Outline

Saturday, January 17, 2009

5:10 PM

I. Questions to ask:
(1) Intent to enter a K? Assent to contract
(2) Understand intent? Assent to same terms
(3) Operative Offer? Offer
(4) Effective acceptance? Mirror Image Rule & 2-207
(5) Assent compromised? Duress, Misrep., Uncon.
(6) What is required in Contract? Interpretation, Parol Ev., Conditions, Good Faith
(7) Performance per Contract? Interpretation, Breach, Partial & Substantial Perf.
(8) Was breach of contract excused? Mistake, Impossibility, Impact., Frustration
(9) If not, what are the damages for breach? Damages

II.

III. Mutual Assent

A. Good faith
1) Requirement contracts - an agreement by the buyer to buy his good faith requirements of
goods exclusively from the seller.
a) Party who seeks to invalidate a requirements contract have the burden of proof as
there is mutuality of obligation since it requires good faith.
B. Intent
1) Must have a meeting of the minds for the same thing.
2) Does not have to be identical intent - may be valid if a reasonable man would be able to
impute the intentions corresponding to his words and actions.
a) In Embrey, the answer was unambiguous and error is assigned in requiring that both
intentions be shown.
3) Intention is of no avail unless it was stated at the time of the contract. Because the two
parties did not agree on the same thing (which Peerless the cotton was to come on) there
was no binding contract.

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 was no binding contract.
C. Manifestation
1) Intentions are manifested where a reasonable man can impute meanings of action
2) Can only be voided by fraud, misrepresentation, sharp practice, or dealings between
unequal parties.
D. Non-enforceable social engagements and contractual agreements:
1) Legal if:
a) Subject matter and terms have customarily affected legal relations
b) No reason to indicate that party had reason to know that party intended to affect his
legal relations.
2) Not legal if:
a) Subject matter and terms are not customarily to affect legal relations
b) No express intentions of the parties to affect it so

E. UCC Requirements and Quantity Variations (p. 368)

1) Production flexibility - allows buyer to adjust his intake of materials and supplies to
fluctuations in the market.
a) Risk shifting device: shifts from one party ot the next the risk of their business if there
are inducements and incentive
2) Minimization of supply risks - risk of availability of materials will be restricted
3) Increased operational efficiency - supply of materials will be constant and ensure greater
control of production schedule.
4) Decreased direct operational costs - savings from increased operational efficiency leads to
decreased of operational costs.

F. Restatement of Contracts Sec. 20: Effect of Misunderstanding

(1) There is no manifestation of mutual assent to an exchange if the parties attach
materially different meanings to their manifestations and
(a) neither party knows or has reason to know the meaning attached by the other; or
(b) each party knows or each party has reason to know the meaning attached by the
other.
(2) The manifestations of the parties are operative in accordance with the meaning
attached to them by one of the parties if
(a) that party does not know of any different meaning attached by the other, and the
other knows the meaning attached by the first party; or
(b) that party has no reason to know of any different meaning attached by the other,
and the other has reason to know the meaning attached by the first party.

IV. The Offer

A. Corbin on Contracts:
An offer is an expression by one party of his assent to certain definite terms provided that
the other party involved in the bargaining transaction will likewise express his assent to the
identically same terms.
B. An Offer, an acceptance of which will become a contract
1. Clear
2. Definite
3. Explicit
4. Leaves nothing open for negotiation
C. Modifications: can be made at any time before the acceptance of his offer. Afterwards, he does
not have any rights to impose new or arbitrary conditions in his original offer. (Lefkowitz v. Great
Minneapolis Surplus Store)
1. Unilateral offer: An offer made not to a specific person and to the general public is a
unilateral offer (Craft v. Elder)
D. Intent: The intention of the parties to a contract is to be gathered from the whole instrument,
and not from any detached part of it.
1. Mere information or information does not constitute offer. (Courteen Seed Co. "I am

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 1. Mere information or information does not constitute offer. (Courteen Seed Co. "I am
asking 23 cents per pound" does not show that it was an offer, rather it was an invitation for
negotiations.)
2. A definitive offer after an initial invite for negotiations could not be withdrawn after the
terms are accepted.
3. Manifestation of intent includes both actions and words as a reasonable man would
interpret in view of the surrounding circumstances.
1) Words can be interpreted by the express meaning or by the implied meanings.

V. The Acceptance
A. Acceptance: An acceptance is a voluntary act of the offeree whereby he exercises the power
conferred upon him by the offer, and creates a legal relations called a contract. Terms are looked
at by either words or conduct.
1. Offeror has the full control over the power of the terms at the beginning of his offer. He
may lose it later, or is unable to change and revoke it at a later period. The power shows
whether or not there is a contractual
1) Definite
2) Unequivocal
3) Overt
4) Identical: may not add conditions or limitations to original offer or it is a counteroffer.
a) Counteroffers require acceptance from offeror before it becomes valid.
b) Suggestions, requests, additions or modifications CAN be made so long as it is
clear that the acceptance is positive and unequivocal whether such request is
granted or not.
B. Communication: acceptance must be communicated in an overt manner to the offeror.
1. Offer of a bargain by one person to another, imposes no obligation upon the former, until it
is accepted by the latter, according to the terms in which the offer was made. Any
qualification of, or departure from, those terms, invalidates the offer, unless the same be
agreed to by the person who made it. Until the terms of the agreement have received the
assent of both parties, the negotiation is open, and imposes no obligation upon either.
C. Silence: Mere silence or failure to reject an offer when it is made does not constitute an
acceptance.
D. Intent: A mere mental determination to accept a contract, not indicated by speech, nor put in
course of indication by act to the other party, is not an acceptance which will bind the other.
E. Partial Performance: If the offer requests a return promise and the offeree without making the
promise actually does or tenders what he was requested to promise to do, there is a contract if
such performance is completed or tendered within the time allowable for accepting by making a
promise. Promise becomes valid and binding.

F. Restatement (Second) of Contracts § 32: Invitation of Promise or Performance

In case of doubt an offer is interpreted as inviting the offeree to accept either by promising
to perform what the offer requests or rending the performance, as the offeree chooses.

G. Restatement (Second) of Contracts §69: Acceptance by Silence or Exercise of Dominion

(1) Where an offerree fails to reply to an offer, his silence and inaction operates as an acceptance
in the following cases only:
(a) Where an offeree takes the benefit of offered services with reasonable opportunity to
reject them and reason to know that they were offered with the expectation of
compensation.
(b) Where the offeror has stated or given the offeree reason to understand that assent
may be manifested by silence or inaction, and the offeree in remaining silent and inactive
intends to accept the offer.
(c) Where because of previous dealings or otherwise, it is reasonable that the offeree
should notify the offeror if he does not intend to accept.
(2) An offeree who does any act inconsistent with the offeror's ownership of offered
property is bound in accordance with the offered terms unless they are manifestly

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 property is bound in accordance with the offered terms unless they are manifestly
unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if
ratified by him.

H. Restatement (Second) §39 (2): §39. COUNTER-OFFERS

(1) A counter-offer is an offer made by an offeree to his offeror relating to the same matter
as the original offer and proposing a substituted bargain differing from that proposed by
the original offer.
(2) An offeree's power of acceptance is terminated by his making of a counter-offer, unless
the offeror has manifested a contrary intention or unless the counter-offer manifests a
contrary intention of the offeree.

I. Uniform Commercial Code § 2-206 (1)(a) Offer and Acceptance in Formation of a Contract
(1) Unless otherwise unambiguously indicated by the language or circumstances
(a) an offer to make a contract shall be construed as inviting acceptance in any
manner and by any medium reasonable to the circumstances.

J. 39 U.S.C. §3009: Mailing of Unordered Merchandise

Except for (1) free samples and (2) charitable organizations, mailing of unordered
merchandise is an unfair method of competition and trade practices.
Items mailed in violation may be treated as a gift by the recipient who will have the right to
retain, use, discard, or dispose of it without any obligations to the sender.
Unordered means mailed without the prior expressed request or consent of the recipient.

VI. Duration of Offers

A. Restatement (Second) of Contracts §36: Methods of Termination of the Power of Acceptance
(1) An offeree's power of acceptance may be terminated by
(a) rejection or counter-offer by the offeree, or
(b) lapse of time, or
(c) revocation by the offeror, or
(d) death or incapacity of the offeror or offeree.
(2) In addition, an offeree's power of acceptance is terminated by the non- occurrence of
any condition of acceptance under the terms of the offer.
B. Powers of Acceptance
1. The offeror holds the power when he is making the offer, he can set the terms, prices,
duration, etc…but after he makes the offer, the power stays with the offeree.
2. If the offeree rejects the offer, he loses the power of acceptance. He cannot change his
mind later. If he does, it may be construed as a offer on his part.
C. Duration of offer: reasonable period of time to be decided by the jury.
1. Factors include: nature of the contract, the relationship or situation of the parties, and their
course of dealing, and usages of the particular business are all relevant. A contract
terminable at the will of either party can be modified at any time by either party as a
condition of its continuance
2. A unilateral contract is one in which no promisor receives a promise as consideration for
his promise.
a. Acceptance of the offer is binding with the performance of the act (Brackenbury v.
Hodgkin)
b. Only that very act and no other may be given.
c. May be withdrawn without formal notice, sufficient with actual knowledge of
inconsistent act with continuance of the offer.
d. Offer is revocable up until the act is performed. (Petterson v. Pattberg)
3. A bilateral contract is one in which there are mutual promises between two parties to the
contract; each party being both a promisor and a promisee.
a. Bilateral contracts are presumed to be the binding standard in cases of doubt.
b. By accepting, offeree is accepting to perform what the offer requests.
c. When there are no other consideration for a contract, mutual promises of the parties

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 c. When there are no other consideration for a contract, mutual promises of the parties
constitute the consideration binding the contract
d. An offer for an exchange is not meant to become a promise until a consideration has
been received
e. Reasonable reliance serves to hold the offeror in lieu of the consideration ordinarily
required to make the offer binding.

D. Rejection of offers may be:

1. No acceptance within time fixed, or, if no time is fixed, within a reasonable time.
2. In person offer is rejected ordinarily as it is expected at once.
3. Offeror is justified in inferring from the words or conduct of the rejection offeree that the
offeree intends not to accept the offer or to take it under further advisement.
In this case D fails because D did not accept the conditions that P gave D while P was
still in the room. For oral offers, its is generally accepted that the offer is good while
still in the presence of the offering party.
4. A manifestation of intention not to accept an offer is a rejection unless the offeree
manifests an intention to take it under further advisement.
E. Withdrawal of offers:
1. Actual knowledge is sufficient to withdraw if the person who made the offer has done
some act inconsistent with the continuance of the offer. (Dickinson v. Dodds)
F. Mailbox rule: Where a person uses the post to make an offer, the offer is not made when it is
posted but when it is received.
1. Offeree is not bound by conditions of offer until they receive the offer.
2. If it is sent by mail, the time begins when they receive the notice.
3. Offeree is allowed the same acceptance in the same manner used.
4. Effective when deposited in the mail properly addressed and with sufficient postage affixed

G. Option to purchase: however small, as long as its paid and received, is adequately binding upon
the seller for the time specified, and irrevocable for want of adequacy.
1. Buyer purchased the privilege of electing to accept the offer prior to the expiration of the
contract.

G. Restatement (Second) §87 (1): Option Contract

(1) An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported consideration for the
making of the offer, and proposes an exchange on fair terms within a reasonable time;
or
(b) is made irrevocable by statute.
(2) An offer which the offeror should reasonably expect to induce action or forbearance of
a substantial character on the part of the offeree before acceptance and which does induce
such action or forbearance is binding as an option contract to the extent necessary to avoid
injustice.

H. Uniform Commercial Code §2-205: Firm Offers

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance
that it will be held open is not revocable, for lack of consideration, during the time stated or if no
time is stated for a reasonable time, but in no event may such period of irrevocability exceed
three months; but any such term of assurance on a form supplied by the offeree must be
separately signed by the offeror.

VII. Agreements to Agree

A. Preliminary Agreements: further negotiations of ultimate agreements; challenge of the law is to
determine when preliminary questions should be enforced and what the remedy should be.
1. Understanding: Both parties must have a clear understanding of the terms of agreements
a. Certain and specific to ascertain
2. Intent: Both parties must have intent to be bound by the terms of the agreements

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 2. Intent: Both parties must have intent to be bound by the terms of the agreements
a. Objective
b. Determined by language used when no ambiguity in its terms exists
3. Extrinsic evidence: parole evidence rule applies only after an integrated or partially
integrated agreement has been found

B. Restatement § 27 EXISTENCE OF CONTRACT WHERE WRITTEN MEMORIAL IS CONTEMPLATED

Manifestations of assent that are in themselves sufficient to conclude a contract will not be
prevented from so operating by the fact that the parties also manifest an intention to
prepare and adopt a written memorial thereof; but the circumstances may show that the
agreements are preliminary negotiations.

COMMENTS & ILLUSTRATIONS:

1. Parties who plan to make a final written instrument as the expression of their contract
necessarily discuss the proposed terms of the contract before they enter into it and often,
before the final writing is made, agree upon all the terms which they plan to incorporate
therein. This they may do orally or by exchange of several writings. It is possible thus to
make a contract the terms of which include an obligation to execute subsequently a final
writing which shall contain certain provisions. If parties have definitely agreed that they will
do so, and that the final writing shall contain these provisions and no others, they have then
concluded the contract.
2. On the other hand, if either party knows or has reason to know that the other party regards
the agreement as incomplete and intends that no obligation shall exist until other terms are
assented to or until the whole has been reduced to another written form, the preliminary
negotiations and agreements do not constitute a contract.
3. Among the circumstances which may be helpful in determining whether a contract has been
concluded are the following: the extent to which express agreement has been reached on all
the terms to be included, whether the contract is of a type usually put in writing, whether it
needs a formal writing for its full expression, whether it has few or many details, whether
the amount involved is large or small, whether it is a common or unusual contract, whether
a standard form of contract is widely used in similar transactions, and whether either party
takes any action in preparation for performance during the negotiations. Such
circumstances may be shown by oral testimony or by correspondence or other preliminary
or partially complete writings.
4. Even though a binding contract is made before a contemplated written memorial is
prepared and adopted, the subsequent written document may make a binding modification
of the terms previously agreed to.

C. U.C.C. - § 2-204. Formation in General, FORM, FORMATION AND READJUSTMENT OF CONTRACT

(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness
if the parties have intended to make a contract and there is a reasonably certain basis for giving an
appropriate remedy.

VIII. Form Contract

A. Background: Under the mirror image rule, all the terms and conditions must be the same or else
no contract. Under 2-207, it allows formation of contracts where some terms may be different in
order to encourage trade.
B. IMPACT: No contract has been formed, then, unless the Offeror agrees to the Offeree's express
conditions, meaning that the offeror holds power to declare terms and have terms control in most
instances.
1. Mirror Image Rule:
a. Equivocal, conditional or limited acceptance = counter offer
b. A counter offer may be treated as a new offer or a rejection.
c. If it is viewed as an offer, it requires acceptance by original Offeror.
2. 2-207 allows situations where:
a. Omitted terms

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 a. Omitted terms
b. Additional terms
c. Conflicting terms
3. Presumption: establishes a presumption that parties intended to contract

2-207 Test Common Law

Presumpti Intent to Contract Identify who made the contract? Intent to Contract?
on Identify who made the If so, what is the
acceptance? agreement?
2-207(1) Communication of Parties Did offeror specify no changes
= Contract? could be made? What terms are
in the contract?
2-207(2) Terms of Contract Determining if Acceptance was 1st Examine writing.
established via writing?; or Expressly Conditional on
Offeror’s assent to different or
additional terms.
2-207(3) Terms of Contract If acceptance was expressly If writing is ambiguous,
established via Parties’ conditional, it becomes a then look to words &
Conduct? counter-offer and if Offeror actions.
accepts, the Offeree’s terms
control.
A. UCC § 2-204. Formation in General.
1. A contract for sale of goods may be made in any manner sufficient to show agreement,
including conduct by both parties which recognizes the existence of such a contract.
2. An agreement sufficient to constitute a contract for sale may be found even though the
moment of its making is undetermined.

B. UCC § 2-207. Additional Terms in Acceptance or Confirmation.

1. A definite and seasonable expression of acceptance or a written confirmation which is sent
within a reasonable time operates as an acceptance even though it states terms additional
to or different from those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms.
2. The additional terms are to be construed as proposals for addition to the contract. Between
merchants such terms become part of the contract unless:
a. the offer expressly limits acceptance to the terms of the offer;
b. they materially alter it; or
c. notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
3. Conduct by both parties which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writings of the parties do not otherwise establish
a contract. In such case the terms of the particular contract consist of those terms on which
the writings of the parties agree, together with any supplementary terms incorporated
under any other provisions of this Act.

C. When applying U.C.C. � 2-207(1) and the meaning of "expressly made conditional on assent to the
additional or different terms," the conditional nature of the acceptance should be so clearly
expressed in a manner sufficient to notify the offeror that the offeree is unwilling to proceed with
the transaction unless the additional or different terms are included in the contract
1. Definition of express - if offeree's terms are not express, then offeror's terms control:
a. Conspicuous & Utterly clear
b. Reasonably calculated to inform the recipient that no deal has concluded and non will
unless assents to terms.
c. Must notify of objection to terms
2. Definition of conditional (split):

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 2. Definition of conditional (split):
a. The term materially alters contractual obligations solely to disadvantage of Offeror;
OR
b. Acceptance is expressed in a manner sufficient to notify Offeror that Offeree is
unwilling to proceed unless additional or different terms are adopted; OR
c. Mere predication of acceptance on clarification, addition or modification…
d. Qualified Acceptance by Offeree:
There is a contract on the original terms of the offer, but if the Offeror is willing to
entertain a change in terms, the Offeree is willing to accept that too.
3. Definition of merchant (§2-104):
(1) "Merchant" means a person that deals in goods of the kind or otherwise holds
itself out by occupation as having knowledge or skill peculiar to the practices or
goods involved in the transaction or to which the knowledge or skill may be attributed
by the person's employment of an agent or broker or other intermediary that holds
itself out by occupation as having the knowledge or skill.
(3) "Between Merchants" means in any transaction with respect to which both parties
are chargeable with the knowledge or skill of merchants.
4. Definition of additional terms:
a. Minority View:
a) If not merchants:
i) Considered proposals for addition to K where Offeror can accept or reject.
b) If 2 Merchants: Offeror’s silence may = acceptance unless:
i) Term materially alters K [then go back to subsection 1]
Gives notice of objection
Expressly requires offer's terms
If so, the contract is on the Offeror's terms and Offeror’s silence
isn’t Acceptance of added terms.
b. Majority View (knock out rule):
a) Different terms cancel each other out. (Knock Out Rule)
b) Canceled terms are replaced by any applicable GAP FILLERS supplied by UCC.

5. Definition of conduct: Offeree contingently accepts terms but both parties continue to
perform, then terms in both contracts plus gap fillers govern,

D. Convention on Contracts for the International Sale of Goods

Article 19
(1) A reply to an offer which purports to be an acceptance but contains additions,

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 (1) A reply to an offer which purports to be an acceptance but contains additions,
limitations or other modifications is a rejection of the offer and constitutes a counter-
offer.
(2) However, a reply to an offer which purports to be an acceptance but contains additional
or different terms which do not materially alter the terms of the offer constitutes an
acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or
dispatches a notice to that effect. If he does not so object, the terms of the contract are the
terms of the offer with the modifications contained in the acceptance.
(3) MATERIAL: Additional or different terms relating, among other things, to the price,
payment, quality and quantity of the goods, place and time of delivery, extent of one party's
liability to the other or the settlement of disputes are considered to alter the terms of the
offer materially.

E. Mutual Assent, Comparing Common Law & UCC

IX. Policing Doctrine

A. Defenses to obligations to perform under an agreement with consideration
1. Policing Doctrines – grossly unfair terms or overreaching at bargaining or promising stage
(negotiation) addressing:
1) The Existence and Quality of Assent
2) The Substantive Terms of Exchange
a. The relationship between Policing Doctrines and the Freedom to Contract
b. The freedom to contract is compromised by undermining assent.
B. Changed Circumstances
1. Duress
a. Induced by wrongful threats
1) Economic duress: threats to withhold something another party badly needs or
wants IS NOT duress. However, economic duress is;
i) Threatens to commit a wrongful act that would place other in a position
to seriously threaten his property or finances
ii) No adequate means to avoid and prevent the threatened loss other than
entering the contract
2) Moral Duress: There is always an element of illegality in the demand
complained of, some denial of a right, some unfounded claim, some extortion.
b. Test of Duress: Has the party been constrained to do what he otherwise would not
have done using the standard of a person with "ordinary firmness". Cannot have an
immediate and adequate remedy in the courts to test or resist it.

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 immediate and adequate remedy in the courts to test or resist it.
i) Mere threat to withhold a legal right or future expectancy is NOT duress.
1) Undue Influence: Where one party persuades another party by relation
between them of domination where the second party does not act
inconsistently from first.
c. Restatement §176. WHEN A THREAT IS IMPROPER
(1) A threat is improper if
(a) what is threatened is a crime or a tort, or the threat itself would be a
crime or a tort if it resulted in obtaining property,
(b) what is threatened is a criminal prosecution,
(c) what is threatened is the use of civil process and the threat is made in
bad faith, or
(d) the threat is a breach of the duty of good faith and fair dealing under
a contract with the recipient.
(2) A threat is improper if the resulting exchange is not on fair terms, and
(a) the threatened act would harm the recipient and would not
significantly benefit the party making the threat, or
(c) what is threatened is otherwise a use of power for illegitimate ends.

2. Misrepresentation, Concealment, Duty to Disclose:

a. Negligent Misrepresentation
1) False representation as to a past or existing fact.
2) The person stating the belief must have no reasonable grounds for believing it
to be true.
3) The representation must have been made with the intent to induce the other
party to rely upon it.
4) The other party must have believed the misrepresentation and reasonably
relied on it.
5) As a result of the reliance on the misrepresentation, the other party suffered
damages.
b. Material misrepresentation:
1) Assertion will induce a reasonable person to agree or make the particular
person agree
c. Restatement §552C: The Misrepresentation of a material fact to “A” by “B” with the
intent to induce an act or inaction by “A” based on the misrepresented fact in a sale,
rental or exchange transaction occasions liability for “B” (the inducing party) for
pecuniary loss suffered by “A” even though the representation is not made
fraudulently or negligently.
d. Restatement (Second) of Torts
(1) One who, in a sale, rental or exchange transaction with another, makes a
misrepresentation of a material fact for the purpose of inducing the other to
act or to refrain from acting in reliance upon it, is subject to liability to the
other for pecuniary loss caused to him by his justifiable reliance upon the
misrepresentation, even though it is not made fraudulently or negligently.

(2) Damages recoverable under the rule stated in this section are limited to the
difference between the value of what the other has parted with and the value
of what he has received in the transaction. (includes consequential damages
due to detrimental reliance…victims of misrepresentations can also recover the
benefit of the bargain.

• Differences between fraudulent and negligent concealment:

- In fraudulent misrepresentation, one becomes liable for breaching the general
duty of good faith or honesty.
- However, in a claim of negligent misrepresentation, one may become liable
even though acting honestly and in good faith if one fails to exercise the level of

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 even though acting honestly and in good faith if one fails to exercise the level of
care required under the circumstances.

e. Fraudulent concealment:
1) that the defendant concealed or suppressed a material fact;
2) that the defendant had knowledge of this material fact;
3) that this material fact was not within the reasonably diligent attention,
observation, and judgment of the plaintiff;
4) that the defendant suppressed or concealed this fact with the intention that the
plaintiff be misled as to the true condition of the property;
5) that the plaintiff was reasonably so misled; and
6) that the plaintiff suffered damage as a result.
i) Silence may be fraudulent and that relief may be granted to one
contractual party where the other suppresses facts which he, under the
circumstances, is bound in conscience and duty to disclose to the other
party, and in respect to which he cannot, innocently, be silent.

f. Duty to Disclose
1) Required if the parties are in a fiduciary relationship with one another
concerning the subject matter of the contract
2) Or, when there is no fiduciary relationship with one another but a party has a
material fact due to virtue of a special position that cannot be determined by
exercise of normal diligence.

3. Unconscionability
a. Restatement §208 or UCC §2-302: court may refuse to enforce a contract or parts of
the contract or limit the contract if found to be unconscionable. It must exist at the
time the contract was made.
1) Procedural - unfair surprises: where a party includes a term, knowing that it is
not included in fair expectation and other party will not notice.
i) Adhesion: parties in unequal bargaining positions forced to adhere to the
terms of the printed form with a take it or leave it attitude.
ii) Lack of knowledge: modern rule holds that contracting party is only
bound by those that are not unreasonably surprising
2) Substantial:
i) Exculpatory - releasing a party from liability to injury caused by his
actions when intentional wrongs are included, though negligence is not
as clear.
a. Negligence: negligent is enforceable unless it is unconscionable,
such as affecting public interest or harming a protected class.
b. The adequacy or fairness of the consideration that adduces a
promise or a transfer is not alone grounds o refuse to enforce a
promise.
c. Must be an inequality so strong, gross, and manifest
d. A contract is unconscionable if it is such as no man in his senses and
not under a delusion would make on the one hand, and as no
honest or fair man would accept on the other.
e. It is generally held that the unconscionability test involves the
question of whether the provision amounts to a taking of an unfair
advantage by one party over the other.
3) Where there is an
i) (1) absence of meaningful choice for one party, coupled with
ii) (2) contract terms unreasonably favorable to the other party, and
characterized by
iii) (3) gross inequality of bargaining power.
4) Bifurcated test:

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 4) Bifurcated test:
i) Examination of the consideration “(a) The substance;” and
ii) Examination of the bargain process “(b) The process.”

b. UCC § 2-302. Unconscionable contract or Clause.

(1) If the court as a matter of law finds the contract or any clause of the contract
to have been unconscionable at the time it was made the court may refuse to
enforce the contract, or it may enforce the remainder of the contract without
the unconscionable clause, or it may so limit the application of any
unconscionable clause as to avoid any unconscionable result.

(2) When it is claimed or appears to the court that the contract or any clause
thereof may be unconscionable the parties shall be afforded a reasonable
opportunity to present evidence as to its commercial setting, purpose and
effect to aid the court in making the determination.

4. UCC § 2-313. Express Warranties by Affirmation, Promise, Description, Sample.

(1) Express warranties by the seller are created as follows:
• (a) Any affirmation of fact or promise made by the seller to the buyer which relates to
the goods and becomes part of the basis of the bargain creates an express warranty
that the goods shall conform to the affirmation or promise.
• (b) Any description of the goods which is made part of the basis of the bargain creates
an express warranty that the goods shall conform to the description.
• (c) Any sample or model which is made part of the basis of the bargain creates an
express warranty that the whole of the goods shall conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that the seller use formal
words such as "warrant" or "guarantee" or that he have a specific intention to make a
warranty, but an affirmation merely of the value of the goods or a statement purporting to
be merely the seller's opinion or commendation of the goods does not create a warranty.

5. UCC § 2-314. Implied Warranty: Merchantability; Usage of Trade.

(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be
merchantable is implied in a contract for their sale if the seller is a merchant with respect to
goods of that kind. Under this section the serving for value of food or drink to be consumed
either on the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
• (a) pass without objection in the trade under the contract description; and
• (b) in the case of fungible goods, are of fair average quality within the description;
and
• (c) are fit for the ordinary purposes for which such goods are used; and
• (d) run, within the variations permitted by the agreement, of even kind, quality and
quantity within each unit and among all units involved; and
• (e) are adequately contained, packaged, and labeled as the agreement may require;
and
• (f) conform to the promise or affirmations of fact made on the container or label if
any.
(3) Unless excluded or modified (Section 2-316) other implied warranties may arise from
course of dealing or usage of trade.

6. UCC § 2-316. Exclusion or Modification of Warranties.

(1) Words or conduct relevant to the creation of an express warranty and words or conduct
tending to negate or limit warranty shall be construed wherever reasonable as consistent
with each other; but subject to the provisions of this Article on parol or extrinsic evidence
(Section 2-202) negation or limitation is inoperative to the extent that such construction is
unreasonable.

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 unreasonable.

(2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability
or any part of it the language must mention merchantability and in case of a writing must
be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion
must be by a writing and conspicuous. Language to exclude all implied warranties of fitness
is sufficient if it states, for example, that "There are no warranties which extend beyond the
description on the face hereof."
(3) Notwithstanding subsection (2)
• (a) unless the circumstances indicate otherwise, all implied warranties are excluded by
expressions like "as is", "with all faults" or other language which in common
understanding calls the buyer's attention to the exclusion of warranties and makes
plain that there is no implied warranty; and
• (b) when the buyer before entering into the contract has examined the goods or the
sample or model as fully as he desired or has refused to examine the goods there is
no implied warranty with regard to defects which an examination ought in the
circumstances to have revealed to him; and
• (c) an implied warranty can also be excluded or modified by course of dealing or
course of performance or usage of trade.

X. Contract Modifications:
1. UCC § 2-719. Contractual Modification or Limitation of Remedy.
(1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding
section on liquidation and limitation of damages,
• (a) the agreement may provide for remedies in addition to or in substitution for
those provided in this Article and may limit or alter the measure of damages
recoverable under this Article, as by limiting the buyer's remedies to return of the
goods and repayment of the price or to repair and replacement of non-conforming
goods or parts; and
• (b) resort to a remedy as provided is optional unless the remedy is expressly agreed
to be exclusive, in which case it is the sole remedy.
(2) Where circumstances cause an exclusive or limited remedy to fail of its essential
purpose, remedy may be had as provided in this Act.
(3) Consequential damages may be limited or excluded unless the limitation or exclusion is
unconscionable. Limitation of consequential damages for injury to the person in the case of
consumer goods is prima facie unconscionable but limitation of damages where the loss is
commercial is not.

2. Restatement § 89. MODIFICATION OF EXECUTORY CONTRACT

A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by
the parties when the contract was made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of
position in reliance on the promise.

3. Accord and Satisfaction: ADD

Unmistakable communication to the creditor that tender of the lesser sum is upon the
condition that acceptance will constitute satisfaction of the underlying obligation.
Consideration for the new contract establishing a discharge of the prior obligation is the
settlement of a bona fide dispute between the parties. (the requirement of bona fide
dispute presupposes that parties knew that an issue of greater liability has been settled by
the accord.)

XI. Interpretation
A. Intent:

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A. Intent:
1. Writing: objective from intention gathered from entire body of writings
2. Actions: objective from intention imputed from reasonable meaning of words & actions
a. Exceptions: Peerless rule
1) Where two parties both had equally reasonable meanings for the ship, resulting
in subjectively different, but objectively reasonable interpretations, leading to
no contract.
B. Parol Evidence:
1. Assumption: The Rule assumes the duties or restrictions not appearing in final written
contract even if accepted earlier, weren’t intended to survive.
2. Goal: Parol evidence rules seek to find some middle ground between total adherence to the
written language of agreement and total reliance on extrinsic evidence of prior or
contemporaneous agreements or negotiations that may affect the writing.
a. Oral Contracts:
1) The conservative rule: The oral agreement must:
a) Be collateral in form
i. Collateral in form may [but does not always] mean that the two
agreements must be supported by separate consideration,
however.
ii. R2d§ 216 requires that there must either be “separate
consideration” or the term must be one that under the
circumstances might naturally be omitted from the writing
iii. Admitted if collateral might reasonably be omitted from the
written agreement
b) Not contradict express or implied provisions of the written agreement
Cannot assert or express the opposite or the contrary of express or
implied provisions of the contract.
c) Be one that the parties would not be expected to have reduced to
writing – (not be so clearly connected with the written agreement that it
should be reasonably expected to be included).
i. Should not be so closely related to the primary transaction that it
should naturally be included.

Test
Is the agreement Integrated? Does it have full Intended to be final &/or complete expression?
and complete intent?
Partially Integrated Final, not Complete: supplemental but non
C. writing is final but incomplete expression of contradictory evidence is allowed.
intent some terms are unwritten.
Fully Integrated Final & Complete: no evidence allowed
Writing is final and complete expression of
terms it contains.

b. Parol Evidence:
1) cannot be admitted to contradict a fully integrated agreement.
2) cannot be admitted to contradict the integrated portion of a partially
integrated agreement.
3) can be used to prove elements of the agreement not reduced to writing…
4) should be excluded only when the fact finder is likely to be misled…
a) If terms of the contract are express, must show (also considered
exceptions to the rule):
i. Fraud (No mutual assent)
ii. Duress (No mutual assent)
iii. Mistake (No mutual assent)

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 iii. Mistake (No mutual assent)
iv. Ambiguous terms (Clarify intent)
v. Promissory Estoppel (Clarify intent)
vi. Misleading or deceiving 3rd party (No intent to be obligated)
vii. Condition Precedent [to formation of contract] (No intent to be
obligated)

c. UCC § 2–202. Final Written Expression: Parole or Extrinsic Evidence.

Terms with respect to which the confirmatory memoranda of the parties agree or
which are otherwise set forth in a writing intended by the parties as a final expression
of their agreement with respect to such terms as are included therein may not be
contradicted by evidence of any prior agreement or of a contemporaneous oral
agreement but may be explained or supplemented:
(a) by course of dealing or usage of trade (Section 1–205) or by course of
performance (Section 2–208); and
(b) by evidence of consistent additional terms unless the court finds the writing
to have been intended also as a complete and exclusive statement of the terms
of the agreement.

d. UCC §2-202: Exclude oral evidence if:

1. parties intended writing to be final and exclusive expression of agreement of
terms;
2. writing is final written expression of terms that oral evidence would contradict;
or
3. oral evidence of terms is not credible.

XII. Interpretation
A. Intent: Effectuate the intent of the parties at the time of contract formation;
1. Clear language: Where the language of a contract is clear on its face, the court ascertains
intent from language which is interpreted consistent with its ordinary meaning.
a. A contract will be construed as whole…all parts harmonized so far as reasonably
possible.
2. Ambiguities: Where an ambiguity of language may support two disparate outcomes – courts
favor the reasonable, fair and customary one over the unreasonable, inequitable and
unlikely. Where ambiguity is alleged, it may be one of two types:
a. Patent: ambiguity apparent upon the face of the instrument due to inconsistency,
obscurity or inherent uncertainty of language used; or
b. Latent: clear and intelligible contract language suggesting a single meaning but
extrinsic fact or extraneous evidence suggests more than one possible meaning.
1. Examine extrinsic evidence to determine if evidence supports assertion that
language is capable of more than one interpretation.
2. If latent ambiguity discovered, examine extrinsic evidence to determine
meaning (appropriate interpretation) of contract language.

B. U.C.C. Interpretation
1. § 1-203. Obligation of good faith.
Every contract or duty within this Act imposes an obligation of good faith in its performance
or enforcement.

2. § 2-208. Course of Performance or Practical Construction.

(1) Where the contract for sale involves repeated occasions for performance by either
party with knowledge of the nature of the performance and opportunity for objection to it
by the other, any course of performance accepted or acquiesced in without objection shall
be relevant to determine the meaning of the agreement.

(2) The express terms of the agreement and any such course of performance, as well as any

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 (2) The express terms of the agreement and any such course of performance, as well as any
course of dealing and usage of trade, shall be construed whenever reasonable as consistent
with each other; but when such construction is unreasonable, express terms shall control
course of performance and course of performance shall control both course of dealing and
usage of trade (Section 1-205).

(3) Subject to the provisions of the next section on modification and waiver, such course of
performance shall be relevant to show a waiver or modification of any term inconsistent
with such course of performance.

3. § 1-205. Course of Dealing and Usage of Trade.

(1) A course of dealing is a sequence of previous conduct between the parties to a

particular transaction which is fairly to be regarded as establishing a common basis of
understanding for interpreting their expressions and other conduct.

(2) A usage of trade is any practice or method of dealing having such regularity of
observance in a place, vocation or trade as to justify an expectation that it will be observed
with respect to the transaction in question. The existence and scope of such a usage are to
be proved as facts. If it is established that such a usage is embodied in a written trade code
or similar writing the interpretation of the writing is for the court.

(3) A course of dealing between parties and any usage of trade in the vocation or trade in
which they are engaged or of which they are or should be aware give particular meaning to
and supplement or qualify terms of an agreement.

(4) The express terms of an agreement and an applicable course of dealing or usage of trade
shall be construed wherever reasonable as consistent with each other; but when such
construction is unreasonable express terms control both course of dealing and usage of
trade and course of dealing controls usage of trade. (more specific than broad)

(5) An applicable usage of trade in the place where any part of performance is to occur
shall be used in interpreting the agreement as to that part of the performance.

(6) Evidence of a relevant usage of trade offered by one party is not admissible unless and
until he has given the other party such notice as the court finds sufficient to prevent unfair
surprise to the latter.

Parole Evidence Interpretation

Goal Effectuate Ps’ intent
Process Objective Evidence
NY Williston Integrated Writing
Cal Corbin All credible evidence
C. Focus & Burden ‘Best Evidence”
NY Williston Parties’ writing
Cal Corbin Parties’ relationship
Intersections PER/Interpretation
Level 1: Scope What is included?
Level 2: Meaning What does it mean?

XIII. Gap Fillers

A. Used when contracts fail to include critical matters or when conflicting clauses cancel each other

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A. Used when contracts fail to include critical matters or when conflicting clauses cancel each other
out.
1. Intent to contract established
2. Issue of performance
3. Term(s) omitted?
4. Ascertain intent
5. Rely on discernable intent, fairness and/or gap fillers to determine meaning
a. Where parties haven’t clearly specified the duration of an ongoing contract, the court
will imply duration for a reasonable time based upon the surrounding circumstances
and the parties’ intent at time of contract.
b. Where intent may not be clearly ascertainable, the courts may substitute fairness.
B. UCC § 2-204. Formation in General.
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness
if the parties have intended to make a contract and there is a reasonably certain basis for giving
an appropriate remedy.

C. § 2-305. Open Price Term.

(1) The parties if they so intend can conclude a contract for sale even though the price is not
settled. In such a case the price is a reasonable price at the time for delivery if
* (a) nothing is said as to price; or
* (b) the price is left to be agreed by the parties and they fail to agree; or
* (c) the price is to be fixed in terms of some agreed market or other standard as set or
recorded by a third person or agency and it is not so set or recorded.

(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good
faith.

(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed
through fault of one party the other may at his option treat the contract as cancelled or
himself fix a reasonable price.

(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed
and it is not fixed or agreed there is no contract. In such a case the buyer must return any
goods already received or if unable so to do must pay their reasonable value at the time of
delivery and the seller must return any portion of the price paid on account.

D. § 2-309. Absence of Specific Time Provisions; Notice of Termination.

(1) The time for shipment or delivery or any other action under a contract if not provided in this
Article or agreed upon shall be a reasonable time.

(2) Where the contract provides for successive performances but is indefinite in duration it
is valid for a reasonable time but unless otherwise agreed may be terminated at any time
by either party.

(3) Termination of a contract by one party except on the happening of an agreed event
requires that reasonable notification be received by the other party and an agreement
dispensing with notification is invalid if its operation would be unconscionable.

E. § 2-312. Warranty of Title and Against Infringement; Buyer's Obligation Against Infringement.
(1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that

* (a) the title conveyed shall be good, and its transfer rightful; and
* (b) the goods shall be delivered free from any security interest or other lien or encumbrance
of which the buyer at the time of contracting has no knowledge.

(2) A warranty under subsection (1) will be excluded or modified only by specific language

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 (2) A warranty under subsection (1) will be excluded or modified only by specific language
or by circumstances which give the buyer reason to know that the person selling does not
claim title in himself or that he is purporting to sell only such right or title as he or a third
person may have.

(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the
kind warrants that the goods shall be delivered free of the rightful claim of any third person
by way of infringement or the like but a buyer who furnishes specifications to the seller
must hold the seller harmless against any such claim which arises out of compliance with
the specifications.

Parol Evidence Interpretation Gap Fillers

Intent to contract established Intent to contract established Intent to contract
established
Issue of performance Issue of performance Issue of Performance
Terms to be included? Term ambiguous? Term(s) omitted?
Ascertain intent Ascertain intent Ascertain intent
Term excluded if: Rely on discernable intent and extrinsic Rely on discernable
Contradicts or is additional to evidence to determine intended meaning intent, fairness and/or
terms in writing; gap fillers to determine
Contradicts or additional per meaning
extrinsic evidence

XIV. Good Faith

A. Restatement §205 - good faith is faithfulness to an agreed common purpose and consistency
with the justified expectations of the other party.
1. Bad faith conducts violates standards of decency, fairness, or reasonableness from its
definition of bad faith, including evasion from the spirit of the bargain, lack of diligence,
willful rendering of imperfect performance, abuse of power to specify terms, and
interference with or failure to cooperate with other party's performance.

B. UCC §1-203: “Every contract or duty within this act imposes a duty of good faith in its
performance or enforcement.”

C. UCC § 2-306. Output, Requirements and Exclusive Dealings.

(1) A term which measures the quantity by the output of the seller or the requirements of
the buyer means such actual output or requirements as may occur in good faith, except that
no quantity unreasonably disproportionate to any stated estimate or in the absence of a
stated estimate to any normal or otherwise comparable prior output or requirements may
be tendered or demanded.

(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of
goods concerned imposes unless otherwise agreed an obligation by the seller to use best
efforts to supply the goods and by the buyer to use best efforts to promote their sale.

D. §1-201 "Good faith" means honesty in fact in the conduct or transaction concerned.
1. For merchant, also includes honesty in fact AND the observance of reasonable commercial
standard of fair dealing in the trade.

XV. Express Conditions

A. Order of performance
1. Conditions of the performance
a. Process:

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 a. Process:
1) Intent & Circumstances: Ascertain party’s intent from contract language &
surrounding circumstances; or if
2) General Trade Customs: Less substantial evidence, look to general trade
custom; or if
3) Gap Filler: No evidence of probable intention, fill gap by devising general rule of
law.
a) A term supplied by a gap filler is called:
An Implied-in-law condition precedent, or
A Constructive condition precedent
2. Where the court fills the gap and determines which party performs 1st, the other party’s
duty is impliedly-in-law conditional on the 1st party’s performance
B. Express conditions are when a party does not have a duty to perform unless that express
condition is fulfilled.
1. Explicit contractual provision to describe a condition that must or must not occur, if it does
so, it releases parties from a duty to perform.
2. Excuse of performance - does not excuse the other party to perform under the contract
a. If party's promise to perform is subject to a condition, there is no breach until
condition is fulfilled.
3. Presumptions: in doubt, construe as promises to the parties expectations.
C. Conditions precedent: must occur before the party has a duty to render performance
D. Condition subsequent: where occurrence or non-occurrence extinguishes or terminates a duty to
perform

CONDITION PROMISE
An operative fact occurring after acceptance A declaration made as part of contract (during)
but before discharge of obligations upon which formation that one party will or will not do
the rights and duties of the parties depend. something, fulfillment of which occurs after
acceptance.

Made by agreement of both parties to qualify Made by one party to create an obligation or
start of contract obligations detriment in the Promisor
Postpones a duty or other relationship. Discharges a duty when fulfilled
Non Occurrence prevents discharge of Non-Fulfillment constitutes breach with right to
obligations damages.
Provided, If, When Promise, Agree

E. Quality of performance - Conditions of Satisfaction

1. Performance to satisfaction as a CP:
a. Actual personal satisfaction or reasonable person - modern trend is promisor's
satisfaction to the subject matter of the contract
1) Mechanical fitness, utility, marketability - reasonable person
2) Personal taste or judgment - personally satisfied in good faith
3) To a third person - actual personal satisfaction in honest and good faith
2. Conditions relating to the time of payment
a. Only enforceable if condition has occurred, provisions of unconditional promise to
pay, with payment postponed until occurrence of time of payment.
F. Excused performance - in general, no obligations to fulfilled contract duty unless all conditions
are fulfilled. Exceptions are granted if prevented or hindered by party favored by condition.
Cannot use own wrongful conduct to escape liability.
1. Wrongfulness - must be wrongful but DOES NOT require bad faith or malice, but essential
that other party would not have reasonably anticipated that type of prevention or hindrance

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 that other party would not have reasonably anticipated that type of prevention or hindrance
that occurred.
2. Waivers - words or conduct may waive right to insist fulfillment of condition upon which his
duty of performance depends.
3. Impossibility or Impracticability excuses the fulfillment of a condition if it is not material to
the agreed exchange and forfeiture.
4. Forfeiture: no fulfillment would cause a disproportionate forfeiture, fulfillment of the
condition may be excused unless the fulfillment of the condition was a material part of the
agreed exchange.
G. Implied Conditions: where express conditions refer to an explicit contractual

H. Restatements
1. § 224 CONDITION DEFINED
A condition is an event, not certain to occur, which must occur, unless its non-occurrence is
excused, before performance under a contract becomes due.

2. § 225 EFFECTS OF THE NON-OCCURRENCE OF A CONDITION

(1) Performance of a duty subject to a condition cannot become due unless the condition
occurs or its non-occurrence is excused.
(2) Unless it has been excused, the non-occurrence of a condition discharges the duty when
the condition can no longer occur.
(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that
the condition occur.

a. The first, stated in Subsection (1), is that of preventing performance of the duty from
becoming due. This follows from the definition of "condition" in § 224. Performance of
the duty may still become due, however, if the condition occurs later within the time
for its occurrence.

b. The non-occurrence of the condition within that time has the additional effect, stated
in Subsection (2), of discharging the duty. The time within which the condition can
occur in order for the performance of the duty to become due may be fixed by a term
of the agreement or, in the absence of such a term, by one supplied by the court (§
204).

3. § 229 EXCUSE OF A CONDITION

“Excuse non-occurrence of express condition where non-excuse works disproportionate
forfeiture unless occurrence is material.”

4. § 230 EVENT THAT TERMINATES A DUTY

(1) Except as stated in Subsection (2), if under the terms of the contract the occurrence of
an event is to terminate an obligor's duty of immediate performance or one to pay damages
for breach, that duty is discharged if the event occurs.
(2) The obligor's duty is not discharged if occurrence of the event
(a) is the result of a breach by the obligor of his duty of good faith and fair dealing, or
(b) could not have been prevented because of impracticability and continuance of the duty
does not subject the obligor to a materially increased burden.
(3) The obligor's duty is not discharged if, before the event occurs, the obligor promises to
perform the duty even if the event occurs and does not revoke his promise before the
obligee materially changes his position in reliance on it.

I. UCC § 1-204. Time; Reasonable Time; "Seasonably".

(1) Whenever this Act requires any action to be taken within a reasonable time, any time
which is not manifestly unreasonable may be fixed by agreement.

(2) What is a reasonable time for taking any action depends on the nature, purpose and

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 (2) What is a reasonable time for taking any action depends on the nature, purpose and
circumstances of such action.

(3) An action is taken "seasonably" when it is taken at or within the time agreed or if no time
is agreed at or within a reasonable time.

XVI. Implied Conditions

A. Express conditions normally refer to explicit contractual provisions, whereas implied conditions
are duties that should be performed under a contract even if it does not explicitly state so. There
must be an implied or constructive condition that must occur before the performance of one or
both parties come due.
1. Implied Conditions of Performance
a. Where the other party has rendered its performance or made a ender of its
performance.
2. Implied Conditions of Cooperation and Notice
a. Conditions other than performance or tender, such as obligation of one party to
perform is conditioned on the other party's cooperation in that performance.
3. Implied Conditions of Notice
a. Other party needs to give notice that performance is due where the other party could
not be reasonably expected to know when his duty to perform was triggered.
B. Order of Performance
1. The performance that takes time must occur first (meaning the one that takes longer). It is
the implied condition to the duty to render the performance that will not take time
(meaning unless the one that takes time is done first)
2. Earlier Performance is conditioned to later performance - the first performance is an
implied condition to the other party's duty to perform.
3. Simultaneous performances - tender of performance by each party is an implied condition
to the other party's duty to perform - concurrent duty.
a. Same rule applies even if there is no time set if the promises are capable of being
performed simultaneously.
b. Same rule applies even if only one of the promises have set time but both can occur
simultaneously
C. Anticipatory Repudiation: a performance that would normally be an implied condition to the
other party's performance or tender will be excused if the other party repudiates the contract
prior to the time when the performance was to occur.
1. Rationale: to avoid forcing innocent party to remain futilely in readiness to perform
2. Victim of the repudiation: does not have to make a tender, he still may have to show that
but for repudiation he had the ability to perform.
3. As a breach: nonrepudiating party is excused from his duty to perform and may be able to
sue the repudiating party for breach even if the time for performance has not yet arrived.
D. Anticipatory Breach: material breach of contract and able to bring immediate action for value of
the promised performance.
1. Not needed to be done by words, voluntary acts are sufficient.
2. Insistence on terms not in the contract are held to be breach
3. Requirement of Unequivocal Repudiation - only an express or implied unconditional
refusal to perform constitutes repudiation.
a. Exception: where only remaining duty belongs to repudiating party does not give rise
to cause for breach until there is an actual breach at the time for performance.
E. Retraction - repudiating party may retract at any time prior to date set for performance unless
innocent party has accepted the repudiation or changed his or her position in detrimental
reliance
1. Damages: Repudiation party must mitigate damages
2. Innocent party must also mitigate damages

3. U.C.C. 2-609-611
a. § 2-609. Right to Adequate Assurance of Performance.

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 a. § 2-609. Right to Adequate Assurance of Performance.

(1) A contract for sale imposes an obligation on each party that the other's
expectation of receiving due performance will not be impaired. When reasonable
grounds for insecurity arise with respect to the performance of either party the other
may in writing demand adequate assurance of due performance and until he
receives such assurance may if commercially reasonable suspend any performance
for which he has not already received the agreed return.

(2) Between merchants the reasonableness of grounds for insecurity and the
adequacy of any assurance offered shall be determined according to commercial
standards.

(3) Acceptance of any improper delivery or payment does not prejudice the
aggrieved party's right to demand adequate assurance of future performance.

(4) After receipt of a justified demand failure to provide within a reasonable time not
exceeding thirty days such assurance of due performance as is adequate under the
circumstances of the particular case is a repudiation of the contract.

b. § 2-610. Anticipatory Repudiation.

When either party repudiates the contract with respect to a performance not yet due
the loss of which will substantially impair the value of the contract to the other, the
aggrieved party may
(a) for a commercially reasonable time await performance by the repudiating
party; or
(b) resort to any remedy for breach (Section 2-703 or Section 2-711), even
though he has notified the repudiating party that he would await the latter's
performance and has urged retraction; and
(c) in either case suspend his own performance or proceed in accordance with
the provisions of this Article on the seller's right to identify goods to the
contract notwithstanding breach or to salvage unfinished goods (Section
2-704).

c. § 2-611. Retraction of Anticipatory Repudiation.

(1) Until the repudiating party's next performance is due he can retract his
repudiation unless the aggrieved party has since the repudiation cancelled or
materially changed his position or otherwise indicated that he considers the
repudiation final.

(2) Retraction may be by any method which clearly indicates to the aggrieved
party that the repudiating party intends to perform, but must include any
assurance justifiably demanded under the provisions of this Article (Section
2-609).

(3) Retraction reinstates the repudiating party's rights under the contract with
due excuse and allowance to the aggrieved party for any delay occasioned by
the repudiation.

F. Prospective inability to perform - one party apparently cannot perform than it excuses the
performable party from holding himself ready to perform.
1. Under UCC - insolvency of party gives other the right to demand assurances of performance
or adequate assurances of performance.

G. Substantial Performance - Implied condition of prior or simultaneous performance will be

satisfied by substantial performance.

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 satisfied by substantial performance.
1. Expectations Damages, offsetted by the amount of damages he incurred as a result of the
plaintiff's breach.
2. Substantial performance - whether the performance meets the essential purpose of the
contract
a. Rest. Of Contracts, §275: Factors establishing materiality
1) Extent to which injured party receives the anticipated substantial benefit
2) Extent to which injured party may be compensated in damages for lack of
complete performance
3) Extent of partial performance and/or preparations to perform
4) Greater or less hardship on non-performing party in terminating contract
5) Willful, negligent or innocent behavior of non-performing party
6) Greater or less uncertainty that non performing party will perform remainder of
contract.
b. § 241 CIRCUMSTANCES SIGNIFICANT IN DETERMINING WHETHER A FAILURE IS
MATERIAL
In determining whether a failure to render or to offer performance is material, the
following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which
he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for
the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will
suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will
cure his failure, taking account of all the circumstances including any
reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer
to perform comports with standards of good faith and fair dealing.

H. U.C.C. Implied Conditions Fixing Order of Performance

1. UCC § 2-507. Effect of Seller's Tender; Delivery on Condition.
(1) Tender of delivery is a condition to the buyer's duty to accept the goods and,
unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to
acceptance of the goods and to payment according to the contract.

(2) Where payment is due and demanded on the delivery to the buyer of goods or
documents of title, his right as against the seller to retain or dispose of them is
conditional upon his making the payment due.

2. U.C.C. Sect. 2-511 Tender of Payment by Buyer; Payment by Check

(1) Unless otherwise agreed, tender of payment is a condition to the seller's duty to
tender and complete any delivery.

(2) Tender of payment is sufficient when made by any means or in any manner
current in the ordinary course of business unless the seller demands payment in legal
tender and gives any extension of time reasonably necessary to procure it.

(3) Subject to the provisions of this Act on the effect of an instrument on an obligation
(Section 3-802), payment by check is conditional and is defeated as between the
parties by dishonor of the check on due presentment.

3. U.C.C. Sect. 2-307 Delivery in Single Lot or Several Lots

Unless otherwise agreed all goods called for by a contract for sale must be tendered in

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 Unless otherwise agreed all goods called for by a contract for sale must be tendered in
a single delivery and payment is due only on such tender but where the
circumstances give either party the right to make or demand delivery in lots the price
if it can be apportioned may be demanded for each lot.

I. Implied Conditions Fixing the Quality of Performance

1. UCC § 2-717. Deduction of Damages From the Price.

The buyer on notifying the seller of his intention to do so may deduct all or any part of the
damages resulting from any breach of the contract from any part of the price still due under
the same contract.

G. U.C.C. Comparisons and Conditions

1. § 2-601. Buyer's Rights on Improper Delivery.

Subject to the provisions of this Article on breach in installment contracts (Section 2-612)
and unless otherwise agreed under the sections on contractual limitations of remedy
(Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to
conform to the contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.

2. § 2-602. Manner and Effect of Rightful Rejection.

(1) Rejection of goods must be within a reasonable time after their delivery or tender.
It is ineffective unless the buyer seasonably notifies the seller.

3. § 2-608. Revocation of Acceptance in Whole or in Part.

(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-
conformity substantially impairs its value to him if he has accepted it
(a) on the reasonable assumption that its non-conformity would be cured and it
has not been seasonably cured; or
(b) without discovery of such non-conformity if his acceptance was reasonably
induced either by the difficulty of discovery before acceptance or by the seller's
assurances.

(2) Revocation of acceptance must occur within a reasonable time after the buyer
discovers or should have discovered the ground for it and before any substantial
change in condition of the goods which is not caused by their own defects. It is not
effective until the buyer notifies the seller of it.

(3) A buyer who so revokes has the same rights and duties with regard to the goods
involved as if he had rejected them.

4. § 2-612. "Installment contract"; Breach.

(1) An "installment contract" is one which requires or authorizes the delivery of

goods in separate lots to be separately accepted, even though the contract contains a
clause "each delivery is a separate contract" or its equivalent.

(2) The buyer may reject any installment which is non-conforming if the non-
conformity substantially impairs the value of that installment and cannot be cured or
if the non-conformity is a defect in the required documents; but if the non-conformity
does not fall within subsection (3) and the seller gives adequate assurance of its cure

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 does not fall within subsection (3) and the seller gives adequate assurance of its cure
the buyer must accept that installment.

(3) Whenever non-conformity or default with respect to one or more installments

substantially impairs the value of the whole contract there is a breach of the whole.
But the aggrieved party reinstates the contract if he accepts a non-conforming
installment without seasonably notifying of cancellation or if he brings an action with
respect only to past installments or demands performance as to future installments.

5. § 1-205. Course of Dealing and Usage of Trade.

(1) A course of dealing is a sequence of previous conduct between the parties to a

particular transaction which is fairly to be regarded as establishing a common basis of
understanding for interpreting their expressions and other conduct.

(2) A usage of trade is any practice or method of dealing having such regularity of
observance in a place, vocation or trade as to justify an expectation that it will be
observed with respect to the transaction in question. The existence and scope of
such a usage are to be proved as facts. If it is established that such a usage is
embodied in a written trade code or similar writing the interpretation of the writing is
for the court.

(3) A course of dealing between parties and any usage of trade in the vocation or
trade in which they are engaged or of which they are or should be aware give
particular meaning to and supplement or qualify terms of an agreement.

(4) The express terms of an agreement and an applicable course of dealing or usage of
trade shall be construed wherever reasonable as consistent with each other; but
when such construction is unreasonable express terms control both course of dealing
and usage of trade and course of dealing controls usage of trade.

(5) An applicable usage of trade in the place where any part of performance is to
occur shall be used in interpreting the agreement as to that part of the performance.

(6) Evidence of a relevant usage of trade offered by one party is not admissible unless
and until he has given the other party such notice as the court finds sufficient to
prevent unfair surprise to the latter.

XVII. Mistake: Defects in the bargaining process

1) Last Semester: §20: Lack of mutual assent à as to formation of contract, therefore, no contract.
Enforceable at the terms of the innocent party. It is to the option of the innocent party (where the
person knew of the mistake and took advantage of the mistaken party, then the innocent party’s
terms will be used). This falls under the objective theory of the formation of the contract. Issue: if
offeror should have known or known of the mistake.
2) This semester: Mistake of fact that was made at the time the contract was formed. There is
mutual assent and there is already a contract established. Courts rarely void contract because of
mistake because the mistaken beliefs at issue in mistake cases may not be the D’s fault. Falls
under R2 §19(3), 151, 153, 154 (where the contract is voidable)
3) Unilateral Mistake
(a) Restatement §153: Unilateral Mistake: When a mistake of one part makes a contract voidable
(1) Where a mistake of one party at the time a contract was made as to a basic assumption on
which he made the contract has a material effect on the agreed exchange of performances
that is adverse to him, the contract is voidable by him if he does not bear the risk of the
mistake, and
(i) The effect of the mistake is such that enforcement of the contract would be
unconscionable, or

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 unconscionable, or
(ii) The other party had reason to know of the mistake or his fault caused the mistake.
(b) Boise Junior College v. Mattefs Construction
(1) One who errs in preparing a bid for a public works contract is entitled to the equitable relief
of rescission if he can establish the following conditions:
(i) Basic Assumption
(ii) The mistake is material;
(iii) Enforcement of a contract pursuant to the terms of the erroneous bid would be
unconscionable;
(iv) The mistake did not result from the violation of a positive legal duty or from culpable
negligence; (negligence is shown by bidder’s lack of good faith).
(v) The party to whom the bid is submitted will not be prejudiced except by the loss of
his bargain; and
(vi) Prompt notice of the error is given (relief from mistake bids is consistently allowed
where the acceptor has actual notice of the error prior to its attempted acceptance
and the other elements necessary for equitable relief are present).
(c) Mistake in Bids and Federal government contracting: if the contracting officer has reason to
believe that a mistake may have been made, the contracting officer shall request from the bidder
a verification of the bid, calling attention to the suspected mistake. If there is desire to rescind
after award of bid, then P must show by clear and convincing evidence that a mutual mistake has
been made or a unilateral mistake (and other party should have known), then agencies can
rescind or reform the contract.
(d) If there is a palpable (noticeable) error, then this may be sufficient to warrant relief.

Mutual Mistake
(e) Restatement §152: Mutual Mistake: When mistake of both parties makes a contract voidable
(1) Where a mistake of both parties at the time a contract was made as to a basic assumption
on which the contract was made has a material effect on the agreed exchange of
performance, the contract is voidable by the adversely affected party unless he bears the
risk of the mistake.
(f) Beachcomber Coins v. Boskett
(1) Both parties acted under the mistake of fact, and it was a material effect, and neither
parties bore the risk. However, if the person bears the risk, (like a garage sale and no one
knows what anything is worth) and if both parties are contracting if they do not know of the
thing being sold, then there can be no rescission.
(2) Mutual mistake is voidable by either party if enforcement more onerous than had the facts
been the way the parties believed them to be.
(3) Negligence does not preclude rescission.
(g) Sherwood v. Walker
(1) Common law: Walker contracted to sell Sherwood a cow that both parties believed was
barren. Before delivery of the cow, Walker discovered the cow was pregnant and thus more
valuable. The contract could be rescinded because the parties made a mutual material
mistake as to the substance of the contract’s subject matter (not necessarily the value – if
just value the court may not have held for P). P wants Replevin – to recover the thing itself
(the cow). (Pre-restatement case)
(2) A mutual mistake occurs when both parties are under substantially the same erroneous
belief as to the facts.
(3) Both seller and buyer believed the care could not breed. When seller discovered cow was in
fact pregnant, he attempted to avoid the contract. The court held that seller was entitled to
avoid if the cow was sold, or contracted to be sold, upon the understanding of both parties
that she was barren, and useless for the purpose of breeding, and that in fact she was
barren, but capable of breeding.
(h) Lenawee v. Messerly
(1) Bloom installs septic tank without permit, Bloom sells to Messerly (contract of sale in
default), Messerly sells to Barnes (through quit claim), then Messerly to Pickles with
contract of sale with “as is”. The board of health gives an injunction to the property, since it

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 contract of sale with “as is”. The board of health gives an injunction to the property, since it
is unfit for habitation. Court says that it shouldn’t matter if mistake is regarding value or
subject matter, rather it is just a material effect, and this should be the reason to give
rescission (dicta). Court holds that risk should be allocated to purchasers because of “as is”
clause. R2 §154(a) says that the court should look first to whether the parties have agreed
to the allocation of the risk between themselves.

1) Mistake made by intermediary during transmission

(a) Ayer v. Western Union
(1) Telegram omits a number, which differs the quantity term. The party who selects the
telegraph should bear the loss caused by the errors (in this case, the seller). P is entitled to
recover the difference between the two dollars and the market price from Western Union,
since it is the fault of Western Union based on strict liability (court ignores disclaimer clause
because the consumer does not read the disclaimer and was not clear and obvious).
(2) In an offer, where there is a mistake in the telegram, the offeree has the power to accept
(since the offeree is innocent), however if there is a huge difference, then the offeree should
not take advantage of the offeror, since the offeree knew or should have known he did not
have the power to accept. (In this case, the court said not that big of a difference, so there
was a contract).

1) Remedies:
(a) Rescission: it is an equitable remedy invalidating the contract. For mutual mistake in the
formulation rather than the expression of the agreement, then the proper remedy is rescission.
(Same thing to say a party wants to avoid the contract as rescission.)
(b) Reformation: reformation is designed to restore the efficacy of the writing which does not reflect
the earlier agreement to the parties, frequently oral, which they apparently intended to be
reflected in the writing (limited to the (scrivener’s {draftman’s} error). P must show by clear and
convincing evidence that the parties had actually reached agreement over the term at issue, that
both parties intended the term to be included in subsequent writing, and because of the mutual
mistake in expression, the term was not included. D will deny the term was to be included, so P
has an uphill burden.

XVIII. Impossibility and Frustration:

Contract will normally be excused if the performance has been made impossible or impracticable
A. Impossibility of Performance
B. Impracticability of Performance
C. Frustration of purpose

XIX. Changed Circumstances:

1) Older concept: supervening impracticability (this is where you make the contract, and then an
unexpected event happens which makes the contract impracticable).
2) Frustration of purposes: only in restatement; parties contract and either because of an existing or
supervening event that they did not know about, the purpose of one party going into the contract
is reduced to zero, should that party be able to get out.
(1) Overarching Question: Ask: who should bear the risk? Then was there really
impracticability?
3) Remedies: courts don’t necessarily have to make it all or nothing (uphold contract or not relieve
performance obligation).
4) Define impracticability: the party seeking relief must prove that there was an extraordinary
circumstance (both parties assumed it would not happen) that made performance so vitally
different from what was reasonably to be expected as to alter the essential nature of that
performance (impracticable). When a court excuses a party on the ground of impossibility, it is
supplying a term to deal with an omitted case, to fill a gap à courts have rationalized this by saying
that it is an implied condition.
5) Historical sequence that it moved from defense of impossibility à to the defense of
impracticability to à the restatement allowance of frustration of purpose.

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 impracticability to à the restatement allowance of frustration of purpose.

1) Impracticability
(a) Six Part Test in book:
(1) What was the nature of the risk event and what was its impact on the contractual
relationship?
(2) Was the party seeking relief at fault in that it cause the event or failed to take reasonable
steps either to avoid it or to minimize the impact?
(3) If the party seeking relief was not at fault, did the agreement allocate the risk of the event
to one or the other or both parties?
(4) If there was no agreement, express or implied, allocating the risk, how is the court to fill the
gap in risk allocation?
Restatement §261 {party that wishes to be excused, has burden of proving that
performance is impracticable, without default of the party seeking to be excused, and
the party seeking to be excused has the initial burden of proof that the non-
occurrence of an event was a basic assumption of the contract – exceptions: 3
instances where the burden shifts – death of incapacity of person necessary to
perform the contract, the thing that the contract is about is no longer in existence,
and the law has not changed to make performance illegal}.
(5) What is the nature and scope of relief when the conditions of §261 or UCC 2-615(a) are
satisfied? If relief limited to discharge of the contract with appropriate restitution or must
the parties continue performance under terms adjusted by the court to reflect the risk? Is
the there a remedial middle ground?
(6) Would the modification be enforceable?

(b) R2 § 266(1) Existing Impracticability (Facts similar to this can also be argued under R2 152 by
mutual mistake, which makes contract voidable). (Different than UCC because allows for
impracticability about an event during the time of the contract, but was not known to the parties
at the time of contracting). (Allows something less than impracticability, since it has also the
concept of frustration of purpose – where one party is substantially frustrated, then they may not
have to perform). (This is different than §261 since the duty never arises). (Impracticability is not
an excuse: both parties must assume the condition did not exist.)
(1) (1) Where, at the time a contract is made, a party's performance under it is impracticable
without his fault because of a fact of which he has no reason to know and the non-
existence of which is a basic assumption on which the contract is made, no duty to render
that performance arises, unless the language or circumstances indicate the contrary.

(c) Mutual mistake: Existing impracticability or frustration may also claim excuse on grounds of
mistake. A party that relies on the ground of impracticability or frustration must show that it was
impracticable for the party to perform or that the party’s purpose was substantially frustrated.
By contrast, a party that relies on the ground of mistake need show only that the mistake had a
material effect on the agreed exchange of performances. In order to succeed on the ground of
mistake, however, a party must show that there was a mistake as to an existing fact, not merely
an erroneous prediction as to the future. Furthermore, it is more likely that a party will be
regarded as having borne the risk in the case of mistake than in the case of impracticability or
frustration
(d) Mineral Park Land v. Howard (CA, 1916)
(1) Just because the price goes up it does not excuse you from the contract. However, the
courts have looked at extreme unprofitability in connection with factors highly abnormal
and unexpected. It is unreasonable that the promisor assumed this particular risk of this
particular thing happening. The price of taking out the gravel would cost over 10 times as
much as what was contracted for. There was extreme unprofitability.
(2) Could the contractor would have known of extreme conditions? No, then the contractor did
not bear the risk and excused the performance. The degree of impracticability is weighed
against the bearing of risk (what the parties knew at the time of contracting).
(3) The court says that performance is not only more expensive, but in legal contemplation

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 (3) The court says that performance is not only more expensive, but in legal contemplation
when it is not practicable, and a thing is impracticability when it can only be done at an
excessive and unreasonable cost. However, in legal contemplation, the gravel did not exist
and it was impracticability that it could not be removed. The court gets to the idea of
impossibility through the fiction that the gravel did not exist.
(4) Existing impracticability.
(5) This case can also be looked at through mutual mistake under R2 §152.
(e) US v. Wegematic
(1) The Court of Appeals held that alleged engineering difficulties encountered by defendant
electronics manufacturer did not relieve it, on ground of practical impossibility, from liability
to government, for breach of contract for delay in delivery and ultimate nondelivery of
computer.
(2) The US had a choice when accepting bids, dependent on the attractiveness of
manufacturer’s representation. Manufacturer should be bound by contract, since the
manufacturer should not be free to express what are only aspirations and gamble on the
mere possibilities of fulfillment of risk of liability. The manufacturer was in a much better
position to know what would have been possible. If they did not want to bear the risk, the
appropriate exculpatory clause is well known and should have been used.

1) Supervening Impracticability
(a) R2: § 261-264: they all deal with the presumption of who should bear the risk. 261 makes the
moving party to have the burden, whereas the other sections show the exceptions.
(b) R2: § 261 Discharge by Supervening Impracticability: (Classic statement of a discharge of one’s
duty because of a supervening impracticability). (Supervening: An event that occurs after the
contract has formed) (Assumes contract performed, but then discharged if impracticable).
(1) Where, after a contract is made, a party's performance is made impracticable without his
fault by the occurrence of an event the non-occurrence of which was a basic assumption on
which the contract was made, his duty to render that performance is discharged, unless the
language or the circumstances indicate the contrary. {Note: Test (1): the non-occurrence of
the event must have been a basic assumption on the contract was made, and (2) the event
must have made performance impracticable.}

(c) UCC § 2-615. Excuse by Failure of Presupposed Conditions. (Much like R2 §261, supervening
impracticability) {This is a more sophisticated approach than §261– since it is not all or nothing}
(1) Except so far as a seller may have assumed a greater obligation and subject to the preceding
section on substituted performance:
(i) (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with
paragraphs (b) and (c) is not a breach of his duty under a contract for sale if
performance as agreed has been made impracticable by the occurrence of a
contingency the non-occurrence of which was a basic assumption on which the
contract was made or by compliance in good faith with any applicable foreign or
domestic governmental regulation or order whether or not it later proves to be
invalid. {It is more likely that there would not be performance for part of the contract
in the real life, so the parties must perform what they can}.
(ii) (b) Where the causes mentioned in paragraph (a) affect only a part of the seller's
capacity to perform, he must allocate production and deliveries among his customers
but may at his option include regular customers not then under contract as well as his
own requirements for further manufacture. He may so allocate in any manner which
is fair and reasonable.
(iii) (c) The seller must notify the buyer seasonably that there will be delay or non-delivery
and, when allocation is required under paragraph (b), of the estimated quota thus
made available for the buyer. {He may not be necessarily totally excused like in §261,
since there is an allocation and notification requirement}.
(d) A promise has constructive conditions that are dependent on one another. Can we come to the
conclusion that one of the parties should bear the risk of the unexpected events?
(e) Taylor v. Caldwell (1863)

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(e) Taylor v. Caldwell (1863)
(1) A music hall burned down and it was not any party’s fault, so P could not have a concert
there. The court holds that the continued existence of a music hall at the time the concerts
were to be given, was essential to their performance. (This is the beginning of the idea of
supervening impracticability). (This is a pious fiction that the parties would have implied that
the condition would relieve them of their obligations).
(2) In contracts in which the performance depends on the continued existence of a given
person or thing, a condition is implied that the impossibility of performance arising from the
perishing of the person or things shall excuse the performance.
(f) Chemtron v. McLouth: A party may not by its own conduct, create the event causing the
impracticability of performance, in fact it must make all reasonable efforts to avoid impossibility
and once the event occurs, it must employ any practicable means of fulfilling the contract, even if
it had originally expected to meets its obligation in a particular way.
(g) Canadian Industrial Alcohol v. Dunbar Molasses:
(1) Court holds in favor of the buyer, since the seller was at fault since they did not contract
with the refinery. A party that is fault for impracticability, then you should not have it as a
defense, due to risk bearing since they had the ability to avoid the impracticability – this is
considered a subjective impracticability – person made themselves unable to perform rather
than outside parties causing the condition. Cardozo says that it is not commercially
reasonable to excuse performance.
(2) Notes: P.820: if the clause were in the contract would there be an excuse? Clause would not
help him, since he was at fault.
(h) Dills v. Town of Enfield
(1) Whether the doctrine of commercial impracticability excuses a developer from submitting
construction plans when he discovers that necessary financing has become available.
(2) Financing was a risk that was borne by the P, and therefore not getting financing did not
excuse his performance, since he had to unconditionally submit the plans first, which he
didn’t. The judge would have granted relief if the below standards were met, however, in
this case, the standards were not met since P bore the risk and the financing was not a basic
assumption. This is language of performance.
(3) A party claiming that a supervening event or contingency has prevented, and thus excused,
a promised performance must demonstrate that (basic elements of 261):
(i) The event made the performance impracticable;
(ii) The nonoccurrence of the event was a basic assumption on which the contract was
made;
(iii) The impracticability resulted without the fault of the party seeking to the be excused,
and
(iv) The party has not assumed a greater obligation than the law imposes.
(i) Basic assumption. Note #3 P. 825: You have to show that the nonoccurrence of the event was a
basic assumption. Does this mean that the event had to be unforeseeable? Event upon which the
obligor relies to excuse his performance cannot be an event that the parties foresaw at the time of
the contract. The parties would bear the risk of all foreseeable events. Most modern courts
concede that foreseeability of some risk and its impact on performance does not necessarily prove
its allocation to the promisor. If the occurrence of the foreseen event is improbable, it is less likely
that the parties intended to allocate its risk to one or the other. It is better to say unexpected not
necessarily than unforeseeable. P has the burden of showing that they did not bear the risk and
there was a presumption that the event that occurred was unexpected.
(1) Posner: Superior Risk Bearing: compare the parties, and ask which party is better able to
bear (or insure) the risk? The loss should be placed on the party who is the superior risk
bearer at a lower cost – spreading the risk throughout society. This test conflicts with the
test of expectancy. Elements to consider: knowledge of the magnitude of the loss,
knowledge of the probability that it will occur, and other costs of self or market insurance.
(j) US v. Winstar:
(1) The federal government bails out. Did the parties state who would bear the risk? No, they
did not. Congress changed the law, and the subsequent change of law was devastating to
the loan groups. The US sues the government for the loss they suffered because of the

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 the loan groups. The US sues the government for the loss they suffered because of the
change of law. The US government raises the defense that it was impossible for them to
anticipate the change of law made by Congress. The court says that the government
accepted the risk that the laws might change and because they accepted the risk, they in
affect promised to pay Winstar damages if the law did change.
(2) The court looks to §261, then the US has the burden to show that the nonoccurrence of the
change of law was a basic assumption as to when the contract was made. The parties
assume all the foreseeable risks. The court says the change of regulations was a foreseeable
risk, and the US does not get out of their promise. This is an unusual case, and it should have
been applied to 264 (however, because the US is a party, 264 might not be appropriate,
since it would be unjust).
(3) Change of law to make performance impossible: Notes: P. 831: the parties assume that the
law would not change. Look to R2 §264. The party does not have the burden of showing that
there was a basic assumption. A change of law is a presumed excuse, and the party does not
have to prove it – this is rebuttable presumption – which can be shown by the other party
(circumstances that show that it would have been expectable that the law would change).
UCC 2-615 also bypasses the basic assumption test to the change of law – the UCC also has
the assumption that the law will not change, and the party bringing the case does not have
to prove this.

(4) R2 § 264. Prevention By Governmental Regulation Or Order

(i) If the performance of a duty is made impracticable by having to comply with a
domestic or foreign governmental regulation or order, that regulation or order is an
event the non-occurrence of which was a basic assumption on which the contract was
made.
(ii) {The usual case is that buyer wants to pay a certain amount for sheep, then the US
bars the importation of the animals, and seller claims impossibility. In this situation,
seller has to prove the other elements of 261, but does not have to show that
nonoccurrence of change of law was a basic assumption to the contract, since this is
automatically presumed.}

(k) § 263 Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for
Performance
(1) If the existence of a specific thing is necessary for the performance of a duty, its failure to
come into existence, destruction, or such deterioration as makes performance impracticable
is an event the non-occurrence of which was a basic assumption on which the contract was
made. {Basic Assumption: whether the particular person is necessary for the performance of
a duty}.

(l) § 262 Death or Incapacity of Person Necessary for Performance

(1) If the existence of a particular person is necessary for the performance of a duty, his death
or such incapacity as makes performance impracticable is an event the non-occurrence of
which was a basic assumption on which the contract was made.
(m) Bolin Farms v. American Cotton Shippers
(1) The price of cotton drops dramatically. The court says that every contract is a gamble. The
seller takes the risk that the prices will not rise. The buyer takes the gamble that prices will
not later drop. The purpose of the contract is that the parties allocate the risks. Parties are
not excused because there has been a dramatic market price change – since this is exactly
the type of risk contracted for.
(2) Notes: however, where the increased costs of performance, however, the risk event,
whether it be an Act of God, extreme inflation, or an oil embargo, can, unlike market
fluctuations, be viewed as a contingency the non-occurrence of which was a basic
assumption on which the contract was made.
(n) Notes: ALCOA: look at book P. 834
(o) Dills v. Town of Enfield (1989)
(1) Impracticability doctrine represents an exception in recognition that certain conditions

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 (1) Impracticability doctrine represents an exception in recognition that certain conditions
cannot be met because of unforeseen occurrences. Test from §261: a party claiming that a
supervening event or contingency has prevented, and thus excused, a promised
performance must demonstrate that:
(i) The event made the performance impracticable,
(ii) The nonoccurrence of the event was a basic assumption on which the contract was
made; {The occurrence of a condition may be excused in the event of impracticability
if the occurrence of the condition is not a material part of the agreed exchange and
forfeiture would otherwise result}. In looking at basic assumption courts look at all the
circumstances, including the terms of the contract. The fact the event was
unforeseeable is significant as suggesting that its non-occurrence was a basic
assumption.
(iii) The impracticability resulted without the fault of the party seeing to be excused, and
(iv) The party has not assumed a greater obligation than the law imposes.
(2) Only in the most exceptional circumstances have courts concluded that a duty is discharged
because additional financial burdens make performance less practical than initially
contemplated.
(3) Legal change that prevents or makes performance illegal usually satisfies the impracticability
requirement. it is more difficult to establish impracticability, however, where the
subsequent legal change makes performance more expensive or frustrates the purpose of
one party.
(p) Kaiser-Francis Oil v. PGC
(1) Take or pay contract – the buyer was required to take or pay for certain minimum quantities
of gas from wells in which the seller had a percentage interest. Seller bears the risk of
production and the buyer bears the risk of market demand. The purpose of the take-or-pay
clause is to apportion the risks of natural gas production and sales between the buyer and
seller. Take-or-pay provisions are not unconscionable at the time the contract is made.
(2) Force majeure clause interpreted to excuse the buyer from the consequences of the risk he
expressly assumed would nullify a central term of the contract. Force majeure clause is not
meant to buffer a party against the normal risks of the contract. Decline in demand doesn’t
constitute a force majeure in this contract. Force majeure clauses are not intended to
excuse the buyer from changes in the market, no matter how dramatic.
(3) The parties can allocate unknown risks through the very language of the contract. Clauses
like a force majeure clauses “act of god” clauses – where certain circumstances will relieve
the parties of performing the contact.
(4) Notes: P. 841: Reopener clauses in long-term supply contracts: there must be a gross
inequity under the existing contract resulting from unusual economic conditions not
contemplated by the parties at the time of the contracting must exist, next, the parties
agree to negotiate in good faith to correct or to adjust the inequity by agreement and to
cooperate with each other in the process, then, if the negotiations fail to produce an agreed
adjustment, the dispute is submitted to arbitration. à Reopener clauses when included,
preserve both the relative equities of the parties over time and the contract.
(5) Look at 6.2.1 à 6.23 for hardship provision in supplement.

1) Frustration of Purpose
(a) In these cases, performance is possible, and may not be impracticable – nevertheless there may
be defense for frustration of purpose. Overgeneralization – defense of
impossibility/impracticability is used by sellers to get out of contract – whereas buyers usually use
frustration of purpose.

(b) R2 §266(2): Existing Frustration

(1) (2)Where, at the time a contract is made, a party's principal purpose is substantially
frustrated without his fault by a fact of which he has no reason to know and the non-
existence of which is a basic assumption on which the contract is made, no duty of that
party to render performance arises, unless the language or circumstances indicate the
contrary.

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 contrary.

(c) R2 § 265: Discharge by supervening frustration

(1) Where, after a contract is made, a party's principal purpose is substantially frustrated
without his fault by the occurrence of an event the non-occurrence of which was a basic
assumption on which the contract was made, his remaining duties to render performance
are discharged, unless the language or the circumstances indicate the contrary.
(2) Comment A: Rationale. This Section deals with the problem that arises when a change in
circumstances makes one party's performance virtually worthless to the other, frustrating
his purpose in making the contract. It is distinct from the problem of impracticability dealt
with in the four preceding sections because there is no impediment to performance by
either party. Although there has been no true failure of performance in the sense required
for the application of the rule stated in § 237, the impact on the party adversely affected will
be similar. The rule stated in this Section sets out the requirements for the discharge of that
party's duty. First, the purpose that is frustrated must have been a principal purpose of
that party in making the contract. It is not enough that he had in mind some specific object
without which he would not have made the contract. The object must be so completely the
basis of the contract that, as both parties understand, without it the transaction would
make little sense. Second, the frustration must be substantial. It is not enough that the
transaction has become less profitable for the affected party or even that he will sustain a
loss. The frustration must be so severe that it is not fairly to be regarded as within the risks
that he assumed under the contract. Third, the non-occurrence of the frustrating event
must have been a basic assumption on which the contract was made. This involves
essentially the same sorts of determinations that are involved under the general rule on
impracticability. See Comments b and c to § 261. The foreseeability of the event is here, as it
is there, a factor in that determination, but the mere fact that the event was foreseeable
does not compel the conclusion that its non-occurrence was not such a basic assumption.
(d) Paradine v. Jane (1647)
(1) T says that they shouldn’t pay rent because they cannot use the land, too bad about the
army. The court says that it is too bad, you promised to pay the rent, regardless of the
circumstances. This is a historic case and the invading army caused a materially different
circumstance, and neither parties would have reason to expect that that this would occur.
However this would be different under R2 §261. This rule stayed around until 1981.
(e) Krell v. Henry
(1) Earliest case recognizing frustration of purpose as a defense to breach of contract action.
There was a lease to rent out a window to see the coronation parade. However, Edward
became sick, so the parade was cancelled and the purpose of renting the window was
frustrated. The lessee refused to pay the agreed rent and the court held that his duty was
discharged and that he was therefore not liable for a breach.
(2) The LL’s purpose is not frustrated since the LL wants the money, but the T’s purpose is
frustrated because of the cancellation of the parade. This is why frustration is tricky. The
room is now virually worthless to T, and the contract no longer makes sense to T.
(3) The cancellation of the parade was not a situation of impracticability, rather it deprived one
party entirely of the benefit he expected form the other’s performance. Generally,
impracticability operates to the advantage of parties that are bound to furnish goods, land,
services, or some similar performance, while the doctrine of frustration of purposes
operates to the advantage of parties that are to pay money in return for those
performances.
(4) Notes: a party must show that hits principle purpose in contracting has been substantially
frustrated. First, the affected party’s principle purpose in broad terms. The mere fact that
some exceptional event has prevented a party from taking advantage of the transaction in
the particular way expected may not suffice to satisfy the requirement of substantial
frustration if the party can turn the bargain to its advantage in some other ways. Second,
courts have insisted that the frustration be nearly total. The mere fact that what was
expected to be profitable transaction has turned out to be a losing one is not enough.
(5) Questions to ask:

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 (5) Questions to ask:
(i) What, having regard to all the circumstances, was the foundation of the contract?
(ii) Was the performance of the contract prevented?
(iii) Was the event which prevented the performance of the contract of such a character
that it cannot be reasonably be said to have been in the contemplation of the parties
at the date of the contract?
(iv) If all these questions are answered in the affirmative, both parties are discharged
from further performance of the contract.
(v) Was the event that causes impossibility was or might have been anticipated and
guarded against?
(f) Notes: prohibition of alcohol caused there to be a subsequent illegality to operate bars, therefore,
if the premises were only used as a bar/saloon, then this discharged the contract. If the premises
was not restricted to use as a bar and other commercial uses were possible, excuse was likely
denied. This was provided that the risk of subsequent, retrospective law was not foreseeable as
likely to occur.
(g) Washington State Hope Producers v. Goschie Farms
(1) The doctrine of frustration is a question of law not fact.
(2) One of the few cases the at grants relief under frustration of purpose.
(3) It was clear that both parties assumed that there would be still be value to the hop base.
The value of the hop base would have dropped, and by 1986 it would be virtually worthless.
It may have been foreseeable that the government changed their mind, but it was not really
expected. (Case looks to §265, comment a)
1) Forms of relief after impracticability (P.858 – good review!)
(a) The courts are unanimous that in the absence of an agreement a promisee has not duty to
negotiate with the promisor in good faith over any proposed adjustment.
(b) If the court determines that the promisor is not entitled to relief, the legal situation is reasonably
clear. If the promisor has failed to complete performance, it has breached the contract and is
liable for damages to the promisee. If the promisor has completed performance despite the
difficulty it must bear the burden of any costs incurred in excess of the contract price.
(c) If court determines that the promisor is entitled to “some relief from impracticability”, here are
the alternatives:
(1) If there is full performance in spite of the difficulty, at an additional cost but without default,
some courts have denied recovery for any costs incurred after the promisor knew or had
reason to know that the performance was impracticable.
(2) If the promisor encounters a claimed impracticability, and refuses to continue performance,
if the court determines that performance was excused, then the promisor is discharged
from the unexecuted portion of the discharge and neither parties can recover damages for
breach of contract.
(3) If there has been some part performance prior to discharge, then look to see if party can
recover at contract rate for a divisible part of the performance. If the part performance is
not divisible, either party can recover in restitution for any benefit conferred on the other.
But expenditures incurred in reliance on the contract, whether in preparation or part
performance, are not recoverable unless they have met the divisibility or benefit tests.
(d) R2 §272: In any case where relief from impracticability or frustration of purpose is justified,
wither party may have a claim for relief including restitution under the rules stated in §240,
dealing with divisible contracts, and § 377 dealing with restitution in cases of impracticability.
There will be a granting of relief as justice requires, including protection of the parties’ reliance
interests. à thus if a contract is discharged because of impracticability, the court in the interest of
justice, may supply a term to protect the reliance interest regardless of whether the contract was
properly divisible or whether the other party has benefited from the part-performance.

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