may occur by1. Rejection or counter offer by the offeree2. Lapse of time3. Revocation by the offeror4. Death of the offeror or offeree

1. Indirect RevocationDickinson v. Dodds· Reasonable expectation that all is required is acceptance

on the part of the offeree· Without consideration it is not mandatory for an offer to

be held open for a promised amount of time· Notification must be made to offeree to revoke offer but

court is flexible as to how the notification takes place· No consideration=No option

2. LapseMinnesota Linseed Oil Co. v. Collier White Lead Co.

· Acceptance is affected once dispatched unless the K isan option K

· Revocation when received· Offers are valid only for a reasonable amount of time· Reasonable time depends upon the circumstances and

character of the subject matter of the K · Items that fluctuate greatly in price over short periods of

time require immediate acceptance· Offers for unstated periods of time lapse after a

reasonable time· A reasonable time contemplates how rational parties

would have understood each other3. Death or Incapacity of Offeror

New Headley Tobacco Warehouse Co. v. Gentry· Options to renew Ks are subject to withdrawal beforeacceptance or reliance, when consideration is absent

· Death of a party who has the right to revocationterminates the offer

· Rest. § 41o A power of acceptance is terminated at the time

specified in the offer or if no time is specified, atthe end of a reasonable time

o What is a reasonable time is a question of factdepending on all the circumstances that existedat the time of offer and attempted acceptance

o When not otherwise stated, an offer is effective if mailed at any time before midnight on the day inwhich the offer is received

o An offer is irrevocable once an acceptance hasbeen mailed; this imposes a risk of commitmenton the offeror

· Rest. § 48o An offeree’s power of acceptance is terminated

upon the offeror’s death



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o In absence of legislation the rule remains in effecto When an offeree dies or becomes incapacitated,

the offer dies unless the terms of the offer allow arepresentative to accept

o This rule does not affect option Ks· Subjective theory holdover

o Party cannot perform terms of K if dead.However, if K would have been able to accept justprior to death, K would have been valid andofferor would still be unable to perform. Thistechnicality shows that perhaps this rule isoutdated.

D. Preserving the OfferBeall v. Beall

· Consideration given to hold offer open creates a binding optionto contract

· Option sells the power to revoke· Death doesn’t terminate an option

· An option without consideration is simply an offer· Gozo feels the rule requiring consideration to be paid is

outdated and overly technical; Compare to Rest· Offers accepted within the time limit of an option without

consideration will create a K unless the offer is withdrawn priorto acceptance

· The time limit will generally represent a reasonable amount of time

Board of EMU v. Burgess· Consideration must actually be paid or option is not valid· Substance over form· Minority position· Under UCC: Firm offers between merchants are irrevocable

regardless of consideration· All offers are revocable unless they are supported by

consideration or made enforceable by statute· Rest. § 87-

o An offer is binding as an option K if it is in writing, signedby the offeror, purports consideration, and containsterms

o An offer that is reasonably expected to cause action orforebearance on the part of the other party and does so,creates a binding option

· Form over substanceE. Modes and Methods of Acceptance

Acceptance of an offer is a manifestation of assent to the terms madeby the offeror in a manner invited or required by the offer. Anacceptance is a statement or act that indicates the offeree’simmediate intent to enter into the deal proposed by the offer. As longas the acceptance takes place while the offer is outstanding, a K isformed as soon as the acceptance occurs. An offer can only beaccepted by the person whom it invites to furnish the consideration.

Termination of an offer:



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· Rejection· Counteroffer· Revocation· Lapse

Rest § 54 Acceptance by Performance; Necessity of Notification

· When an offer invites acceptance by performance, nonotification is necessary to make acceptance effective unlessrequested by the offer

· If the offeree knows the offeror would have difficulty learning of his performance, the offeror’s duty is discharged unless1. The offeree exercises reasonable diligence to notify the

offeror2. The offeror learns of acceptance within a reasonable time,

or3. Notification isn’t required

Rest § 56 Acceptance by Promise; Necessity of Notification· Acceptance by promise, unless otherwise specified, requires the

offeree to exercise reasonable diligence or the offeror to receiveacceptance seasonably

1. Control Over the Manner of AcceptanceLa Salle National Bank v. Vega

· Default rules for Ks unless otherwise specified therein· The terms of execution made explicit in an offer must be

followed by both parties or no K existsEver-Tite Roofing Corp. v. Green

· Offeror must notify offeree in order to effectively revokean offer

· Preparatory acts don’t represent assent until theycommunicate that the acts are for a specific job

· When did the acts of π in this case represent assent?1. Loading of the truck?2. Arrival at the house?

· Assent typically must be communicated to createbinding option through a unilateral K

· Case different in that courts typically rule in favor of theconsumer

Davis v. Jacoby· Offeree given choice of method of acceptance under

restatement· Offeror is less sovereign than before over the method of

acceptance unless it is explicitly stated

· No notification of acceptance is necessary for unilateralK; performance of conditions is acceptance of theproposal

· In cases of doubt, it is assumed that Ks are intended tobe bilateral

· Circumstances must be considered· UCC gives option of acceptance by performance or

expression of assent



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· Old rule required acceptance by performance and alsoallowed the offeror to revoke the offer before completionwithout penalty

· Rest. § 45o When an offer invites acceptance by

performance, and performance has begun, abinding option K is formed

o The offeror’s duty of performance is conditionedupon the completion or tender of the invitedperformance

o Promise may not be effective as acceptance· Rest. § 90

o A promise that is expected to reasonably induceaction or forbearance on the part of the promiseor 3 rd person and does so may cause forenforcement or remedy based on limited breach

2. Effectiveness of Promissory AcceptanceHendricks v. Behee

· Notice to the agent is notice to the principal· Notice of acceptance must occur before revocation· Acceptance of an offer doesn’t occur until communicated· Notice to your own agent isn’t effective

Adams v. Lindsell· Mailbox rule· Acceptance is effective upon dispatch even if the letter

is lost· Agency not a factor (Gozo)· All other communications are effective upon receipt,

meaning once the writing comes into the person’spossession

· Along with death terminating an offer, this representsthe most glaring holdovers from subjective theory

· Resistant to change due to its universal nature· Doesn’t apply to option Ks under Rest, but does under

common law· If you don’t want to be subject to rule, use a different

medium or specifically include different terms in the K · A delivery method equal to or better than the method

used by the offeror must be used or acceptance iseffective upon receipt

o Rest § 67 make effective improper mediums aslong as seasonably accepted

o Ex: A offers B through telegram and requestsacceptance by the same by Thursday noon. Bmails acceptance that arrives Thursday morning.A cannot revoke by phone on Tuesday morning if the acceptance is already mailed.

3. Effectiveness of Acceptance by PerformanceUnless otherwise stated an offer is treated as invitingacceptance in any manner or medium reasonable in thecircumstances.



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Carlill v. Carbolic Smoke Ball Co.· Ads can be considered in line with rewards when they

convey a reasonable intention to give rewardo Rest § 46 Revocation of a general offer must

occur by notice of termination given publicly in away equal to that of the offer when no better

means is reasonably available· Performance of the conditions is acceptance· Must know of the offer when appearing to perform; eg To

collect a reward for a lost dog you must know of thereward before giving the dog back. Can learn of thereward at any point before delivery.

· Completed performance completed before the offercomes to the offeree’s knowledge does not reference orsatisfy the offer

· Area carved out of traditional K lawMarchiondo v. Scheck

· Beginning of performance upon a unilateral K creates a

binding option· Full performance within terms of the offer are required· Offeror must let performance be done· Performance must be completed in a reasonable time· Rest. § 45

4. Acceptance by Silence or InactionLaredo National Bank v. Gordon (Where the relationship

between the parties creates a duty to reply or where silence will bemisinterpreted an acceptance occurs

· Silence will be construed as acceptance when one partyallows another to operate under the assumption that theoffer has been accepted

· Rest. § 69o When an offeree fails to reply to an offer, his

silence represents acceptance in the followingcases only:

o When the offeree takes the benefit with thereasonable opportunity to reject it

o Where the offeror has given reason thatacceptance may be affected by silence and theofferee intends to accept by silence

o Because of previous dealingso If the act is wrongful to the offeror, it is

enforceable only if ratified by him

o Usual requirement is notification· General rule is that silence doesn’t signify assent unless1. offeree accepts benefits with the opportunity to

reject2. reason has been given to convey silence as

acceptance3. because of prior dealing offeree knows or should

know that notice should be provided to avoidacceptance



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5. Imperfect AcceptancesEgger v. Nesbit

· Mirror image rule· Acceptance must be unequivocal, unconditional, and

without variance in regards to the offer· Best way to accept “I accept”

· Two readings of case1. Initial letter didn’t conform with mirror image rule

and thus was a counteroffer that is only effectiveupon receipt. Because it was lost, the offer lapseddue to time. (Gozo reading)

2. Initial letter was effective upon dispatch and rejectedoffer through mirror image rule. (Misreading of dispatch rule by the court)

Dorton v. Collins & Aikman Corp.· UCC § 2-207 once material terms are agreed upon, a K

exists and any trade of additional terms does not void K · Battle of forms

· Additional terms that don’t materially alter the terms of the K are treated as proposals in addition to the K andbecome effective after 10 days unless objected to byone of the parties. (Between merchants)

Klocek v. Gateway· Gozo’s reading of the Gateway cases· Goes against Easterbrook opinion in Hill· UCC § 2-207 does apply· Additional terms don’t apply under § 2-207 unless

explicitly agreed to (When consumer is involved)· Buyer is offeror, Gateway accepted as offeree and

proposed additional terms· Comparisons between this case, Dorton, and Hill

encompass major issues of the courseF. Completing the Agreement

An acceptance of an offer isn’t effective unless the terms of the K arereasonably certain.1. Indefinitness and Open Terms

Varney v. Ditmars· Vague and indefinite promises can’t be enforced· Conjecture shouldn’t be used to fix damages· Executory Ks rely on good faith of offeror· Ct. shouldn’t involve itself in enforcing incomplete Ks· Old rule· New rule espoused in Cardozo opinion looks to what is

reasonable· Fair and reasonable within the marketplace means

market value· Damages can be estimated by evaluating situation

Nora Beverages v. Perrier Group of America· Quantity more important than price



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· What details must be determined and which ones can befilled in?

· Price not as important as duration and quantity· UCC case; UCC pro-formation· Small missing terms not fatal to K

· Market price can be used2. Agreements to AgreeWalker v. Keith

· Compare to Moolenaar· K must give method for ascertaining with certainty that

a price can be fixed· There can be no agreement to agree· Courts should not force parties into agreements when

they can’t agree· Old rule

Moolenaar v. Co-Build Companies, Inc.· Intention of the parties when the lease option was made

must be examined for determining reasonable price· Agreement can be enforced and price set by the court· The option is a material term of the initial K and lessee is

considered to have given consideration through originallease

· Modern view of UCC even though it doesn’t apply here· Set rent according to original intent of the parties; Here

that use is agriculture· Future Ks should have helpful items such as rent caps or

formulasG. Pre-Contract Formation Liability

BMI v. Centronics Corp.

· Good faith is indefinable in business (Gozo- not a goodargument to attempt argument at good faith because everyonehas a different view of what is called for); Especially duringnegotiations

· Promissory estoppel must establish1. a clear and definite agreement2. the party acted to its detriment relying upon the other party3. equities support enforcement to avoid injustice

· Damages are limited to the extent of reliance· Rest. § 90

H. Defeating Agreements Based on Misunderstanding of the Terms There is no mutual assent if the parties have assented to different

things. Raffles v. Wichelhaus· Any mistaken term can void the agreement· Very subjective view· Classic case of mutual mistake

Hill-Shafer Partnership v. Chilson Family Trust· Parties must be attempting to contract for the same thing· Material difference of understanding in a K can render it void



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· Rest. § 20- no K is formed if neither party is at fault or if bothparties are equally at fault; comparative fault

II. Is it a deal that the law will enforce?A. Preview

Questions surrounding enforceability:

1. What do courts do to enforce contracts?· Injunctions· Damages· Specific performance

2. Why aren’t all agreements legally enforceable?· The way the deal was made· Parties involved· Terms of the deal

3. Which agreements aren’t legally enforceable?B. Mistaken, Unstated Factual Assumptions

Three core problems

1. Proof- How do you prove what your client was thinking butdidn’t say when he entered the agreement?2. Policy- Why should the courts excuse someone from a contract?3. Rules- Once the courts decide the policy, what rule should the

court decide advances this policy?Rest § 151 Mistake Defined

· A mistake is a belief not in accord with the facts· An erroneous belief at the time of formation· Need not be articulated and may be an assumption· Erroneous predictions of the future are not mistakes· Legal consequences determined by contractual liability

Sherwood v. Walker

· A party may refuse to execute a contract if it was consummatedupon a mistaken material fact when the mistake is mutual

· The mistake must go to the substance of the thing, rather than just the quality

· Relief generally isn’t given for a mistake on the part of only oneparty to the contract (unilateral mistake)

· Execution of the contract is necessarily important to whetherrescission may take place

· Who gets to enjoy windfalls from the risks taken in a contractand who bears the risk?

· How valid does the price appear to be, taking into account thelikely intentions of the parties?

· Speculation or mistake?· A line must be drawn between cases of unilateral and mutual

mistake· Separation of inadvertent errors from misjudgments· Rest § 152

o When a mistake regarding a basic assumption which theparties had a formation causes a material effect on the



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agreement, the K is voidable by the adversely affectedparty unless he bears the risk of mistake

o In determining materiality, account is taken of relief byreformation, restitution, or otherwise

o PER doesn’t bar evidence that establishes the mistakeso Parties must be mistaken as to the same assumption or

it is a unilateral mistake, making the K voidable only if the voiding party does not bear the risk

o Must affect the basic assumption on which the K wasmade

· Rest. § 154o A party bears the risk of mistake when it is allocated to

him in the agreement, he is aware of the mistake at thetime of formation that he only possesses limitedknowledge, or the risk is allocated to him by the court

Burggraff v. Baum· Knowledge of the law is imputed to us· Old rule

· Mistakes of law v. Mistakes of facts· Parties are presumed to know the law or at least be capable of

verifying it· Misread of Jefferson (referring to criminal law)· Must be a good faith mistake for the contract to remain valid· Restatement doesn’t distinguish between mistakes of law and

those of fact· Mistake of law may be grounds for rescission if one party

possesses superior knowledge· Rest § 152

Donovan v. RRL Corp.· 4 part test for rescission due to unilateral mistake of fact

1. Mistake made regards basic assumption upon whichcontract is made

2. Mistake has a material, adverse effect upon the agreedexchange

3. ∆ doesn’t bear the risk of the mistake4. The mistake is such that enforcement would be

unconscionable or5. The other party had reason to know of the mistake or

caused the mistake· Unconscionability· Rest §§ 152, 154

· Rest. § 153o A mistake at the time of formation by one party may

make the K voidable if he doesn’t bear the risk and theeffect of enforcement would be unconscionable or theother party had superior knowledge

· First Restatement only allows rescission for mistake due to thefault of another or where one party has reason to know that themistake exists

Rest § 155



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· Where a writing embodying an agreement fails to express thecorrect terms due to a mistake in the writing, the court mayreform the writing to express the agreement to the extent thatit does not affect 3 rd party good faith purchasers

Rest § 157· Only a mistake that involves a failure to act in good faith will

bar avoidance or reformationC. Fraud, Fraudulent or Material Misrepresentation, and Nondisclosure

Part law, Part common senseHalpert v. Rosenthal

· If one is induced into a contract by material misrepresentation,the contract may be rescinded even if the misrepresentationwas innocent when the other party relies on it to his detriment

· Knowing representations are easy cases· Speaker of the misrepresentation bears the loss· Different categories of misrepresentation:

1. Deceit (tort)- requires some degree of culpability on the partof the misrepresenter. π has burden of proving that ∆ made

statements that were false and likely to deceive π2. Material misrepresentation- a suit to rescind a contract

based on misrepresentation whether it was innocent or not3. Innocent misrepresentation- the speaker actually believes

what he is saying. Unqualified statements· A misrepresentation is material when it is likely to affect the

conduct of a reasonable person· Rest § 159

o A misrepresentation is an assertion not in accord withthe facts

o Must relate to something in the past or present but notthe future

· Rest § 160o An action is equivalent to an assertion when it is known

that its is likely to prevent another from discovering thefact

o Hiding of defectso Reading a written offer and intentionally omitting a parto Frustration of investigation

· Rest § 162o A misrepresentation is fraudulent if it is known not to be

trueo A misrepresentation is material if it would likely induce a

reasonable person to assent· Rest § 164

o If assent is induced by fraudulent or materialmisrepresentation the other party may void the K

Swinton v. Whitinsville Savings Bank· Old rule· Law cannot require a seller to list every known defect· It would place too great a burden on courts to enforce such

deals



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· Moral duty, not legal duty· No defense to enforcement of an agreement based on

nondisclosure· More up front transaction costs for parties due to investigations

that must be madeWeintraub v. Krobatsch

· Intentional hiding or nondisclosure that was significant to thecontract justifies rescission

· Fair justice and dealing require both parties to disclose materialfacts that greatly affect value

· Minor conditions not included· Silence is fraudulent if a material fact is concealed or

suppressed when good faith requires disclosure· What constitutes a material fact or condition?· Compare to Swinton and examine the arguments and

ambiguities in between these two positions· Less up front transaction costs

· Rest § 161· These types of cases now allocate risk through standardcontracts

D. CapacityRest. § 12A person who manifests consent to a transaction has full legal capacityunless he is

1. Under guardianship2. An infant3. Mentally ill or defective4. Intoxicated

Kiefer v. Fred Howe Motors, Inc.

· Contract of a minor for non-necessities may be voided at hisoption· Exceptions are those that are statutory and those involving

support for illegitimate children· The general rule isn’t affected by the minor’s status as

emancipated or unemancipated (Some states do end minorityby emancipation)

· The fact that a rule of law renders a promise voidable does notprevent it from becoming consideration

· Policy: Protection of the minor from deals that he lacks theexperience to fully enter into and to prevent interference intothe rights of the parent

· Legislature sets age of majority· Two possible methods of binding a defrauding minor:1. Estopping him from denying his majority by proving that the

minor intended to defraud the other party and they justifiably relied upon the minor’s false assertions

2. Allowing the minor to disaffirm but holding him liable for tortdamages; this requires same proof as above

· It is debatable as to what is a necessity



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· Once minor reaches age of majority, his contracts made inminority will be ratified unless disaffirmed in a reasonableamount of time (1 week?)

E. Pressure-Duress and Undue InfluenceDefense typically based upon how the deal happenedRest § 174 Duress by Physical Compulsion

· If conduct appears to be a manifestation of assent by a partythat does not intend to engage in that conduct but is physicallycompelled by duress, the assent is not effective and no K exists

Austin Instrument, Inc. v. Loral Corporation· A contract is voidable on the ground of duress when the party

making the claim was forced to agree by means of a wrongfulthreat precluding the exercise of free will

· Economic duress is demonstrated by proof that immediatepossession of needful goods is threatened (such as threatenedbreach of contract) and there is an inability to acquire goodsfrom another source

· Courts are reticent to find economic duress

· Thin line in deciding these cases Totem Marine & Barge, Inc. v. Alyeska Pipeline Service Company· Economic duress requires coercive act on the part of ∆ and no

alternative but to accept for π· If free will and judgment of a party are precluded by fear, a

threat has occurred· Must prove ∆ is acting in bad faith; π has burden of proof · Balance between a bad contract or settlement and a showing of

one party taking advantage of another· Duress exists where:

1. One party involuntarily accepts the terms of another2. Circumstances permitted no alternative

3. Such circumstances were the result of coercive acts of theother party

· Requirement of coercion may be satisfied by proving a criminalor tortious act on the part of ∆

· Rest § 175 When Duress by Threat Makes a K Voidableo Improper threat that leaves the victim no reasonable

alternativeo The K is voidable by the victim

Odorizzi v. Bloomfield School District· Undue influence is coercion that overcomes the will without

convincing the judgment· Misrepresentation isn’t necessary as long as one takes

advantage of another’s weakness of mind or distress· Undue influence usually involves the taking advantage of a

relationship· Undue influence requires:

1. A lessened capacity of the object to make a free contract2. Application of excessive strength by a dominant subject

against a servient object· Threat or presentation of choices



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· Elements of overpersuasion1. Discussion of the transaction at an unusual or inappropriate

time2. Consummation of the transaction at an unusual place3. Insistent demand that the business be finished at once

4. Extreme emphasis on the consequences of delay5. Use of multiple persuaders by the dominant side against asingle servient party

6. Absence of 3 rd party advisers to servient party7. Statements that there is no time to consult financial

advisers or attorneys· If a number of these are simultaneously present then the

situation may represent excessive persuasionF. Illegality and Public Policy

Rest § 178 When a Term is Unenforceable Due to Public Policy· A term of an agreement is unenforceable on the grounds of

public policy if the legislature provides that it is unenforceableor the interest in enforcement is clearly outweighed by thepublic’s interest in not enforcing the K

· Minor administrative regulations should not preventenforcement

o Ex: A & B enter K to deliver a sale of goods worth$10,000 at a time and place that would require a $50fine. The court should enforce the K

Rest § 179 Bases of Public Policy Against Enforcement· A policy against enforcement may be derived from

1. Legislation relevant to the policy2. Restraint of trade3. Impairment of family relations

4. Interference with protected interestsRest § 181 Effect of Failure to Comply with Licensing or Similar Req.• If a party is prohibited from performing due to licensing

requirements, a promise in consideration of his promise isunenforceable on the grounds of public policy if 1. the requirement has a regulatory purpose2. the interest in enforcement is outweighed by public policy

Covert v. South Florida Stadium Corporation· Exculpatory clause- a clause that removes a party from liability

when he has acted in good faith· Exculpatory provisions that relieve a party of their negligence

are generally looked down upon

· For them to be enforceable the intention of the parties must beclear· Must be no ambiguity and rights be given up must be

conspicuous as well as an even amount of bargaining powerand no gross negligence exemption

· Must be no or few other options for party signing agreement(such as competing businesses)

· Courts must attempt to figure out public policy· Rest. § 195 Rationale for Policy Against Exculpatory Clauses



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o One cannot exempt himself from liability due tointentional or reckless conduct

o A party’s attempt to exempt himself from liability fromnegligence may be construed as unconscionable

Valley Medical Specialists v. Farber· Covenants not to compete are valid only if they protect a

legitimate business interest from competition and doesn’t takeadvantage of unequal bargaining power

· Public policy has a great interest in balancing the interestprotected and benefits to society

· Very specialized interests are entitled to unique protection (Dr.-patient)

· A restriction is unreasonable and won’t be enforced if 1. the restraint is greater than necessary to protect the

interest2. the interest is outweighed by hardship to the employee and

likely to injure the public· The restriction must not be greater than necessary as defined

by its duration and geographic scope· Blue pencil rule may be applied to fix good faith attempts· Policy of freedom to contract vs. freedom to work· Goes against free enterprise nature

R.R. v. M.H.· Surrogacy agreements are the most complicated and

controversial cases considering a public policy defense toenforceability of agreements

· Differing opinions of the states regarding validity of surrogacyagreements1. Some deny enforcement of all such agreements2. Some deny enforcement only if the surrogate is to be

compensated3. Some have exempted surrogacy agreements from provisions

making it a crime to sell babies4. Some have explicitly made unpaid surrogacy agreements

lawful5. Arkansas presumes the child born to a surrogate mother is

the child of the intended parents and not the surrogate6. Massachusetts applies the adoption statute that doesn’t

allow for a mother to give up her child before the forth dayafter the birth

· Public policy of protecting women’s bodies from commercialuses

· Not a simple task to find the right policy· Cases are very fact specific and don’t make good precedent· Scientific advancement vs. Traditional constraints (Constitution)· Posner says enforce them

G. UnconscionabilityLooks at both bargaining process and terms of the bargain whilecombining elements of misrepresentation, undue influence, duress,and nondisclosure



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UCC § 2-302Williams v. Walker-Thomas Furniture Company

· Enactment of UCC by Congress has allowed for contracts thatare unconscionable at the time of their formation to be voidable

· The contract must have an absence of meaningful choice byone of the parties as well as unreasonable terms

· Does moral obligation become a legal obligation?· Meaningfulness of the choice may be negated by a gross

inequality of bargaining power· Considerations to observe in contract:

1. Manner in which the contract was entered2. Reasonable opportunity to understand the terms of the

contract with respect to the party’s education of lack thereof 3. Bargaining power

· Whether the terms are so unfair the enforcement should bewithheld

· Primary concern is the terms of the contract in the light of thecommercial background and the commercial needs of theparticular trade or case

· What about freedom to contract?· Triggering mechanisms are if there are apparent or obvious

inequalities of bargaining power and it appears that the partytook advantage

· Should stores have to protect customers from themselves?· Success depends on the facts· When the concept of unconscionability developed it appeared

that it would be huge force in K law; The opposite has been true· Many oppose its application in commercial bargaining

Morrison v. Circuit City

· Substantive: A contract is unconscionable when its terms areunfair and unreasonable· Procedural: The relative bargaining power· Adhesion contract- a standardized contract offered on a take it

or leave it basis· Adhesion contracts don’t exist where meaningful choices exist· Standardization of contracts allows for the use of cheaper

personnel, greater efficiency, and more operational fluidityH. Consideration

A BARGAINED FOR EXCHANGEPurpose of consideration is to distinguish between gratuitous and non-gratuitous promisesRest § 71 Requirement and Types of Exchange

• To constitute consideration, a performance or promise must bebargained for

• A performance or return promise may consist of 1. An act other than a promise2. A forebearance3. The creation, modification, or destruction of a legal relation

Rest § 73 Performance of a Legal Duty



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• Performing a duty already legally required does not constituteconsideration

• Ex: A offers reward for anyone coming forward with evidenceabout a crime. B produces evidence in the performance of hisduty as a police officer. B’s performance is not consideration. If B was on vacation in another state, however, his performance

would be valid consideration.1. Changing Your Mind About Agreeing to Give

Kirksey v. Kirksey· Mere gratuitous promises aren’t enforceable· Gift promises may have conditions that don’t represent

consideration· Context and surrounding circumstances· What about reliance?· Compare to Hamer

Hamer v. Sidway· The giving up of legal rights represents valid

consideration

· Consideration is a right, interest, profit, or benefitaccruing to one party or a forebearance, detriment, loss,or responsibility suffered by the other

· Doesn’t matter if consideration benefits the other party· Familial promises are rarely brought into the judicial

realm:1. They often involve an indefinite nature of

performance2. Unwillingness of parties to sue until the relationship

is beyond repair· Legal detriment vs. actual detriment· No inquiry into the adequacy of consideration once some

form of consideration is found· Promise as consideration· Bargained for requirement

2. Changing Your Mind About Agreeing to Settle Past ClaimsSchnell v. Nell

· Peppercorn theory represents symbolic view of consideration- replacement of the seal

· Substantive view of consideration looks to the adequacyof the consideration

· The symbolism is more important than the sufficiency· Past consideration is no consideration

· When renegotiating, old contract needs to be rescindedso that consideration may be found in the new one· Old rule- can’t trade money for money because it would

be unconscionable· Disappearance of the seal has led some courts to

examine the adequacy of considerationDyer v. National By-Products, Inc.



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· Forbearance of an invalid claim may representconsideration if there is any reasonable ground on whichto try the claim and the party is acting in good faith

· Policy: Compromises made outside of court shouldn’t beallowed to be second-guessed after the fact

· Court favors compromises

· Some courts require the claim have some merit· These courts hold that a doubtful claim is sufficient while

a clearly invalid claim is insufficient, regardless of what πbelieves

· Compare to an illegal promise· Rest. § 74- Surrender of an invalid claim is not

consideration unless the claim is in fact doubtful due tothe facts or the law or π believed it to be a valid claim

Reed v. University of North Dakota & NDAD· Release forms are supported by consideration as one

party gives up the right to sue and the other allowsparticipation

· Clarifying and allocation of risk· The forbearance of a legal right is a legal detriment

which constitutes good consideration· Rest. § 75- a promise for a promise is valid consideration

if the promised performance would be consideration; Thepromise is enforced by fact of bargain

3. Changing Your Mind About Employment AgreementsHooters of America, Inc. v. Phillips

· Illusory contract- an apparent promise which makesperformance on the part of the promisor optional

· Disparities in obligations may lead to unenforceability· One party may not retain unfettered rights to decide

later their nature or extent of performance· Rest. § 77- a promise isn’t consideration if the promisor

reserves a choice of performance unlesso Each alternative performance would represent

consideration on its owno It appears that the promisor’s alternatives will be

eliminated by the time of performanceAsmus v. Pacific Bell

· Unilaterally adopted policies during employment may beterminated after a reasonable time provided that there isreasonable notice and doesn’t interfere with employeevested interests

· Availability of continuing employment representsconsideration

· Indefinite duration of promise is a factor· Illusory contracts avoided by setting boundaries· Opposing view: may not be terminated as the policy was

part of the consideration the employees received uponbeing hired

· Rest. § 454. Changing Your Mind About Agreeing to Change the Deal



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Alaska Packers Association v. Domenico· A party cannot demand more compensation for

something that they are already obligated to do bytaking advantage of the necessities of the adversary

· A party shall not profit by their own wrong· Good faith requirement for estoppel

· Past consideration is no consideration· Cannot promise to withhold doing an illegal act· Similar to economic duress

Angel v. Murray· A promise to modify a contract is enforceable if:

1. The promise hasn’t been fully performed by eitherside

2. The situation was unanticipated3. The modification is fair and equitable

· In line with modern view of the UCC· Good faith required

· Gozo likes the case· Not a bad idea to tear up the old contract· Cases in between are the difficult ones· UCC § 2-209· Rest. § 89- a promise modifying a duty under a K not

fully performed on either side is binding if o The modification is fair and the circumstances

unanticipated at the time of formationo Not prevented by statuteo Reliance has occurred

· Old rule- preexisting duty doesn’t representconsideration because it deters coercion and duress

I. Consideration Substitutes1. Promises to Pay for Something that Happened Before the Promise

Rest § 86 Promise for Benefit Received· A promise made in recognition of a benefit received is

binding to the extent necessary to prevent injustice· A promise is not binding if

1. The original benefit was conferred as a gift or anyother circumstance in which the promisor wasn’tunjustly enriched

2. Its value is disproportionate to the benefitCase Series: Harrington through WebbHarrington v. Taylor

· Voluntary performance doesn’t constitute consideration· Humanitarian acts aren’t either

Mills v. Wyman· A moral promise is insufficient consideration· There must be a material benefit to the promisor and not

to his son unless the son is a minor· Rule for enforcing moral promises: (Gozo)

1. Promisor received a material physical benefit



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2. It was an emergency situation3. Promisee suffered injury4. Promise is reasonable with regard to amount and

time after the action· Circumstances where past consideration is good

consideration:1. Promise reviving a previously legally enforceable

obligation now barred by the statute of limitations2. Promise to pay a debt discharged by insolvency( No

longer true due to bankruptcy laws)3. A promise to pay an obligation incurred by an infant

· Rest. § 82- Previously enforceable obligations are bindingif renewed in writing in most jurisdictions

· Rest § 85- a minor may, upon reaching majority, makeenforceable all Ks made as a minor without addedconsideration

Thomas v. Bryant· Moral duty may become an obligation if it is:

1. To a particular person2. Person feels they have a strong moral duty that he

has a debt3. Duty can fulfilled by pecuniary objects4. Obligation is recognized by performance or promise5. The duty doesn’t impair public order

· Not that great a rule; Louisiana Civil Code Statute· 3 rd party beneficiary and· Rest. § 90 reliance is better

Webb v. McGowin· Best determinative rule

1. Material non-economic benefit to ∆2. Loss sustained through performance by π3. Emergency4. Reasonable promise

· Will a new rule create a burden on the court and shouldthat matter?

· Distinguish between good Samaritan and officiousintermeddler

· Rest. § 862. Promissory Estoppel

Rest. § 90Ricketts v. Scothorn

· When a donee prior to revocation acts upon a promise tohis detriment, the donor is estopped from pleading wantof consideration

· Argument used in the past by charities· Not your lead argument· Did promise induce reliance and do we now feel that we

should enforce the promise?· Finding of reliance rather than consideration



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· 3 critical aspects of early cases1. Familial relationship2. Promise sincerely offered3. Reliance on promise to detriment

· Old rule required full enforcement of the promise

· Compare to Hamer· Beginning of doctrine- promise the most important factorKatz v. Danny Dare, Inc.

· Promissory estoppel requires:1. A promise2. Detrimental reliance3. Injustice can be avoided only be enforcement

· Doesn’t matter if person is entitled to the thing they giveup or not

· Pension cases· Full enforcement not necessary if restitution is a better

fit· A promise need not necessarily be found as long as one

party induced detrimental reliance in the other· The test isn’t whether someone gives up a legal

entitlement but whether they acted to their detrimentwhile reasonably relying on the promise

Midwest Energy, Inc. v. Orion Food Systems, Inc.· Most important aspect is justifiable reliance· Promissory Estoppel requires:

1. A promise2. Forseeability of reliance3. Reliance

4. Injustice may only be avoided by enforcement· What are the real losses in the cases?· Partial enforcement· Courts don’t like to speculate so it may be necessary to

have a strong case and basis for determining losses· Rest. § 139

Pavel Enterprises, Inc. v. A.S. Johnson Companies, Inc.· Construction bidding cases require then general

contractor prove that the subcontractor:1. Made a clear and definite offer2. Sub reasonably expected bid to be relied upon3. General must provide prompt notice of acceptance

and reasonably rely on the bid4. General must have clean hands5. Sub is bound only to prevent injustice

· Evidence of bid shopping by the general will revoke anylater reliance argument and free the sub from his bid

· Justice Hand view (Gozo as well): Renegotiation is part of the process and it is not the job of the courts to get



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involved. Promissory Estoppel shouldn’t be used in acommercial setting.

· Justice Traynor view: Apply Rest. § 90 as considerationfor an implied promise to keep the bid open for areasonable amount of time

· UCC Art. 2- written offer requires no consideration

· Cases turn on whether or not there was a contract andwhether there was reliance

Salsbury v. Northwestern Bell Telephone Company· No consideration or reliance is needed for enforcement

of charitable pledges and marriage settlements· Policy: The public favors philanthropy and it is more

efficient to eliminate the consideration or reliancerequirement here

· Charities will rarely sue because they want to keep agood reputation with their continual donors; Pragmatics

· Another area carved out of the law just as rewards J. Statute of Frauds

Rest § 110 Classes of Ks Covered These Ks won’t be enforced without a written memorandum orapplicable exception:

1. A K of an executor or administrator to answer for the duty of adecedent

2. A K to answer for the duty of another3. A K made upon consideration of marriage4. A K for the sale of an interest in land5. A K that is not to be performed within 1 year from its making

Ks for over $500 were traditionally governed by the S of F but are nowregulated by the S of F provisions of the UCC § 2-201.State Statute of Frauds usually cover:

1. Land transfer2. Ks for over $5003. Agreements that can’t be performed within a year

The primary purpose of the S of F is evidentiary, providing relevantevidence of the existence and terms of a K. Ks that are covered are sobecause of their complexity or importance.Radke v. Brenon

· The Statute of Frauds requires writing to express considerationand authorization by the selling party

· Written memoranda· Items that must be included

1. Parties to the K

2. Items to be sold3. General terms4. Consideration

· Courts loosely interpret the signature requirement1. Letterheads2. Typed communications; must be clear it is from the

person specified· The writing creates an evidentiary platform



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· Statute of Frauds is a gatekeeper to the oral K · Policy of preventing the enforcement of by means of fraud or

perjury· Technical requirements overlooked due to admission· An admission that a K was made, while not making the K

enforceable, provides evidence that a K was made· Policy of the statute is to prevent fraud and not to make

admitted Ks unenforceable due to technicalitiesDF Activities Corp. v. Brown (Posner)

· π must meet the proper levels of evidence to have cause of action

· π cannot rely on ∆ changing their testimony as the only basis of their case

· ∆’s deposition may end an action if π has no further evidence· UCC § 2-201(3)(b)· Statute of Frauds as the gatekeeper

McIntosh v. Murphy

· Courts generally look to get around 1 year requirement of the Sof F· Justification for retention of the S of F:

1. Evidentiary function2. Cautionary effect3. Distinguish enforceable and unenforceable Ks

· Rest. § 139- S of F won’t prevent enforcement if a party has justifiably relied on the promise to his detriment

III. What are the Terms of the Deal?A. The Agreement: Beyond the Written Word

Threadgill v. Peabody Coal Co.

· To bind a party by means of a trade usage, the party must havehad actual or constructive knowledge of that usage· For constructive knowledge, the usage must be sufficiently

general so that the parties could have contracted in referenceto it

· A usage isn’t required to be of universal and notorious use inmost instances

· The custom isn’t binding if it is against public policy orunreasonable

· A K isn’t just the what the parties agree to, but other things thatfor differing reasons become part of the deal

· Parties are supposed to become informed members of the trade

B. Express Terms, Parol Evidence, and the Argument of Completeness of theWritten Contract1. The Common Law

· Rest. § 213· Parol evidence rule isn’t a rule of evidence but one of

substantive law· Prior written and oral agreements are rendered inoperable when

there is a writing pertaining to the same subject in anagreement





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5. Grounds for granting or denying rescission, reformation,specific performance, or other remedy

Parol evidence may be allowed to interpret the meaning of the writingFrigaliment Importing Co. v. BNS International Sales Corp. (Friendly)

· Parties are expected to be informed in the businesses theyentered into and acquiring this knowledge is part of the start-up

costs· Witnesses that testify to the effect of a trade usage must in fact

use the usage themselves· Relevant sources for determining meanings of terms

1. Trade usages2. Regulatory agencies3. Dictionary

• π has the burden of showing a term is used in a broader ratherthan narrower sense

Trade usage: a practice or method of dealing having such regularityof observance in a trade that the parties will be expected to K inreference to itCourse of dealing: an established sequence of conduct betweenparties that forms the understood basis for interpreting theirexpressionsExpress terms control over both trade usages and courses of dealing.Course of performance: when repeated occasions for performancebetween parties are called for in a K, any course accepted withoutobjection shall be relevant to determining the meaning of theagreement

Random House v. Rosetta Books LLC· The determination of whether ambiguity exists in a K is a

matter of law for the court to decide· No ambiguity exists in most jurisdictions when a definite and

precise meaning can be attained· Once the K is found to contain an ambiguity, the interpretation

is a matter of fact for the jury to decide· New use problems develop when new technology makes terms

in a K ambiguous· Broad language in a K will be read to include future uses· Narrow language will likely confine the scope of the K to the

uses contemplated at the time· The neutral approach places the burden of proof upon the party

asking for the less reasonable interpretation of the K Trident Center v. Connecticut General Life Ins. Co.

· What is the level of sophistication of the parties and what istheir bargaining power?

· Normal rule of K construction requires the reading of the K to beinterpreted as to avoid internal conflict, if possible

· Minority rule allows for parol evidence under any circumstanceto interpret the meaning of the K

3. Rules, Maxims, and Extrinsic Evidence to Interpret ContractLanguagePosner



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· Dictionaries, treatises, articles, and other published materialsshould be used as long as it is apparent that a discrepancyexists and one party isn’t trying to slip out of their obligations

Rest § 203 Standards of Interpretation· Interpretation which gives a reasonable, lawful, and effective

interpretation is preferred

· Express terms are given greater weight than trade usages· Specific over general· Separately negotiated terms are given greater weight

Rest § 206- interpretation is generally against the draftsmanPatterson

1. Meaning of words is affected by the others in the same series2. A general term joined with a specific one will include only things

that are like the specific one3. If one or more specific terms are listed, without general terms,

other items although similar are excluded4. An interpretation that makes the K valid is preferred over one

that makes it invalid5. Read Ks to favor the party that didn’t draft the K or the party

with the least bargaining power6. Interpret the K as a whole7. Examine the purpose of the parties8. A specific provision is an exception to a general one9. Handwritten provisions control over printed provision on the

same K 10. Public interest is preferred

4. Special Interpretive Rules for Ks of AdhesionMeyer v. State Farm

· Adhesion Ks aren’t evil, they are efficient ways of doing

business and reducing costs· ADR is favored by the courts when it provides a fair method of relief for both parties

· Arbitration clauses that are more friendly to the party with lessbargaining power are more likely to be enforced

· What are the established practices in the industry?· Public policy, plain language, no unconscionability, no fine print,

and a fair process make adhesion Ks and arbitration clausesstronger

· Not reading a K is no defense· If the insertion of an arbitration clause is induced by fraud, it

will not be enforced

Lauvetz v. Alaska Sales & Service dba National Car Rental· Rest. § 211- where one party has reason to believe the otherwould not accept the agreement if he knew the writingcontained due to a particular term, that term is not effective

· In Ks of adhesion, which people most often don’t read, theagreement will be construed according to principles of reasonable expectations

D. Implied TermsWood v. Lucy, Lady Duff-Gordon



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· Old view of K interpretation required express consideration orthe K was found to be illusory

· Modern view reads implied term of good faith and reasonableeffort into the K

· Standard for implied termsLocke v. Warner Bros., Inc.

· Doctrine of implied good faith· The implied covenant of good faith and fair dealing can’t be

imposed to create a different K from the one negotiated or totake away rights given in the K

· UCC specifies that all Ks are to be performed in good faith· Without a statement to the otherwise, good faith will be implied· Rest. § 205- Every K imposes upon each party a duty of good

faith and fair dealing in its performance and enforcementHobin v. Coldwell Banker

· Express terms control the implied· Good faith often used to find consideration

· Parties may contract out of good faith covenantIV. When is Someone Who Made an Enforceable Deal Excused from Doing What HeAgreed to Do?

Reasons that justify non-performance in contract law are termed excuses.A. Satisfaction of Mature Obligations to Perform: The Concept of Discharge

Rest § 235· Full performance discharges a K · Any non-performance is a breach

Full performance only will discharge a K.Excuses for less than full performance

1. Conditions: something must happen first before a party isobligated to perform

2. Amendment3. Modification4. Waiver5. Estoppel6. Impossibility7. Impracticability8. Frustration of purpose9. Repudiation10. Failure of Adequate Assurance of Future Performance11. Material Breach

B. ConditionsConditions may be used to allocate risk.Rest. § 224- A condition is an event which must occur before

performance under a K is dueConditions are about when, if ever, a party must performWest v. USPS

· Conditions precedent must be closely followed when expresslylaid out in an agreement

· Rest. § 225 Effects of Non-Occurrence of a Condition



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o Performance of a duty subject to a condition cannotbecome due unless the condition occurs or is excused

o Non-occurrence of the condition discharges the dutyunder the K once performance of the condition can nolonger occur

o Non-occurrence is not a breach unless a duty exists for

that conditionKingston v. Preston

· Old common law provided no remedy for parties that did notspecify an order of performance in executory Ks

· Three kinds of covenants1. Mutual and independent2. Conditioned3. Simultaneous

PCB&R v. Tuck-it-away, Bridgeport, Inc.· Unless otherwise specified in a K, simultaneous performance

will be implied· If one party is to go first, it becomes a condition precedent· Rest. § 234- performances are due simultaneously unless the

language indicates the contrary; However, when one party’sperformance requires a period of time, his performance is duefirst without language to the contrary

· A condition precedent is a fact or event that the parties intendmust exist or take place before there is a right to performance

· Law doesn’t require futile acts in order to bring a breach action· A party seeking the benefit of a condition precedent may waive

strict compliance by conduct indicating strict compliance isn’trequired

Peacock Const. Co. v. Modern Air Conditioning, Inc.· Ambiguous terms may be interpreted to mean reasonable· Risk must be shifted in clear and unambiguous terms· Rest. § 227- interpretation of conditions is preferred that

reduces the risk of forfeitureMoore Bros. Co. v. Brown & Root, Inc.

· Prevention doctrine· A condition may be excused if the promisor prevents or hinders

the fulfillment of the condition· Requires proof that ∆’s conduct materially contributed to the

non-occurrence of the condition· But for causation may be required in some jurisdictions· The action must be wrongful and in excess of the party’s legal

rights· Under conditions, it is all or nothing; no part payment is givenfor partial satisfaction

Acme Markets, Inc. v. Federal Armored Express, Inc.· If a condition isn’t a material term of the K, a party may be

excused from the condition to avoid disproportionate forfeiture· Rest. § 229- a court may excuse the non-occurrence of a

condition if it would cause a disproportionate forfeiture and isnot a material part of the agreement



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· Can’t contract out of forfeiture protection· Evidence is necessary to show purpose and materiality

C. Is Performance Still Due?: Post-Formation Conduct that Changes the Dealand the Nature of the Performance Required

Amendment to a K may occur at any time. Under the modern viewsuch modifications don’t require consideration. Both parties must consent

to the proposed modification.May Centers, Inc. v. Paris Croissant

· Waivers are the unilateral giving up of rights that can only bereclaimed prospectively

· Modification is permanent· A course of conduct may indicate the intent of the parties· Rest. § 278- if a different performance from the one promised is

accepted, the duty is discharged· Rest § 279- a substituted K is accepted in satisfaction of the

existing duty and discharges the original duty· A non-waiver provision does not allow a party to return to prior

violations of the K, but only future onesClark v. West

· A condition is waived when the acts of a party cause the otherparty to reasonably justify a belief that it has been waived

· No consideration required for waiver· Modification is a new agreement· A waiver cannot be reinstated once revoked

D. Unanticipated Post-Formation Events That May Excuse PerformanceRest § 261 Discharge of Supervening Impracticability

· A performance is discharged when an event that the non-occurrence of which was a basic assumption of the K occurs

Rest § 262· The death of a party necessary for performance is an event that

the non-occurrence of which was assumed in the K Taylor v. Caldwell

· The occurrence of unforeseen accidents that destroy the reasonfor the K may discharge the duties of the parties

· This stipulation is implied· Underlying notion is a lack of foreseeability· What would the K have said if it was foreseeable?· As time passes, relief for unforeseen occurrences becomes less

and less as parties are expected to prepare for knownpossibilities

· Risk may be shifted by implicationKrell v. Henry

· Frustration of purpose· What is the foundation of the K?· Parol evidence is used to determine the foundation· Implicit understanding· Questions for consideration:

1. What was the foundation of the K?2. Was the performance of the K prevented?



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3. Was the event which was prevented such that it could besaid to have been in the contemplation of the parties atthe time of formation?

· Things are typically allowed to be unforeseen only once· The level of sophistication of the parties plays a large part in

what is expected to be foreseenMel Frank Tool & Supply v. Di-Chem Co.

· Where a party’s principle purpose is substantially frustratedwithout his fault by an unexpected occurrence his duties aredischarged unless the language of the circumstances indicatesthe contrary

· A problem must arise that makes one party’s performancevirtually worthless

· Communication of purpose must be explicit at the time of formation

· Both parties must know of purpose· What are the backgrounds of the parties?· New human experience adds to the list of foreseeability· Rest. § 265- unless the language indicates the contrary, the

frustration of the principal purpose of a K by an event assumednot to happen in the K will discharge the parties’ duties

· Rule for discharge of obligations due to frustration1. The principal purpose of the party making the K must be

frustrated2. The frustration must be substantial3. Non-occurrence of the frustrating event must be one on

which the K was madeE. Excuse Through Actions Of a Party Before Performance is Otherwise Due

Hochster v. De La Tour· π has an affirmative obligation to mitigate damages· After the renunciation of an agreement, π is absolved from any

future performance and may pursue a breach actionimmediately

· π isn’t required to wait until the time of performance if repudiation has occurred

· π must assess the amount of damages to determine if it isworth a lawsuit

· In executory Ks, there is an implied agreement between theparties that a relationship exists, that if renounced breaches theagreement

· More modern applications are not as cut and dried Truman L. Flatt & Sons Co., Inc. v. Schupf

· Repudiation must be very clearly communicated· Anticipatory repudiation must be clear and unequivocal· Rest. § 250- a repudiation is a statement indicating that a party

will commit a breach that would give the other a claim fordamages or a voluntary affirmative act which makesperformance impossible

· Whether an anticipatory repudiation occurred is a question forthe jury



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· Retraction may occur if the other party has not substantiallyaltered their position and does not immediately refuse theretraction

· Rest. § 251- a failure to provide adequate assurance mayrepresent a breach when a party reasonably demands them

· Rest § 256- a party may retract its repudiation

· Modern doctrine requires π to mitigate damagesNorcon Power v. Niagra Mohawk Power

· Demands for adequate assurance of future performance areallowed in long and complex deals

· Demands for assurance may come1. Communication from one party making the other unsure2. Questions about solvency

· Law is moving toward allowing parties to seek assurances· If a demanding party overreacts, they may become the

breaching party· These demands allow parties to reach an equilibrium in terms of

uniformity and reliability in resolving problems without judicialintervention· If the demanding party’s assurance isn’t met, they may take

reasonable action to act as if repudiation occurred· Rest. § 243

F. Excuse Provided by a Material Breach by the Other PartyPossible responses to breach:

1. Waiver2. Amendment3. Partial breach4. Adequate assurance5. Total breach

Rest § 237- performance can only be suspended due to the otherparty’s material breach; the duty to tender performance is conditionedon the other party’s not being in material breachGibson v. City of Cranston

· A contracting party may cease performance and seek damagesif a material breach that goes to the essence of the K occurs

· Questions of materiality are to be determined by the jury unlessno reasonable person could find otherwise

· Rest. § 241 Factor in Determining if a Breach is Materialo Extent of deprivation of benefito Extent to which the injured party would be compensated

for the part of the benefit it is being deniedo Extent to which the party failing to perform will suffer

due to forfeitureo Likelihood that the failure will be cured including any

reasonable assurances madeo Extent to which the failing party’s behavior comports

with good faith and fair dealing· It must be objectively determined that the breach frustrates the

K to the point that performance is virtually worthless Jacobs & Young, Inc. v. Kent (Cardozo)



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· A condition of a K won’t cause forfeiture when it is insignificantto the overall deal

· Substantial performance· Collateral damages may be awarded· An unintentional mistake that doesn’t frustrate the purpose of

the K, is grounds for replacement or the difference in value· Law will not impute perfect performance requirement· Some jurisdictions limit this rule to construction Ks· Ks that require perfection will be strictly enforced· What is the purpose of the item?

OW Grun Roofing v. Cope· Deficient work will not constitute substantial performance· Under substantial performance, the K must be completed close

to the extent and value requested· Must be a good faith unintentional mistake· Purpose, general plan, and object· Avoidance of forfeiture when imperfection is insignificant

· What is the purpose?ESPN v. Office of the Commissioner of Baseball

· Divisible Ks· Whole performance is divided into sets of partial performances· The failure to perform one part does not bar recovery for the

other part· Performance of each division will be treated as a condition

precedent to the next division· Reduces the risk of forfeiture· Election of remedies· To elect to continue on one part of a divisible contract may

vitiate any future claim arising from the prior breach· When a party breaches a K, the non-breaching party mustchoose between terminating the K or continuing and recoveringdamages for the sole breach

· Once a party elects to continue, it can never elect to terminatethe K based on the prior breach, but retains the right toterminate the K for future breaches

V. How Does the Law Enforce the Deal?A. Specific Performance

Triple-A Baseball Club Assoc. v. NE Baseball, Inc.· The granting of specific performance is a matter of judicial

discretion and won’t be granted unless the terms of the K areclear enough to enable a court to grant an appropriate order

· Specific performance will not be granted where there is anadequate remedy at law

· Party seeking SP has the burden of proving that it is warranted· π must show an attempt to tender its own full performance or

show that such tender would be futile· Precedent is helpful, but not controlling as courts make

decisions on a case by case basis



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· Ks for the sale of realty may be specifically enforced· Rest § 360

o In situations where no suitable substitute is reasonablyascertainable and

o Where goods are unique in kind, quality, or personalassociation, and purchase elsewhere may be impractical

o And the buyer is unable to cover specific performancemay be granted

• Other factors (Corbin)o Difficulty and uncertainty in determining the amount of

damageso Insufficiency of money damages to obtain the duplicate

or the substantial equivalent of the promisedperformance

• UCC allows SP for unique goods or where proper in othercircumstances; Meant to broaden the rule

• Courts do not like to supervise performance; Sales of goods areeasier to enforce than projects and relationships that wouldcontinue over time

• Sequence of activities vs. One time performace• CISG and UNIDROIT both prefer to enforce SP more readily• The preference for money damages in our system is likely

traced back to the courts of equity’s deference to the courts of law

AGH Associates v. Fusco• No SP for personal services• Rest § 367- no specific performance for personal service Ks• Although a court won’t grant an injunction requiring personal

services, certain situations exist in which a court will enjoin aparty from rendering such services to another during the termof the K

• For enjoinment there must be1. A negative covenant precluding ∆ from providing the

services to anyone else2. The services are unique or extraordinary, either because of

special skill or special knowledge that ∆ has acquired of hisemployer’s business

3. The injunction won’t prevent the employee from possessingreasonable mean of making a living (preventing theequivalent of requiring ∆ to perform the K)

4. The party seeking the injunction is not in default or unableto perform its obligations (Clean hands)

• Policy justifications for not enforcing employment agreementso Personal freedom of the employeeo Quality of work may be affected in a negative mannero Too much supervision for the court

• UCC focuses on the commercial feasibility of replacement• The test of uniqueness is the total situation which characterizes

the K



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• In contrast to the past, where SP was granted typically forheirlooms or priceless works of art, SP is now commonlygranted for output and requirements Ks involving a peculiarlyavailable source or market

• A party may not get SP even if agreed to in the K, if thebreaching party’s sole remaining obligation is to pay money

B. Damages and the Concept of Efficient BreachHolmes- there is no moral component to the law of contracts. A partymust pay damages for breach but nothing else.

This attitude is supported by the lack of punitive damages in contactlaw.Efficient breach- if ∆ can make more money by breaching a K than ∆would have to pay in expectation damages to π, than everyone isbetter off by ∆ breaching and repairing π while ∆ uses its resourcesmore efficiently

This theory fails to take into account transaction costs and attorney’sfees.Paton v. Mid-Continent Systems

• A breach of K is efficient if ∆ is better off after paying π’sdamages

• This breach is beneficial to society as π is not worse off and ∆ isbetter off

• Should ∆ have to split its profit with π?• Should ∆ have to negotiate its way out of the deal with π?• Minority rule allows punitive damages for breach of K when

1. The breach is mingled with elements of fraud, malice, grossnegligence, or oppression

2. Opportunistic breaches where the promisor wants thebenefit of the bargain without bearing the agreed uponcosts

3. Proved by clear and convincing evidenceC. Agreed Remedies

O’Brian v. Langley School• Liquidated damages create incentives for timely performance• Cts. will not enforce liquidated damages clause if they represent

a penalty• Parties may agree to liquidated damages for compensation of a

loss due to a breach when actual damages at the time of agreement are uncertain and difficult to determine withexactness and the amount is not out of proportion to theprobable loss

• When the liquidated damages are ascertainable at the time of formation or out of proportion to the actual loss, the clause willbe found a penalty and thus unenforceable

• π is not precluded from litigating the fairness of the clause• π must show that the damages are susceptible of definite

measurement or that the damages are excessive• If π proves the clause unenforceable, then ∆ must show its

actual damages• ∆ must mitigate damages of the breach• This rule seems inconsistent with freedom of K



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• Rest § 356- a term in a bond providing for more than the lossoccasioned by the non-occurrence of the condition of the bondis unenforceable on the grounds of public policy

Vines v. Orchard Hills, Inc.• Typically enforcement of liquidated damages does occur• Old rule prevented a breaching party form seeking restitution

• The recent cases, however, allow a breaching party to seekrestitution for unjust enrichment of the other party despitebeing in default

• A purchaser whose breach is not willful has a restitutionaryclaim to recover moneys paid that unjustly enrich the seller

• Purchaser must establish that the seller has been unjustlyenriched by proving the damages suffered are less that themoney received

• Seller’s damages include expectation damages as well asincidental damages

• Ct. presumes 10% is valid liquidated damages• Sellers damages are measured at the time of breach• Purchasers may also invoke unconscionability or excuse to

avoid damages• The policy justification surrounding this rule is that π has

partially performed despite its breach, and thus it is moreinjurious to deny its claim than to allow ∆ to recover innonperformance

• Rest § 374- a party may seek restitution even if it is in breach if the amount in question is unreasonable

• Gozo says enforce the clause1. Penalties, Liquidated Damages, and Efficient Breach

Judge Posner represents one of the many proponents of enforcing liquidated damages clauses. Especially when a

substantial corporation is involved, the promise to pay a penaltyclause is a way of reducing credit risk and may be essential to somevalue- maximizing Ks. The penalty clause could also represent avaluable negotiating tool when one party wishes to takeadvantage of an efficient breach.2. Dissenting View on Efficient Breach

Certainty of performance is the essential value of many Ks andto allow parties to breach at will undermines the public confidencein contractual relations. As traditional contract damages offer no

motivation not to take advantage of an efficient breach,recognition of a cause of action under tort may be necessary tocompel commercial responsibility.

D. Money Damages

Expectancy damages put the aggrieved party in the same position hewould have been in had there been performance. In short, moneysubstitutes for performance.Hawkins v. McGee

• General rule gives expectancy damages• Puts π in as good of position as he would have been in had ∆

performed• Difference in value• Expectancy may be difficult to compute in some contexts



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• Damages are compensation for a breach measured in the termsof the K

Leingang v. Mandan Weed Board• For a breach of K, π is entitled to compensation for the loss

suffered, but can recover only the amount that would havebeen gained by full performance

• In a K for services, the value of the K when breached is1. π’s reasonable expenditures that would have been spent in

performance subtracted from2. the anticipated revenues

• π may recover lost profits if they are reasonable and notspeculative

• Overhead costs are not deducted as they must be paid anywayand thus factoring them in causes π to pay them twice

• K price is reduced by reduced by expenses actually savedRasnick v. Tubbs

• When actual damages are difficult to compute, ∆ may be forcedto pay cost of completion reduced by the costs π could haveavoided

• The difference is the value of performance as actually renderedand the value of full performance

• π must act reasonably and in good faithGroves v. John Wunder Co.

• ∆ is ineligible for relief under substantial performance if it hasacted in bad faith

• Gozo rule: If there is a windfall, it must go to the innocent party• Cost of completion vs. Diminution in value• Correct doctrine is the cost of remedying the defect• ∆ is liable for the reasonable costs of doing what they promised

to do and have willfully declined to do• π has bargained for the performance, not the increase in thevalue of the land

• If the court finds substantial performance, an effort to avoideconomic waste will be undertaken and damages will becalculated by diminution in value

• Without substantial performance, which requires good faith, thedamages will be calculated as cost of completion

Peevyhouse v. Garland Coal & Mining Co.• To construct an argument that π has bargained for performance

of the activity which will yield little gain in value to the land,ignores the unlikelihood that anyone would bargain for theperformance at such a price when so little value is added(Reference to Groves)

• Diminution in value is the proper calculation if economic wasteis involved

• The value rule should be followed when the cost of performanceis disproportionate to the end to be attained

• Relative economic benefit is thus the proper consideration• Cost of performance is the typical calculation of damages,

unless the breach is incidental to the main purpose of the K and



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the economic benefit to π from performance of the K is grosslydisproportionate to the cost

• Dissent: ∆ has gained the benefits without incurring theobligations of the K. ∆ is the more sophisticated party andknew going in the cost of repairing π’s land and thus specificperformance should be ordered

• Willful and malicious conduct should not be rewarded• Signal to the legislature that sanctions are needed• This case shows how important framing your arguments is; π

needed to show the need for the reparation of the land and putthe cost of completion in context with how much profit ∆ made

Incidental damages include1. Costs incurred in the process of replacement2. Expenses or commissions involved in covering3. Interest costs4. Reliance costs

E. Limitation on Money DamagesConsequential damages- the dislocation of one’s business by the

failure of another party to perform.Hadley v. Baxendale

• π may only recover damages that were contemplated at thetime of formation

• Flow of damages go only as far as foreseeable• If a K is made under special circumstances, they must be known

o both parties in order for lost profits to be awarded• ∆ must know of the damages to be comtemplated• Without this knowledge on both sides, ∆ may only be held liable

for the amount of injuries that would generally arise• Consequential damages are typically not foreseeable• ∆ may be held liable for the regular business profits if they are

foreseeable and communicated, but not extraordinarilylucrative profits unless they are communicated as well

• Modern delivery companies contract out of these risksManouchehri v. Heim

• Foreseeability and knowledge of profits may be found inbusinesses in which certain ∆s commonly deal

• For breach of warranty, π may recover direct, incidental, andconsequential damages

• Difference of value between goods accepted and received maybe determined by the cost of repair

• Consequential damages aren’t awarded if they could beprevented by cover or otherwise

• π isn’t precluded from damages by unsuccessful attempts tocover

• It is reasonable for π to rely on ∆’s promises that the breach willbe remedied

• π isn’t required to tell ∆ how much income relies on the K, aslong as the lost income was reasonably foreseeable

• π must produce evidence of the loss in proportion to the contextof the claim (The bigger the claim, the more evidence required)



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• Mass produced items to anonymous buyers don’t allow forconsequential damages

• Limitations on damages1. Foreseeability2. Certainty

3. Minimization or mitigationESPN, Inc. v. Office of the Commissioner of Baseball• Evidence is necessary to substantiate damages• π must show a stable foundation for a reasonable estimate of

damages• Damages for loss of goodwill, business reputation, or future

profits have more stringent requirements• π must not only prove the loss with certainty, but the loss must

be reasonably certain in amount• If a loss cannot be proven with certainty, the injured party may

seek nominal damages• Nominal damages are a small fixed sum without regard to the

amount of loss, if any• In the past, damages had to be proven to an absolute certaintyo Ex: π claims $500 loss, but only proves $200= no

recovery• Reasonableness is now the standard

Hollywood Fantasy Corp. v. Gabor• New businesses have a very difficult time establishing damages

for lost profits• In the past, new businesses could not recover lost profits• Franchises have cause this calculation to become easier (more

predictability)• Breaching parties are only liable for the damages they cause

• π has the choice of seeking expectancy or reliance damages• Lost profits aren’t required to be calculated exactly, but

documentation must support the estimate• At a very minimum, opinions or estimates must be based on

objective facts• Mere speculation is insufficient• The relevant enterprise for a lost profit inquiry is the activity not

the business entity• Loss of goodwill or business reputation may not be recovered in

a breach of K action• If π fails to produce evidence to substantiate a compensatory

damages award, π may recover its reliance costsFair v. Red Lion Inn

• π may only recover damages that stem from the breach• Mitigation requires the non-breaching party to minimize

damages• Time frame of damages is from the time of breach to the time

you should mitigate• π is required to act reasonably



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• An employee must accept an offer of reinstatement if it isunconditional and lacks special circumstances in order tomitigate

• A counter offer may terminate the time frame of damages aswell

• An injured party must take steps that are reasonable to mitigateor minimize damages sustained

• Mitigation or failure to mitigate is an affirmative defense that ∆may raise

• π’s failure to mitigate is excused if mitigation would requireinordinate or unreasonable measures or if other reasonablegrounds exist

• People typically aren’t required to move in order to mitigateunless moving is generally part of the career path

Parker v. 20 th Century-Fox Film Corp.• Different and inferior employment will not be considered a

substitute requiring mitigation• Just because employment is different, doesn’t mean π may

reject it• Geographical concerns depend on the career path• Measure of recovery for a wrongfully dismissed employee is the

salary for the period of service agreed upon, less the amountthe employer proves the employee has earned or reasonablycould have earned from other employment

• The employment must be comparable or substantially similar• Ultimate question is whether the employee acted reasonably

F. Other Remedial Measures- RestitutionUnited States v. Algernon Blair, Inc.

• π may, upon breach, choose to seek restitution for its services• Quantum meruit allows a promise to recover the value of

services rendered irrespective of whether the K would havebeen profitable or not

• The measure of damages is the reasonable value of performance

• Most courts don’t limit the innocent party’s damages by the K • Minority of courts use the K as a governor on damages• Damages are capped for the breaching party

G. Innovation of the UCCRodriguez v. Learjet, Inc.

• Lost volume sellers can’t mitigate by a resale• Perfect for liquidated damages• Criteria for measuring reasonableness of liquidated damages

1. Anticipated or actual harm caused by the breach2. Difficulty of proving loss3. Difficulty of obtaining an adequate remedy

• A lost volume seller may recover lost profits under the UCC• The seller loses volume by the buyer’s breach• If a seller would have entered into both transactions but for the

breach, then the seller is a lost volume seller as a result of thebreach



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• To establish standing as a lost volume seller π must1. Possess capacity to make an additional sale2. The additional sale must have been profitable3. The additional sale would have still been made in absence of

the buyer’s breach

• Lost volume anticipates a relatively unlimited supply• Status usually doesn’t change (Car & boat dealers)• Lost volume status backs up the liquidated damages clause• Liquidated damages are easier than having to prove actual lost

profitsRoneker v. Kenworth Truck Co.

• A sales K limiting the buyer’s remedy and excluding recovery of consequential damages examines1. Whether the limited remedy failed in its essential purpose2. Whether the exclusion of consequential damages would be

unconscionable• A remedy fails in its essential purpose when it deprives a party

of a substantial benefit of the bargain, even though it appearedfair at the time of formation• The damage to the buyer is the same whether the seller

diligently attempted to make repairs or whether the seller actedin bad faith

• If π proves that the limited warranty has failed, it may seek anyother remedy that the UCC typically would provide

• For π to recover consequential damages, it must be shown thattheir exclusion would be unconscionable

• Unconscionability is rarely found in the commercial context• This allocation of risk requires π to seek insurance• ∆ can limit damages, but must not fail in the warranty

VI. When Do You Have Rights And/or Duties Under a K You Didn’t Make?A. 3 rd Party Beneficiaries

Issues involving 3 rd party beneficiaries arise when one person who isnot a party to the K and provided no consideration, claims that it canbe enforced because the parties intended it for his benefit.Ex: Life insurance contractLawrence v. Fox

• Elimination of 19 th century requirement of privity to sue• Efficiency drives the theory• ∆’s K identified π• A promise made to one for the benefit of another allows the one

whose benefit the K is made to bring suit for the K’s breach• Incidental beneficiaries may not recovero Ex: A hits B’s car. Tells B to go to C to buy another. C is

incidental.• A promise to one, may imply a duty to another• Who is to benefit?

Ex Parte Stamey



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• A party claiming to be a 3 rd party beneficiary must establishthat the contracting parties intended to confer direct benefitsupon the 3 rd party at the execution of the K

• This will be determined by the language and intent of theparties

• Arbitration privileges may also be bestowed upon a 3 rd party

• Rest § 302- a beneficiary is an intended beneficiary if a right of performance is appropriate to effectuate the intention of theparties and either1. the performance will satisfy a debt (Creditor)2. the circumstances indicate that the promise intends to give

the beneficiary the benefit of the promised performance(Donee)

• Rest § 304- a promise in a K creates a duty in the promisor toany intended beneficiary and the beneficiary may enforce theduty

Midwest Grain v. Productization, Inc. and CMI Corp.• Nature of business may determine who is a 3 rd PB

• An ultimate buyer is not typically a 3 rd PB• A middle man must bear the risk• Producers of standard goods aren’t liable to 3 rd PB in the

absence of specifications for specific orders• A 3 rd party may only be a 3 rd PB if the contracting parties

intended the benefits to run directly to the 3 rd partyOlson v. Etheridge

• Old rule allowed 3 rd PB rights to vest immediately andirrevocably and could not be extinguished without the 3 rd

party’s assent• A promisor may assert any defense against the beneficiary that

could have been asserted against the promise• A delegation involves the appointment of another to perform

one’s duties• When a duty is delegated the delegating party remains liable• The modern view provides that in the absence of language to

the contrary, the parties to the K retain the power to dischargeor modify the duty by subsequent agreement without the 3 rd

party’s assent unless the 3 rd party has (Rest § 311)1. Materially changed position in justified reliance on the

promise2. Brings suit on the promise3. Manifests assent to the promise at the request of the

promisor or promise• The rationale for the rule is that parties to a contract should

remain free to amend or rescind it so long as it isn’t to thedetriment of the 3 rd party

• Freedom to contract• The first restatement drew distinctions between a creditor

beneficiary and a donee beneficiary



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o Creditor’s rights vested once the beneficiary brought suitor otherwise materially changed position in reliance onthe promise

o Donee’s rights vested immediately• These distinctions are now eliminated• Rest § 308- the intended beneficiary isn’t required to be

recognized at the time of the K B. Assignment and Delegation

A K creates both rights and duties. A contracting party’s transfer of rights under a K is an assignment while a transfer of duties is adelegation. A contracting party can both assign his rights and delegatehis duties.

The Macke Co. v. Pizza of Gaithersburg• In the absence of language to the contrary, rights and duties

under an executory bilateral K may be assigned and delegatedsubject to the exception that duties under a K to providepersonal services can’t be delegated

• It must be shown that a material change in performance would

occur in order for a party to refuse recognition of an assignment• To prevent assignability, use an non-assignability clause; Maylower the value of the business, however

• The main part of the purchase of most businesses is the volumeacquired

• Personal service Ks are unassignable when rare or unique skillsare involved

• Intimacy of the relationship is also considered (Drs. & Lawyers)• The general rule allows assignment unless the assignment

would change the contract in a material manner• The language in the K is critical• A party should mention in the K the benefits that it believes are

important; Expectations should be spelled out in the K Rumbin v. Utica Mutual Insurance Co.• In the absence of express language, rights may be assigned but

the assigning party or the assignee is liable for resultantdamages when an antiassignment provision is included

• An antiassignment provision does not limit the power to assign• This modern approach allows free assignabiltity for the assignor

and protects the oblige from any damage that may result• π does not have the right to transfer, but does have the power

to do so, unless this is forbidden with sufficient specificity• A specific performance clause is necessary to completely block

assignments

• Judicial preference is for assignabilitiy• ∆ must show actual damages as a result of the assignment• ∆ may pursue damages from either the assignor or assignee• K must state that the assignment will be void or invalid or that

the assignee will acquire no rights and the assignment will notbe recognized in order to prevent assignment. Saying that theK may not be assigned is not enough

• The common law formerly enforced these provisions withoutexpress language



Sally Beauty v. Nexxus Products Co., Inc.• A duty of performance under an exclusive distributorship may

not be delegated to a direct competitor without ∆’s consent• A party may perform his duty through another party unless

otherwise agreed to or the other party has a substantial interestin

• having the original promisor perform the K • An obligation to use best efforts is implied into exclusive

agreements under the UCC (e.g. Lady Duff-Gordon)• Personal service Ks are per se nondelegable• The general rule is that change of corporate form does not

affect contractual rights

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