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WHEN ACCEPTANCE BECOMES EFFECTIVE (remainder)

MAILBOX RULE/Deposited Acceptance Rule 1. Mailbox Rule means an acceptance is effective on dispatch (when the offeree puts it in the mail, not when received 2. It protects the offeree more than offeror 3. Reasoning Theories behind Rule a. Agency Theory i. Post office is agent for Offeror thus he has received it as his agent ii. Problem is the offeree can get the letter back from the post office. b. Offeror is Master of the Offer i. Offeror has chosen mail as the method and thus assumes the risk of uncertainty (could have always required different manner of acceptance) c. Allows Offeree to start performing quicker. d. It is easier to tell when something is sent than when it was received 4. Exceptions when rule doesnt apply a. Option contracts (accepted on receipt) b. When Offeree has first sent a rejection, but then sends an acceptance, then acceptance only good if received before rejection. c. Lost in transmission if properly addressed, then still applies, but if improperly addressed then only effective after received if outside normal time. d. Remember Contract can always provide otherwise, meaning stating the mailbox rule is not in effect. SILENCE AS CONSENT (See Rest. 69) 1. Old C/L Silence not acceptance, unless offeree had ad duty to speak 2. Restatement only Allows Silence/Inaction as Acceptance in Three cases a. Offeree takes the benefit of offered SERVICES with reasonable chance to reject them and has reason to know that offeror expected compensation. 69(a)(i) b. Where offeror has given offeree reason to know that silence/inaction will manifest acceptance, and offeree does so INTENDING to accept 69(a)(ii) c. In course of dealings, it is reasonable that the offeree should have notified the offeror he didnt intend to accept 69(a)(iii) (past dealings causes obligation to respond) d. If offeree does any act inconsistent with offerors ownership rights, the offeree is accepting unless terms are manifestly unreasonable 69(b) Exercise of Dominion i. We have statute to avoid this rule for unsolicited merchandise. 3. KEY is offeree must normally have reason to know/intend that silence be acceptance.

PAROLE EVIDENCE AND INTERPRETATION

PAROLE EVIDENCE RULE 1. Generally a. PER discharges all prior agreements/negotiations (CAN BE ORAL AND WRITTEN) i. thus limits the extent a party may establish that prior discussions/writings should be a part of the agreement. ii. Keep evidence out of trial b. PER is about the finality of negotiations and Intent (trying to decide if the parties meant to have this one written contract be the finality of their negotiations) c. PER is a rule of substantive law, not just evidence. 2. Process a. Is the Contract an Integration? (See Rest. 209 and 213) i. If yes, PER does apply to keep evidence out.

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1. If Total integration then no evidence of prior expressions that contradict or

adds to the writing (Analysis Done) (discharges all agreements in its scope) 2. If Partial integration No evidence that contradicts is allowed, but evidence consistent with and adding to the agreement is allowed (Move to Consistency) ii. If no, the PER doesnt apply and evidence is admissible. b. Is the additional evidence consistent with the Agreement? i. Two Views 1. Must be consistent only with the EXPRESSED terms (minority view) 2. Must be consistent with Expressed AND fairly Implied terms (Majority and Rest. View 216) Determining Integration a. Meanings i. Integration means where the parties intended this agreement to be the final expression of their agreement ii. Full/Total Integration Agreement is intended to be the final and includes all details iii. Partial Integration Agreement intended to be a final agreement on at least some issues, but not on all details b. JUDGE determines if integration, type of integration, and whether terms supplement a complete integration , and the jury then decides actual terms later if evidence let in. c. Usually it is assumed to be a integration unless evidence establishes otherwise. ( 209(c)) i. However, UCC 2-202 does not have that presumption d. Two Views of determining Integration (KEY) i. OLD VIEWLook solely at the four corners of the Document, OR ii. BETTER VIEWLook at all available evidence/circumstances (Rest. and UCC view) iii. Factors include 1. Merger Clause says an agreement is the final agreement and discharges all other agreements a. This makes a strong presumption for Total Integration. 2. Complexity/Detail of Contract a. The more complex/detailed the more likely total integration 3. Sophistication of the parties 4. Course of Dealings 5. Prior agreement/negotiations themselves (Rest. 214) Limitations on the PER (Situations where Extrinsic evidence allowed in) a. Subsequent agreements i. PER only applies to prior oral and written agreements b. Ancillary Agreements i. if it is so close to be a part of it (ancillary), then PER doesnt apply, thus it must be collateral c. Collateral Agreements with separate, independent consideration d. Existence of a Condition going to the Effectiveness of the Document itself i. Meaning there is no contract until after condition met fine line with a condition in contract as to enforcements e. Fraud (and other elements showing that no contract exists) i. Frost Requirements 1. Intentional 2. Reliance 3. A scheme to defraud not just once.

3.

4.

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ii. OK to allow since this is Tort liability and the standard for fraud is much tougher and
your damages are limited to rescission and restitution instead of enforcement and expectation damages iii. General Merger clause cannot get around fraud, but the more specific the better the chance it can (such as no reliance on . . . ) iv. Yet, some jurisdiction do not allow the Fraud exception if it is in direct variance of agreement (Rare) f. Mistake allows reformation g. Interpretation of unclear terms Because just explaining, not adding or contradicting h. Determination of if there is integration (full/partial/or none) UCC follows the same basic rule (except Presumption and more Use of Trade stuff).

5.

INTERPRETATION 1. It all turns on AMBIGUITY 2. This doesnt matter if there is full integration or not 3. Process a. Is the contract/term ambiguous? i. If yes, extrinsic evidence must be allowed and the meaning is decided by the jury 1. And most jurisdiction agrees even evidence of previous agreements can be given, (very broad range of evidence allowed) 2. Jury decides between reasonable inferences of the words and/or the creditability of the extrinsic evidence (Rest. 212) ii. If no, then Judge decides what the term means and tells the jury. 1. No extrinsic evidence involved (but see earlier part, below) b. Determining Ambiguity? i. Determined by Judge ii. Three ways/views (Frost Blurs) 1. Four Corners Approach no extrinsic evidence 2. Plain Meaning rule Will here extrinsic evidence about context but not preliminary negotiations 3. Liberal ruleAll extrinsic evidence allowed including pre-contract negotiations 4. UCC 2-202 and Course of Stuff a. Contract may always be explained by course of performance, course of dealing, and usage of trade even if no ambiguity i. It can also be used in an complete integration. ii. However, it cannot be used to contradict (UCC 1-303(e)) iii. Course of Performance way they have behaved in this contract (BEST) iv. Course of Dealings way parties have behaved in past contracts (2nd) v. Usage of Trade The industry norms for the terms (3rd) b. However, outside the UCC/Goods, the rule is not as clear as if these are allowed without ambiguity, but it seems course of performance is always allowed.

MISCELLANEOUS DEFENSES
CAPACITY/COMPETENCY TO CONTRACT 1. Infancy Doctrine a. General Rule If a contract is made by a person under the age of majority (usually 18), it is voidable at the minors option and entitles the parties to restitution. b. Thus, Infant may disaffirm or ratify the contract i. Disaffirmance

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Can disaffirm before or a reasonable time after reaching majority.

2. Limit Minor cannot escape liability for necessities by disaffirmance.

ii. Ratification 1. Can ratify the contract to enforce it, but must wait until he gets to majority 2. Can be expressly, by failure to disaffirm in a reasonably time, or by conduct c. Recovery Generally Restitution in Species A Minor can recover all consideration paid in the transaction and he just has to return the consideration he still has in his possession. (doesnt have to be all, just as much as he still has). i. A minority of courts require real restitution. d. Rule of Necessaries If a contract is for necessaries, then the minor can still disaffirm, but he owes REASONBLE VALUE of the necessaries. i. This rule is to prevent adult from not contracting with minors for necessities. ii. Necessaries is determined on case by case basis and so is reasonable value (benefit conferred, or cost of alternative) e. Courts are slow to let minors disaffirm a contract made by their parents for them because it would undermine a lot of programs. Mental Incompetents a. Same as infant in that Incompetent can void (disaffirm) the contract at his option b. TEST i. OLD STANDARD Person didnt understand what he was doing ii. NEW STANDARD Rest. 15 1. Cannot Understand the transaction, OR 2. Understand, but Cannot control myself, AND the other party had reason to know of disability a. Protect the normal person a little. iii. Also, Rest. 15 has a provision if the other party didnt know, and the effect of disaffirmance would be so unjust, can give as justice requires.

2.

UNDUE INFLUENCE 1. Def The improper use of power or trust in a way that derives a person of free will and substitutes anothers objective a. Usually under the overpersuasion of a person who is in a weak position and usually high pressure b. KEY is situational 2. Normal Factors (need a couple) a. Discussion occurs in unusual/inappropriate time, b. Occurs in an unusual place, c. Insisting and demanding to finish it at once, d. Extreme emphasis on consequences of delay, e. Multiple persuaders over weak one, f. Absence of third party advisors, AND/OR g. Statement that there is no time to ask other advisors. 3. Way to get out of Contract when not full blown mentally ill, just a little or temporarily. DURESS 1. Def Voids contract by threats that are unlawful, which overcomes the free will of person 2. Can be threats of: violence, imprisonment, BUT NOT litigation 3. Uses a subjective standard. ECONOMIC DURESS 1. Def coercing a party by threatening financial injury when the party cannot exercise free will. 2. Economic duress is when you go ahead and accept and then you sue later. 3. Requirements for Economic Duress a. A threat to withhold,

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4. 5.

b. Inability to acquire the goods elsewhere, AND c. Normal Breach and damages remedy would not be adequate (cannot wait to go to court) Timing is Key a. Monopolistic power that exist in the nature of the market are not economic duress, but it is when the monopolistic power arises in the contract (after the contractual relationship is first made) Your own economic hardship does not make duress, it must be from an unlawful act.

CONSTRUCTIVE FRAUD 1. Def Arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance on the latter to his prejudices a. Confidential relationship is required. i. Means a relations where one party has gained the great trust over the other and has a lot of influence of him. (usually close familiar relationships) b. Fiduciary relationships are more formal but the same (lawyer/client) i. It is a legal status MISREPRESENTATION 1. Requirements to Recover a. Must be a material misrepresentation b. Must be justifiably relied. c. Must have been a fact, not an opinion d. Intention of the party is not relevant. 2. Three forms of Misrepresentation a. Intentional/Deceitasserts something known not to be true b. Negligentdid discovery/convey info that normal person would. c. Innocent 3. Fraud covers the first two, but not innocent 4. Remedies a. Rescission b. Damages (for worse ones) 5. When is non-disclosure misrepresentation? a. Disclosing only half when appears to be full b. Have superior knowledge that is not normally observable (on reasonable inspection) to the other party, imposes a duty to speak on seller 6. Use an objective standard, unless it is intentional then use subjective standard. UNCONSCIONABILITY/CONTRACTS OF ADHESION 1. Basically Does it shock the conscience. 2. There is no one rule/meaning for Unconscionability a. Usually only applies to consumers, not business people b. Look at time of Contract (not down the road) 3. Decided on case by case basis by judge 4. Two types of Unconscionability (jurisdictions vary if both are required or not. a. Procedural Absence of a meaningful choice i. High pressure sells techniques ii. Grossly inadequate bargaining power iii. Setting of transaction iv. Experience/education of parties b. Substantive Oppressive/Harsh Terms (too one-sided) i. Such as excessive price or limited remedies (unfair arbitration) 5. UCC 2-302 a. If a court/judge finds a contract unconscionable (shock the conscience), he can choose not to enforce it (all or part)

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Parties get a chance in court to show that it is commercially reasonable.

6. Likely Remedies Judge can:

a. Strike unconscionable clause b. Refuse to enforce the entire Contract c. Reform the contract Thus, makes void Contract of Adhesion a. DefNon-negotiable, take it or leave it contracts that are unfair to the non-drafting party b. Must show i. It was take it or leave it AND ii. It was unconscionable Today a. Unconscionability is being applied less today because of legislation and the doctrine of good faith takes care of it. i. UCC requires a duty of good faith in all goods contracts.

7. 8.

9.

CONTRACT MODIFICATIONS
MODIFICATIONS 1. Modern trend is to allow modifications because we need flexibility, but the Pre-existing duty rule still applies a. We want modifications in cases of unknown, unknowns, (no risk assumed) but not in the cases of known unknowns. (because some assumed the risk of the uncertainty) 2. Concern of the Courts want to be more flexible, but worried about Economic Duress and parties taking advantage of the other due to position in contract, and consideration is not the best tool to use since easily manipulated. 3. Real problem with modification is that there is no new consideration so they are no good, because of the pre-existing duty rule a. Pre-existing Duty Rule says if you promise something you are already bound to do, then it is not consideration and the modification is no good. (Rest. 73) 4. Ways to Get around Pre-existing Duty Rule a. Increase/change duties slightly, thus new consideration. b. Cancel the contract with Mutual Assent and create a new contract. i. Must be executory on both sides still (mutual rescission) c. Unanticipated circumstances (Rest. 89) i. Modification is binding without new consideration because it is fair and equitable in view of circumstances not anticipated by the parties when it was made. 5. UCC 2-209(1) has done away with the Pre-existing duty rule in Goods Contracts because no consideration is needed for a modification to be binding. 6. Difference between Modification and Waiver a. Modification goes to the basic nature of the contract, waiver doesnt b. Thus, Modification requires consideration, Waiver does not. WAIVER Party allowed to waive smaller rights, but cannot waive big rights because you cannot have a duty to make a gift. Consideration not needed (so that is how different from Modification) Waiver requires a voluntary relinquishment of a known right Can be Expressed or Implied Implied is acts inconsistent with the right such as continuing performance after a condition of your duty has failed Once Waived, it cannot be recalled Does not require reliance. Example of waivable provisions

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Contract to be modified in writing only. Course of dealing can act as a waiver. A contract cannot be framed to avoid waiver of conditions. ESTOPPEL 1. A party can be estopped from asserting their rights in a contract. 2. Def when you act in a way in consistent with a right and the other party reasonably and detrimentally relies on it, you are estopped from asserting that right 3. Consideration not needed 4. Unlike waiver, the estopped right can be revived after reliance over.

DISCHARGE OF CONTRACTS
SETTLEMENTS 1. Differ from modifications, because modifications alter the contract, settlements end the contract/relations. 2. Watch out of the pre-existing duty rule, because it still applies here. 3. Settlement is supported by consideration so long as there is a good faith dispute of the amount or validity of the claim a. The key is there must be bona fide dispute that is being settled. ACCORD AND SATISFACTION (Rest. 281) 1. DefAn agreement to substitute for an existing debt some alternative form of discharging that debt (Accord, or Executory Accord), coupled with the actual discharge of the debt by the substitute performance (Satisfaction). 2. Requirements a. An Unliquidated claim b. Bona fide dispute over amount of that claim, c. Payment is tendered as full, AND d. Not for another obligation. 3. Meant to encourage compromise and avoid litigation. 4. The bona fide dispute makes it enforceable. 5. Key if the executory accord is breached, then other party can pick between breach of that agreement or the original agreement. 6. The executory accord is enforceable in itself. SUBSTITUTE AGREEMENT (Rest. 279) 1. Def a contract that is itself accepted by the obligee in the satisfaction of the obligors existing duty. 2. Thus, there is no more claim to the original agreement if there is a breach, can only pursue this contract. 3. Requires more Formality than Accord and that is the difference. NOVATION (Rest. 280) 1. Def a substitute contract that includes as a party one who was neither the obligor nor the obligee of the original duty. 2. Merely putting someone else in to contract to owe the money.

MISTAKE
MISTAKES GENERALLY 1. Mistake is a belief that is not in accord with the facts. 2. Mistake Doctrine only applies to existing facts, not erroneous beliefs of what will happen in future or mistake of judgment (that goes to Doctrine of changed Circumstances) 3. Makes Voidable 4. When a party bears the risk (Rest. 154) a. Risk allocated to him by contract,

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5. 6.

b. At time of contract, he is aware he has only limited knowledge to certain facts, but acts like the knowledge is sufficient., OR c. Courts find it reasonable to allocate the risk on him in the circumstances. Often the courts just let it lie, because they dont have a good reason to enter and make a change. Remedy a. Normally just rescission and thus restitution back to starting positions.

MUTUAL MISTAKE (Rest. 152) 1. Where both parties have the same mistaken belief 2. Requirements a. Must be by both b. Must be material c. Must be a basic assumption something both parties think they know with certainty, but they are wrong, or something they never considered, AND d. The risk had not been allocated (by contract or court) 3. If it is a known unknown then the parties will allocate the risk in the contract/deal so not a mistake, but an unknown unknown since never considered would be a mutual mistake. a. Thus if uncertainty is known of, it cannot be a mutual mistake because the risk is allocated in contract. UNILATERAL MISTAKE (Rest. 153) 1. Only one party has the mistaken belief 2. Tougher to get than Mutual (same requirements plus (one of two) 3. Frost focuses on the Buyer Expertise a lot and getting the most efficient use of the property. a. We will be more forgiving of a clerical mistake, but not a judgment mistake of the seller, because clerical mistake doesnt promote efficiency. 4. Requirements a. Mistake by one party b. Must be a basic assumption c. Must be material d. The risk had not been allocated to the party (by court or contract) AND i. Effect of the mistake is such that enforcement would be unconscionable OR ii. The other party had reason to know the mistake or his fault caused the mistake. 5. Usually allow rescission for clerical errors as long as not a case of extreme negligence and there is not too much detrimental reliance on the other side. 6. Sometimes the mistake can be inferred from the price alone, thus the other party should have know. (such as a really low bid) 7. We usually impose a time limit to rescind on mistake to prevent too much harm from being done. (thus mistake must be brought up promptly)

WARRANTIES
WARRANTIES GENERALLY 1. Process a. Look for Expressed Warranties b. Look for Implied Warranties i. of Merchantability ii. for Particular Purpose c. Make sure Exclusions dont Apply 2. Key you dont have to make a warranty if you dont want to (dont say and contract against). 3. Damages For Breach of Warranty (UCC 2-714(2))

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a. Difference between the value as accepted and value as warranted at the time and place of 4.
acceptance, unless special circumstances Exclusions/Modifications of Warranties (UCC 2-316) a. Should attempt to make words creating the express warranty and words limiting warranty consistent with each other. b. Exclusion/Modification of Implied warranty of Merchantability i. Must include the word Merchantability ii. If in Writing must be Conspicuous c. Exclusion/Modification of Implied warranty of fitness i. Must be by writing ii. Must be conspicuous d. All implied warranties of fitness can be excluded by There are no warranties which extend beyond the description of the face hereof e. As Is excludes all implied warranties f. There is no implied warranties as to defects that are easily discover on reasonable inspection (regardless if person did or didnt inspect) If multiple warranties, try to make all of them consistent (UCC 2-317) a. If express and implied warranties conflict, give preference to expressed warranty (unless for a particular purpose) As to Third Parties (UCC 2-318) a. Seller cannot exclude people from warranty b. Can vary as to length i. Applies to family/household of buyer ii. Applies to any natural person to reasonably be expected to use iii. Applies to any person reasonably expected to use.

5. 6.

EXPRESS WARRANTIES (UCC 2-313) 1. Requirements a. Must be a statement of FACT, NOT OPINION b. The Words warrant/guarantee are not required c. Intention to make the warranty is not required 2. When Express Warranties created (UCC 2-313) a. Affirmation/Promise i. Any affirmation of fact or promise by seller that relates to the goods and becomes the basis of the bargain then expressed warranty to conform to affirmation/promise b. Description i. Any description of goods which is made basis of the bargain then express warranty to conform to description c. Sample/Model i. Any sample or model which becomes part of the basis of the bargain then express warranty that it will conform to sample/model. IMPLIED WARRANTY OF MERCHANTABILITY (UCC 2-314) 1. It is a warranty that the goods with be merchantable a. Means it can pass without objection in the trade (talk to people in business) OR fit for the ordinary purposes for which such goods are used 2. Requirement under UCC 2-314 a. Exists unless excluded/modified b. Seller must be a merchant with respect to goods of that kind (someone in the business of selling that good) 1. Can be food service 3. Other implied warranties can arise out of course of dealing/usage of trade 4. It is from Law, it does not depend on what is said/done

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IMPLIED WARRANTY OF FITNESS FOR PARTICULAR PURPOSE (UCC 2-315) Implies warranty that good will be fit for that purpose Requirements By UCC 2-315 Seller must have reason to know the particular purpose goods are needed for AND Buyer is Relying on Sellers judgment to select the appropriate good Applies UNLESS excluded/modified Less important IMPLIED WARRANTY OF HABITABILITY AND CAVEAT EMPTOR 1. Caveat Emptor Buyer beware a. allocates the risk to the buyer in real property to give incentive to investigate. b. Only applies to thing that are discoverable in reasonable inspection i. If something is hidden/latent, seller must disclose if known. 2. Implied Warranty of Habitability a. Applies in to purchase of newly constructed houses b. Have it so duty is not on buyer to be an expert in inspecting the house c. It is an exception to Caveat Emptor 3. Usually no implied warranty in the selling of raw land (you can always inspect yourself

DOCTRINE OF CHANGED CIRCUMSTANCES

GENERALLY 1. THESE THREE ARE A LAST RESORT, COURT WILL TRY TO ALLOCATE RISK FIRST a. Parties are discharged from obligation by all three of these. 2. We are assuming the contract/court has not allocated the risk of these problems, IF THE CONTRACT ALLOCATED THE RISK, WE STICK TO IT. 3. Frost doesnt care about the risk, he only cares that we have SET RULES so that the parts can contract/insure against them. (because when not clear that is when both or neither cover it and that is the worse problem) 4. Risk is often allocated based on CONTROL 5. Special Cases of Impossibility and who bears risk? a. Building a New Structure builder assumes the risk b. Adding to an Existing Structure owner shares the risk 6. Force Majeure Clause a. Excuses performance on certain happenings, act of good b. However, courts read it narrowly c. Shifts risk. 7. Ways to Allocate Risk by Circumstances a. Superior Risk Bearer i. Court assigns risk to the superior risk bearer because can better take it, in better position to insure against it, and better position to prevent it b. Reasonable Expectations of the Parties i. Court puts the risk on the party that reasonably expected to have the risk 8. Is it good for a Judge to Rewrite a Contract? a. Some judges do, but other argue they are not qualified for this. b. Better to force the parties to negotiate and settle it on their own chosen terms. 9. Remedies generally for these a. They get out of obligation/performance (discharge) b. Courts often allow restitution i. Ex Owner of building has to pay renovator the benefit received before fire. 10. Basic assumption that the non-occurrence of the changed circumstances.

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11. PROCESS a. Did the contract allocate the Risk? b. Should the judge allocate the risk? c. Then check These three 12. Test a. Material b. Basic Assumption (meaning the nonoccurrence of it was such) c. Not the fault of one of one of the parties d. Risk not already Allocated. IMPOSSIBILITY 1. It is not really about impossibility, but about who bears the risk. 2. The parties must have not been able to guard against it 3. Claiming I CANNOT PERFORM 4. UCC 2-615 a. Can be made impossible by the occurrence of a contingency the non-occurrence of which was the basic assumption on which the contract was made. 5. It is an ALL OR NOTHING GAME a. If you let the party out of the obligation on impossibility, then other party is bearing risk/cost. b. If you hold the party to its obligation in changed circumstances, then that party is bearing the risk/cost 6. Traditional Examples/Categories a. Destruction of the Subject Matter (KEY ONE) i. Key is it must be identified to the Contract 1. If states my corn and my corn burns, then impossible. 2. If just states corn, and my corn burns, I must get the corn else where and deliver (fungible good) ii. The existence of the thing is an implied condition on performance b. Impossibility of intangible but essential mode of performance i. Ex. the seller is to get the particular goods from a particular person, but that particular person breach/fails. c. Death or Incapacity of the Particular Person i. If person is specifically called for in the contract. IMPRACTIBILITY 1. Very much like Impossibility 2. Claiming it is NOW COMMERCIALLY INFEASIBLE TO PERFORM a. Used in Commercial Setting Means that changed circumstances makes performance infeasible from a commercial setting, even though still technically possible. 3. UCC 2-615(a) a. Made impracticable by the occurrence of a contingency the non-occurrence of which was the basic assumption on which the contract was made. 4. Tricky Example Extreme Price Increases and a fixed-price contract a. Seller will claim impracticable but usually loses because assumed to have assumed the risk by making the contract. 5. Example New Government Regulation (Rest. 264) FRUSTRATION OF PURPOSE 1. Claiming it is POINTLESS NOW TO PERFORM 2. Rest. 265 3. How different than impossibility/impracticability a. It is not performance being more difficult, because it is still very much possible/practicable still b. Parties are just not getting what was bargained for (Makes contract not worth as much) 4. Key Factors to Consider

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b. Foreseeability the Less foreseeable the more likely frustrated c. Totality the more totally frustrated the more likely found 5. Traditional Example watching King from the rented room CONDITIONS
CONDITIONS GENERALLY 1. Def A condition is an event, not certain to occur, which must occur (unless its nonoccurrence is excused) before performance under the contract becomes due. (Rest. 224) 2. WORDING a. You fail a condition b. You breach a promise/covenant 3. Condition v. Promise/Covenant a. Meanings i. Condition 1. Failure of a condition excuses performance 2. But it is not a breach and thus there is no damages. ii. Promise/Covenant 1. Failure of promise does not (necessarily) excuse performance 2. But it is a breach and it does entitle you to damages. 3. Breach does not necessarily eliminate the rest of the contract b. Why use a condition over a promise? i. Making a condition shows you care more about it and are want actual performance. ii. Makes certain you get performance c. When Ambiguous as to condition or promise presumption for Promise (avoids forfeiture) d. KEYMust look at the Intention of the Parties as to if a condition or covenant e. Determined by Judge 4. Rules of Construction to Know a. Saying one thing is to exclude another. b. There is a general legal policy against forfeitures, unless circumstances otherwise (Rest. 227) c. The burden of proof is on the party trying to benefit from the Condition. 5. Type of Condition a. Condition Subsequent i. You have an obligation and the event removes it ii. Example Ill pay unless iii. Promisor has the burden of proving unless occurred b. Condition Precedent i. The obligation does not arise until the event occurs ii. Example Ill pay if iii. Promisee has the burden of proving if part occurred c. Rest. 224 only has Conditions Precedent now 6. Conditions v. Timing Mechanism a. There is preference to interpret uncertainty to be a timing mechanism, not a condition, because of wanting to avoid forfeiture (Rest. 227) i. However, this presumption can be defeated in cases such as Real estate when the usage of the trade is for a condition. 7. Prevention Doctrine you will not interfere to prevent the occurrence of a condition. 8. Ways to get around Conditions (make sure to look at all above) a. Impossibility/Impracticability apply to satisfaction of conditions. i. Court will strict condition out and will normally not add a new one in unless the contract provides somehow.

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i. Def Voluntary relinquishment of a known right ii. Waiver is permanent, once a condition is waived, it is gone 1. Settlement offer is not a waiver. iii. Remember that after a waiver of a condition, the party that waived could still obtain damages potentially 1. But must still perform all your condition precedents before you can recover for damages. c. Estoppel i. Based on Reliance ii. Estoppel can be revived, once reliance ends (key difference from waiver) d. Excused to avoid Forfeiture i. Rest. 229 Court can excuse a condition if it would cause a disportionate forfeiture (unless a material part of exchange) ii. This softens the rule of Using Condition Precedent iii. Different than unconscionability, because unconscionability only looks at fairness at the time of the contract, forfeiture applies more over the passing of the contract. 1. Thus, the contract was not unconscionable at the start, but has developed to cause unreasonable forfeiture. 9. Process of Courts to avoid forfeiture in Conditions a. FirstTry to make the condition a promise b. Second Look for Waiver or Estoppel 10. Condition precedent will be enforced so long as the requirement does not arise of unfair notice. a. Normally not required to prove prejudice, but the exceptions is Insurance cases where the insured party can get around not fulfilling condition precedent by showing a lack of prejudice on Insurance Cos part (Special Rule)
EXPRESS CONDITIONS 1. Express conditions require Strict Performance a. However, Strict performance can be avoided by: i. Forfeiture ii. Condition Excused. 2. Notes a. Never Say breach or apply material/total/entire analysis to Expressed Condition b. After failure, ASK Express Condition TO WHAT 3. TIMELINESS/TIME IS OF THE ESSENCE a. You can require performance by an exact time if bargained for. b. Called a Time is of the Essence clause (frost think better to be express condition precedent, because these are too boilerplate) c. Generally, in non-goods contracts, time is not of the essence unless stated so. d. UCC requires strict performance on time though. e. Can be waived by not holding person to it in installment payments i. However, if a contract has a clause saying a waiver of one is not a waiver of another payment, then you must use reliance and estoppel 4. CONDITIONS OF SATISFACTION a. Means a partys duty to perform is expressly conditional on satisfaction i. All the doctrines such as impracticability can apply here. b. Of a Party i. Presumed objective satisfaction (if possible) ii. Operative Fitness and Utility v. Taste/Fancy/Sensibility 1. If Operative fitness, then use objective standard (reasonable man) (Rest. 228) a. Ex. building contract 2. If Taste, use subjective standard (thus must prove bad faith) a. Can consider stuff as if there is an objective standard or not.

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5.

b. Ex. painting Of a Third Party i. Third Partys subjective intent controls satisfaction/reasonableness ii. Opposing party must prove a subjective showing of bad faith by third party. Courts will not allow you to make everything an expressed condition precedent because it is unreasonable and disingenuous. a. But, it is OK if you list things specifically. c.

CONSTRUCTIVE CONDITIONS Def Constructive Condition is a condition not agreed on by the parties, but supplied by the court for Fairness (come out of promises) Court can read the promise as anything: Independent, meaning not a condition can recover damages, but not a condition and no excuse Dependent, meaning a condition precedent Excuses performance Concurrent, meaning each promise is condition concurrent Excuses if tender, and other cannot. KEY Constructive Conditions only require Substantial Performance, not strict performance. Substantial performance is when a party is acting in good faith and with the intent to fulfill the contract does the work, then can recover less an allowance for slight defects. General Rule In a bilateral contract, promises are presumed to be mutually dependent/CONCURRENT, and each partys substantial performance of his promise is generally a constructive condition to the performance of any subsequent duties by the other party. (Rest. 237) (ExamplePeriodic alternating) Thus Failure to substantially perform, is a non-occurrence of a constructive condition. And Concurrent conditions/promises reduces credit risks Order of Performance First, the intent of the parties always controls, but if intent unclear, then When can be simultaneousWhen the order of performance is in doubt, if the promises can be rendered simultaneously, then they are due simultaneously, (unless circumstances say otherwise) thus they become constructive conditions current (Rest. 234) Thus, Covenants are due concurrently, unless there is reason to do otherwise. Thus, a key factor to look at is if the promises can be given simultaneously and if they can probably presumed to be concurrent But, remember a court can always find a promise to be a condition precedent or an independent promise too. When cannot be Simultaneous (one performance takes time) The performance requiring time must perform first and thus a constructive condition on the other parties performance. Ex Services party must substantially perform services before getting payment Ex Construction Contracts Default Rule (payment only after completed) Because we want certainty over fairness in default rules in Commercial contracts Key you can always contract for a rule different from default rule EXCEPTION Divisible Contracts General Rule When you are delivering in installments and pay can be apportioned in part, then pay is required on installments SUM Entire Contract Default rule substantial performance required before pay. Divisible/Installment Contract Default rule payment must be apportioned with other performance. Test for Divisibility Good to look how payment is described, if by unit, then more likely divisible, if payment is in whole, then it leans towards an entire contract.

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Key is you must be able to fairly make amounts equal to performance given by that part UCC 2-307 favors a single delivery, but if needed to have more than one then pay must be apportioned. Rest. 233 If performance can be due at once, then it is (unless language to the contrary) If more than one part of performance, if other partys performance can be apportioned, then due at that time. THUS SUM Default rule is to have all due at once, but if divided, then apportioned amount also due. Effect of Concurrent Conditions Turning a Promise into an Obligation The party who desires to use legal process must put the other party in default. GENERAL RULEtender is required to put the other party in default for concurrent promises. (rest. 238) (unless incurable) Some courts hold that demanding performance of a concurrent act indicates a readiness and a tender to perform (NOT TOO CERTAIN ON THIS) Is Concurrent Satisfied/Is Tender Required for Defect Party must give the other part time to cure the defect until due. If defect curable, you must provide notice then tender performance (show up ready) before default If defect incurable, then party is automatically in default and there is no requirement of tender This will get you restitution for any deposit, but to get damages, you must still show you were able/willing to perform and met all your conditions precedent unless excused Thus, this is a real practical problem in real life because it is not always clear if a defect is curable or not. (if you treat it as incurable, but it is curable, then your actions probably a breach). Examples Lien on Real estate is curable Affirmative mutuality allows either party of a real estate transaction to obtain specific performance. UCC PERFECT TENDER What is a Good? (UCC 2-105) All things movable at the time of identification to the contract Sale of goods include the Perfect Tender Rule (UCC 2-601) Installment contracts treated differently. If the goods or delivery fail IN ANY RESPECT TO CONFORM then buyer can: (everything must be exact) Reject whole, Accept whole, OR Accept a commercial unit(s), and reject rest. However, there are a lot of restrictions that limit the harshness. Strict compliance can include exact quantity, exact date, Limitations Can argue it wasnt GOOD FAITH (UCC 1-201) Tough standards for rejection Often opportunity to Cure Courts can try to take it out of goods, and say it is services, so no perfect tender rule Requirement for Effective Rejection (UCC 2-602) Rejection must be within reasonable time after delivery/tender and buyer must seasonably notify the seller After rejection any exercise of ownership by the buyer towards the goods is wrongful to seller

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If already taken possession before rejection, buyer must hold them with reasonable care until seller can get them. EXCEPTIONS UCC 2-603 Merchant Buyers Duties to Rejected Goods Only if no agent of the seller is in the market of rejection Must follow reasonable instructions of seller Make reasonable efforts or sell on sellers account if perishable or rapidly declining in value Buyer is reimbursed for reasonable expenses in selling it including selling commission UCC 2-604Buyers option to Salvage of Rejected goods Buyer can store, reship, or resell on sellers account with reimbursement. (not acceptance or conversion) Applies to non-perishables. UCC 2-605 Waiver of Buyers objections by failure to Particularize. Buyer must state with rejection the particular defect. If he does not, then the failure precludes rejection if: Seller could have cured it if notified seasonably OR Buyer fails to respond to a written request as to the all the defects on which Seller relies (only between merchants) Some Jurisdiction hold that if you make stated objections, then all unstated objects are waived Thus, affirmative action is required by buyer to reject nonconforming goods. What Constitutes Acceptance (UCC 2-606) a. Acceptance occurs when buyer: i. after reasonably opportunity to inspect goods, signifies to seller that they conform or will take them in spite of non-conformity. ii. Fails to make an effective rejection (but must have had a reasonable opportunity to inspect them) iii. Does an act inconsistent with the sellers ownership (but if wrongful against seller, acceptance only if ratified.) b. Acceptance of part of commercial unit is acceptance of entire commercial unit. Effect of Acceptance (UCC 2-607) a. Acceptance precludes rejection of goods b. If acceptance made with knowledge of non-conformity, then acceptance precludes revocation (unless acceptance made with reasonable assumption that non-conformity would be cured) c. Acceptance doesnt mean the promise is fulfilled, just that condition on the partys duty to pay has been satisfied and Buyer can still pursue other remedies for non-conformity (damages) d. Burden is on buyer to prove breach of goods already accepted Requirement for Revocation of Acceptance (UCC 2-608) a. Non-conformity must SUBSTANTIALLY IMPAIR ITS VALUE TO HIM. i. Can be an objective or subjective test (most jurisdictions favor objective, but frost favored Subjective) ii. Numerous smaller defects can add up to make substantially impairment. b. Must have been accepted: i. on reasonable assumption defect would be cured and has not been seasonably cured. (this is only time when accepted with knowledge of defect allows you to revoke)OR ii. without discovery of non-conformity if acceptance induced by difficulty of discovery before acceptance or by the sellers assurances. c. Revocations must occur at a reasonable time after discovery or should have discovered the defect (Not effective until seller notified) i. Buyer that revokes has same duties to goods as rejection above) d. It is a tougher standard than Rejection since non-conformity must substantially impair.

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Sellers Right to Cure (UCC 2-508) a. Seller has a right to cure due to non-conformity if: i. Time still remains to perform and Seller seasonably notifies the buyer of his intention to cure and makes a conformity deliver in that time. OR ii. Seller had reasonable grounds to believe buyer would accept non-conforming tender, then seller may if seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. 1. Reasonable grounds can be course of dealing/performance/usage of trade, etc. a. Most people would take newer model b. Argument can be made that is doesnt apply to revocations, but probably not the case. Breach for an Installment Contract (UCC 2-612) a. Buyer can Reject a non-conforming installment if: i. the non-conformity substantially impairs the value of the installment, ii. Cannot be cured, AND iii. Seller has not given adequate assurances that it will be cured. b. Buyer can terminate the whole contract if: i. the non-conformity in one or more installments substantially impairs the value of the whole contract. Distinction of Conformity v. Warranty a. Conformity is at the time of the deal b. Warranty is later down the road SUBSTANTIAL PERFORMANCE 1. Constructive Conditions only require Substantial Performance 2. Remember Each parties substantial performance is a constructive condition on the other parties further obligations. 3. Substantial performance allows the other party to recover damages, but they still have the obligation to perform a. Seems damages are cost of repair, but if economic waste then diminished value 4. If you do not substantially perform, then material Breach. 5. KEY Substantial Performance is a breach, but not a material breach.

BREACH
PROCESS 1. Is it a material breach? 2. Is it a total breach? 3. Is the contract entire or divisible? 4. MATTERS ONLY FOR CONSTRUCTIVE CONDITIONS MATERIAL v. NON-MATERIAL 1. Only matters for Constructive Conditions a. This is another ways to get at substantial performance. 2. Test Ask how bad it was/how far was the deviation a. Determine by talking to the Industry. b. Rest. 241 Factors i. Extent injured party is deprived of the expected benefit, ii. Extent injured party can be adequately compensated for benefit deprived, iii. Extent the breaching party will suffer forfeiture iv. Likelihood that breaching party can cure v. Extent to which breach was in good faith and fair dealing. c. Also consider the how much part performance has been done and if willful 3. Effect If you can suspend performance or not (obligated to perform or not?)

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a. If Non-material, then condition fulfilled and you must perform, but you are entitled to damages b. If Material, then it is a failure of a constructive condition precedent and you can Suspend
performance AND entitled to damages. TOTAL v. PARTIAL 1. Matters both for Constructive Conditions and Expressed Conditions 2. Test Does it go to the ESSENCE of the Contract a. Key Want to show our confidence is so shaken we cannot proceed with the contract. b. Only Partial if breaching party can cure the defect c. Total if defect cannot be cured or has not been cured after waiting a reasonable time. i. Circumstances to consider include custom of industry. d. Rest. 242 Factors i. Factors from 241 ii. Extent that delay to injured party will prevent/hinder the making of reasonable substitute agreement iii. Extent to which contract provides for performance without delay and it is actually important. 3. Effect Determine if you can terminate the contract/be discharged of all further duties or not? a. If Total you can rescind/terminate contract and discharged of all further duties b. If Partial Cannot terminate but since material you can still suspend, and await cure. c. PLUS, the party can always decide to treat a total breach like a partial breach. 4. This is a bigger gamble, because you certainly run the risk of being in breach yourself if you think wrong. 5. Good examples on 845 Illustrations a. #1 Material breach that is partial b. #2 Material breach that is total DIVISIBLE v. ENTIRE 1. Matters only for damages after the fact a. Thus, it looks at the past and other breaches look forward 2. Thus, this is about the breach party getting some money after the breach for services already rendered in a counterclaim 3. Test Is there agreed equivalents Rest. 240 a. There is a preference to make them agreed equivalents if possible. 4. Effect Determines recover for past performances a. If Divisible Can recover on the Contract, meaning you get the contract price b. If Entire Can only recover Restitution, meaning the market value conferred on the party. c. Matters a lot when market is changing 5. NoteMonthly payments can still be an entire contract (construction K example) and a single claim can still be divisible contract. OTHER BREACH STUFF 1. Note of Damages a. If party breaches and cannot recover on the contract and the party is withholding the money, the party can try to recover on restitution as to the part benefit bestowed. (except below) 2. Issue of Willful Breach/Intentional Misconduct a. A willful breach doesnt turn every breach into a material breach i. Thus, discussion doesnt come up until after material breach. b. Because it is Material, the non-breaching party does not have to pay the remaining contract price. c. However, Jurisdiction vary as to if breaching party can get restitution i. More courts grant restitution after willful breach, thus there is no windfall

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ii. Some courts will not allow restitution after willful breach, thus the non-breaching party
3.

4.

gets a windfall. Remember you violate promise, and you fail to meet conditions Note Default on one installment payment does not make a anticipatory repudiation of the future installment unless there is an acceleration clause at common law (UCC cares if substantially impairs or not.

PROSPECTIVE INABILITY TO PERFORM

ANTICIPATORY REPUDIATION 1. Def A definite and unequivocal indication that the party cannot or will not perform. a. Can be a statement/words, or conduct/actions b. UCC 2-610 says it must substantially impair the value 2. It is a total breach of the Contract. (Rest. 253) a. Thus allows you suspend and terminate the contract. 3. Election of Remedies for the non-breaching party a. May terminate the contract and pursue damages now, OR i. When the party treats the repudiation as final, it appears that is when the market value of damages will be used to determine damages b. May wait and see if the breaching party will perform. i. However, UCC 2-610 says you can wait a commercially reasonable time, so there is a time when you have a duty to mitigate damages. (includes factors such as likelihood of retraction, time it takes to cover, etc.) 4. Issue of Retraction a. Depends on the Circumstances b. Repudiation can be retracted (which includes showing up with performance) as long as three things has not occurred (UCC 2-611) i. Non-breaching party Terminated/sued on it, ii. Non-breaching party materially changed its position rely on the repudiation, OR iii. Non-breaching party has made it clear he taking the repudiation as final. 5. Other Notes a. Anticipatory breach excuses the other party from tendering, but you must still prove at trial that you were keeping your obligations up to that point. PROSPECTIVE INABILITY BY CIRCUMSTANCES 1. When one party believes the other party cannot perform because of the circumstances, it is not enough. a. They run the risk that if the other party performs, then they screwed since wrong. 2. You only have the right to suspend performance to ask for assurances, no termination. a. This is why adequate assurances developed to give you some position when it appears the other party cannot perform ADEQUATE ASSURANCES 1. UCC 2-609 AND Rest. 251 2. Requirements (generally and Rest. in particular) a. Party seeking assurances must have Reasonable Ground for Insecurity b. Then can demand adequate assurances of performance and suspend performance until they are received c. If assurances not returned in a reasonable time, then party may treat it as a repudiation. 3. Additional Requirements for UCC a. Must be in writing b. Suspension only if commercially reasonable c. Between merchants adequacy is determined by commercial standards.

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4. ProblemsRun the risk of judgment calls on if a. If reasonable grounds (courts will not allow gamesmanship) b. If waited reasonable time 5.
6. c. If assurances are adequate KEY it is all based on circumstances Types of assurances a. Give letter of where obtaining it, b. Get financial guarantee