CONTRACTS

8.45 Bar Question: The consequence ADr. you must, money means nothing, I=ll see that you=re
paid a fee of $25,000, Oh Dr. I promise.@
$
No stipulation that there was offer, thus you must find it. The issue was whether
that statement were objectively speaking the manifestation of present intent to K
or meandering of tortured mine. No offer, No K.
$
Would a reasonable person conclude that person who is grabbing you is
creating an offer

3.

KEY:
a.
Recognize Question no matter how complicated the fact, once you understand
liability is being debated due to promise or statement made by one person in fact
pattern, likely in K question.
b.
Isolated Issues (Only 6)
i.
Did parties form an agreement?
(1)
No true K without offer and acceptance: unless actions and words
of traders manifest mutual, objective assent to be bound by the
terms of the agreement.
(2)
Impact of ambiguity of language
(3)
Approach for issue
(a)
as you look at fact patter, can you find an offer.
(i)
Look for a stipulation, if no stipulation, you must
find objective manifestation on the part of one
traders of present intention to form a present K and
it must be communicated to the other party - the
offeree. 3 elements, if missing, unlikely there is an
offer:
1)
Intent to form a present K (it may be that
obligation takes decades to mature, but to
form K west form it here and now or no
offer).
a)
State of Mind fact patterns
4.
If you are told one parties has
spoken in anger, jest,
hysteria, to raise issue could
that individual be manifesting
present intention to enter K?
No
a)
Fact patterns to distinguish
preliminary negotiations v. extension
of offer (present business)
5.
Future business v. parties
doing present business
6.
MBE: Being nude in a steam
room discussing real estate issue: in those circumstances

1)

1)

were they discussing

potential business or had
done business.
7.
Key: If you are judging a
particular communication to
see if K or not, the closer that
communication comes to
spelling out all the terms of
the proposed agreement so
that the other thing the other
party has to do is say AI
accept@ then it=s likely that a
party that was that specific
was manifesting an offer.
Content: Offeror must set forth essential
terms of her proposal or a reviewing court
and offeree wouldn=t know what to
accept/enforce.
a)
At CL offeror must set for essential
terms expressly or w/I range of ID,
identify parties, subject matter of
proposed exchange, time for
performance and the price.
b)
Under CL, a communication lacking
any of those terms was too indefinite
to be an offer, but trend of modern
decision favors reconstruction to find
K.
c)
If in fact patter there is silence with
re: 1 of essential terms of bargain,
the court will treat silence as
objective manifestation of consent to
trade on a reasonable term.
8.
Reasonable term: if parties
have done business before,
then deduced from prior
history (course of
performance -takes presence,
if no business before, then
Court would find
commercially term based on
customs/mores of
marketplace.
Communication of that intention & terms to
individual in fact pattern intended by offeror
as offeree.

(a)

i.

ii.

iii.

if you can find an offer, at the time acceptance was

attempted, was the offer still outstanding?
(b)
If offer, and still outstanding (open for acceptance), and
acceptance, was there a defective acceptance?
(1)
Major truth of law of K: Courts favor reconstruction of events that
occur during agreement so to conclude a K has been formed.
Positive bias in favor of K formation in modern decisional law.
AObjective theory of K formation.@
Is there agreement a K?
(1)
If yes, is there a bargain a K?
(a)
Private parties form private agreement, but K is legal status
and it=s existence depends on:
(i)
Presence of valuable consideration: bargained for
legal deteriment bargained for
(ii)
Absence of defenses (real defenses) precluding
formation
Look to facts, do the terms of K or subsequent conduct of either K=ing
parties confer any rights or any duties upon non-traders?
(1)
Do the terms of that K or the subsequent conduct of the parties
who formed it confer any rights or impose any duties upon nontraders (3rd party beneficiaries - persons whose right are defined by
terms of original Ks). 3rd parties are:
(a)
Intended beneficiaries
(b)
Assignees of rights
(c)
Delegates of duties
Once you determine all who have rights/duties, have performance
obligations created by the K matured?
(1)
Have the K obligations matured?
(2)
Fix a time and order for performance of the obligations that were
merely promised at stage of K formation => law of conditions
(a)
Express conditions
(b)
Implied conditions implied in fact - unspoken of, but arise
by necessary inference from what parties necessarily
assumed
(c)
Conditions implied at law - Aconstructive conditions@ - last
gasp measure to fix time/order of performance if parties
haven=t settled using express conditions.
(3)
Conditions are classified by impact on present liability every
condition modifies a problem (no condition in abstract), it either:
(a)
Conditions precedent: asserts contingency that must be
satisfied before liability on the modified promise becomes
absolute
(b)
Condition concurrent: asserted a contingency that must be
satisfied simultaneously with maturing liability on the
modified promise
(c)
(rarely) Conditions subsequent: Always express (never

iv.

v.

vi.

implied), inserting contingency the happening of which

will discharge & extinguish what had been up to that
moment a present liability to perform that promise.
If K obligations have matured, has performance been excused?
(1)
Check the facts to see if traders have performed in that order and
on time. If there has been no performance, consider whether
performance has been excused.
(2)
Excusable non-performance can arise in 3 fact patterns:
(a)
Performance obligations are objectively impossible - no
one on the face of the earth could carry out that K
performance.
(b)
Performance obligations have become commercially
impracticable - performance can=t be accomplished except
by an expenditure of funds grossly disproportionate to what
parties had assumed at formation stage.
(c)
Frustration of purpose - here contention isn=t performance
is physically impossible or commercially ruinous, parties
will present:
(i)
subsequent to formation of K, circumstances have
so dramatically altered that performance of the
other party no longer has any value to me.
If performance has not been excused, and in the fact pattern it has not
been tendered, you are in the presence of breach => law of remedies?
(1)
Present material breach
(2)
Breach by anticipatory repudiation
(3)
Breach by voluntary disablement
(4)
Restitution and Reimbursement - put party in place as if promise
never given
(5)
If no adequate remedy at law, aggrieved party has standing to sue
in equity for declaratory judgment, specific performance,
injunctive assistance.
UCC Article 2 of Sales: be aware of when to apply it - it is totally subject
matter sensitive.
(1)
If sale of goods, then CA Bar your answer must reflect Code
principles
(a)
Goods are not (Art. 2 does not apply to):
(i)
land, interest of law
(ii)
personal services
(iii) an intangible (governed by other provisions of the
Code)
(b)
Tip: It is important that goods be subject matter, but parties
to the attempted bargain must both be merchants.
(c)
Merchant: any person who makes a livelihood dealing with
the subject matter. A professional. The point: if I offer to
sell u this watch, he does not make livelihood selling
watches, so they are not merchant traders.

(d)

9.

Unless professor indicates broader focuses, presuppose

anytime mention UCC that goods are subject matter and
merchants on both sides. If broader application so that it
applies to non-merchants, you will be told that in the
outline and specifically indicated.

Acceptance
a.
E.g., Even in Davis supposed to be committed to yard work. I don=t like yard
work. When I said I had to go to teach BarBri, she told me to buy a one way
ticket and not come back unless I trimmed some shrubbery. I went out to get a
newspaper when I noticed a 16 y/o neighboring lad. I told him that if he pulled
the weeds in my front and side yard, I=d pay him $25. I did it this way (bargain in
a unilateral mode) because his promise meant nothing to me, (he was lazy). You
can only bargain in unilateral mode by total completion of the act. As the heat of
the day began to build, he could have spent all morning in the front yard, and
afternoon in the side yard, you could say after there are only two weeds left and
say >I revoke.=
i.
2 rules designed to protect the boy:
(1)
Positive bias of the modern law - bilateral formation - Rule of
construction: Whenever possible a court will construe an offer as
inviting formation in the bilateral mode by acceptance in giving
the promise.
(a)
UCC: Prompt shipment of goods in unilateral mode or
promise to promptly ship.
(2)
If the CL that you may accept only by completing the requested
act, t here is supplementary act, once offeree has substantially
performed, he does not perform the K but he does cut off the
power of the offeror to revoke so as to give him reasonable
opportunity to give him a chance to complete what he has done.
All but 2 weeks = substantially perform.
(a)
He is under no obligation to go forward, however. Offerree
who starts out in unilateral mode isn=t bound to finish it.
b.
Ambiguity and Mistake
i.
Ambiguity - when language betrays. Two types: Both preclude formation
of the agreement.
(1)
Latent, hidden ambiguity if affects essential term precludes
formation of the K: If at the formation stage of the bargain, neither
bargainers notices that a term which they are employing to describe one of
the essential terms is reasonably susceptible to more than one meaning,
and each party subjectively has attached a different meaning, their bargain
is flawed by latent, hidden ambiguity.
(a)
No contract, because can=t prefer reasonable subjective
reasoning of buyer over the other reasonable subjective
reason of seller. If as a court you have no reasonable,
objective reason to intervene, you can give no remedy.
(2)
Patent, obvious ambiguity: At formation stage, traders are guilty of

ii.

using language to frame one of the essential terms which is

obviously susceptible to more than one essential meaning, yet
neither takes the opportunity to clarify the understanding each
takes away. If parties are equally guilty in failing to clarify, there
can be no K b/c no rational basis to prefer negligent seller to
different interpretation of equally negligent buyer.
(a)
If one party is free of fault b/c to them the ambiguity was
latent, now as a judge you do have a rational basis to follow
your inclination by protecting interests of the innocent
party. Give ambiguous language the definition of the
subjective reason of innocent party and the bad one must
live with the consequences b/c they are at fault.
Mistake: acts do not convey actual intention of one or more of the traders
(1)
B/c uttered by one or more of the traders in the course of their own
personal mistakes (traders themselves)
(a)
Both parties share a common mistake (mutual mistake)
(i)
Sometimes at formation stage of bargain, both
traders are mistaken (E.g., A owner of a canvas w/
abstract image promises to sell to B for $1m. B
promises to pay that some for canvas, each
believing the work is Pablo Picasso=s. Both parties
are mistaken, morally innocent. Impact on terms of
K: Equity of recission, second guy can refuse to
perform on the K.
(ii)
Look at:
1)
What is the gravity of the mistakes in terms
of its importance to the bargain? (Aif
mistake goes to the heart of the
transaction/essence of the exchange, court
gives complete relief@)
a)
If not to essence of the exchange, but
say, A promises canvas, B promises
$1m, thinking Picasso=s work in
1931, but actually was in 1932, that
goes to collateral quality not an
essence of exchange, parties can=t set
aside where no vital quality.
2)
Where are the parties when they discover
the mistake. The K must still be executory,
the promises must have been exchanged, but
neither party has yet performed. If buyer
delivers, seller pays, and a year later it=s
discovered that it=s a forgery.
a)
Remedy: Cts don=t like to rewrite
6

(b)

history, diminished relief.

Only one party mistake (A mistaken, B is not)
(i)
Mechnical miscalculation involves a bargain I
didn=t intend to make on these terms, my intention
was betrayed by some error of arithmetic. (Bargain
made, but not intended)

1)

(ii)

(iii)

If mechanical, may provide grounds to

relieve the mistaken party, depending
entirely on the state of mind of the mistaken
trader and whether she has commercially
reasonable expectation.
2)
Defense: depends on state of mind of other
party and whether he formed commercially
reasonable expectation. If other party didn=t
know of miscalculation and as reasonable
person had no grounds to expect it, then
you=re stuck. But if the other party is not
innocent, but recognized it as too good to be
true, then under objective theory of K
formation, A has a defense.
Error in business judgment - essence of the
capitalistic society.
1)
E.g., 20 years later, missus and I retired and
rid of kids and moved to Bakersfield and
bought a junk store and renamed it Antique.
You have retired as spectacular lawyer and
set out on personal quest seeking that Italian
masterpiece that disappeared a long time
ago. You walk into our shop, and your heart
stops, b/c there in a tattered frame is your
hearts desire. You give me $100 now and
say you=ll come back with $400 in the
morning. That night on t.v., Barbara
announces you have found the Botticelli in
Bakersfield. I must recognize that I am
guilty of an error in business judgment.
b/c intention of traders betrayed b/c of some third
party making an error in communication some term
of the bargain (3rd party): Offeror knew what he
wanted to say, but 3rd party dropped a zero out of
the price tag. Rules are identical to mechnical
miscalculations.
1)
If I selected Western Union as offeror, and
the msg. WU delivers drops a zero, whether
7

c.

10.

or not you have a K predicated upon

acceptance of telegram you actually
received depends upon whether you had
commercially reasonable expectation.
Hypothetical: You were told that Burby owned 500 bales of cotton in warehouse
Atl., GA. On 2/1 (Monday) Charles, cotton exporter in Savannah, males offer to
burby seeking to buy 500 bales at 25 cents/lb. Letter said Alet me hear from you
as quickly as possible I must arrange shipping.@ On 2/12 Friday, Burby said you
drive a hard bargain but I=d be pleased if you could make it 25.5 cents, but
suppose you won=t so the deal is one.@ Letter delivered Saturday morning 2.13
and he read Monday 2.15. Charles did not communicate further w/ Burby. Burby
asks if he has a binding K?
i.
Offer?: Yes, Aoffer stipulated, but that offer demanded prompt response.@
ii.
Acceptance: At time made, was offer still in existence. Not likely that in
12 days, the offer had died of old age.
(1)
If offer dead 2/12, the late acceptance = counteroffer to sell cotton.
As to this, examine impact of original offeror=s silence. Did it
amount to acceptance since he had some obligation to speak.
iii.
But assuming a court would determine that the offer was still alive, we
must discuss the content of the purported acceptance. If offer, was there
defective acceptance? Look at burby said/did, evident that seller wasn=t
happy with 25 cents term, expresses hope, but says the deal is on. Is a
Agrumbling acceptance@ which is good enough for objective assent and
form a K.

PAROLE EVIDENCE RULE:

a.
Facts will have to tell you parties formed an agreement, reduced it to a written
expression, they are not litigating about the terms of that agreement, and one
party seeks to bring in evidence of some term/understanding that isn=t found w/I
four corners of the writing they created.
b.
Is there:
i.
An integrated writing? Parole evidence only protects integrated (issue of
intent of parties) writings. Both parties must have intended the instrument
to be the full and final expression of the terms of the agreement. If they
don=t have intent, parole evidence does not apply.
(1)
Trial judge determines if its integrated. Parole evidence is rule of
substantive law, not evidence, has nothing to do w/ credibility of
the evidence and deals with whether evidence is legally competent.
ii.
Look at evidence and judge asks herself: is evidence parole evidence?
(1)
Yes
(a)
Time/Origin: Parole has nothing to do with form (oral,
written). It is any evidence of any promise, representing,
understanding between parties who formed integration that
was arrived at prior to or contemporaneous with the
8

iii.

iv.

11.

integration of the writing.

(i)
If term comes after writing, not parole evidence,
that=s a subsequent modification.
If integrated writing, and rule that it is parole evidence, then the question
is what is the impact of the parole evidence on the integrated writing.
(1)
You may not use rule parole evidence to contradict, vary, add to
terms in the K.
(2)
The evidence may be admitted to define a term, etc.
Under one of the few exceptions where parole evidence may be admitted
(even if vary, contradicts, adds
(1)
Proof of fraud (moral trump card)
(2)
On a theory of partial integration. If party seeking evidence
claims that on the day a K was formed, the party formed a single
K, but they intended this writing to cover some but not all of the
terms in that single agreement. If hte judge agrees, parole
evidence goes to the theory on the idea that it was only partially
integrated.
(a)
Conservative test: 4 corners test- judge will allow parole
evidence only if writing looks incomplete to her on its face.
(b)
Liberal: If the party offering can supply the judge with any
credible explanation as to why we=d leave this term outside
the writing even if writing on its face appears to be
complete. (California).
(3)
Collateral agreement - dangerous - on the day the parties entered
bargain, they formed not one but two agreements, one they
reduced to writing but another that isn=t.
(a)
3 step analysis
(i)
Judge must determine 2nd agreement is of far lesser
agreement than subject matter reflected in
integrated writing.
1)
E.g., integrated writing was a watermelon,
collateral agreement could be a lime.
(ii)
No term of collateral agreement can contradict
anything in integrated writing.
(iii) there must be some natural daylight between subject
matter that makes it rational that parties might have
considered them two separate agreements.

II ISSUE: If you conclude they=ve formed an agreement, the question is: Is that
Private Bargain a Contract?
a.
An offeror and offerree may form private agreement, but K is legal status
i.
Presence of valuable consideration on both sides of the exchange
(1)
K is promise or set of promises that the law will enforce or in some
way regard as a source of obligation.
9

(2)

ii.

Four step approach searching for issues

(a)
As you look at facts, do I find a bargain?
(b)
If yes, look to terms of the bargain, does each of the
exchanged promises/acts involve bargained for, legal
detriment to the promisor or the actor?
(c)
If no, is there any substitute for valuable consideration
present in this fact pattern? (E.g., promissory estoppel fact
pattern)
(d)
If you found a K, and you find consideration, do facts
reveal any defenses which if established would preclude
formation (real defenses).
Consideration may be formed either in my bargained for promise to
perform any act or the performance of any act which but for this bargain I
am not legally obligated to perform.
(1)
Element of bargain Aexchange@
(a)
Also, in my bargained for promise to forebear or act of
forebearing, a course of conduct which but for the K I am
legally privileged to pursue.
(b)
Donative transaction not K b/c no element of bargain
(c)
Past consideration is not valuable b/c lacks element of
bargain
(d)
Moral consideration is not valuable because no element of
bargain
(2)
If you=ve found a bargain, then look at the element of value anticipate examines will test understanding of value in the realm of
contracts
(a)
Legal detriment:
(i)
Ask did A=s promise involve the promise to do any
act which but for the attempted bargain with B, A
was not legally obligated to perform. If yes, A=s
promise is valuable consideration.
(ii)
Did B bring valuable consideration - Did B promise
A that she would do any act which but for the
bargain with A she was not legally obligated to
perform. If yes, she also incurred bargained for
legal detriment.
(iii) If bilateral mode, then K
(b)
If unilateral mode - Offeror would make promise, he
couldn=t accept by promising and could only accept by
doing the requested act and brings about acceptance of my
offer?
(i)
Is there a K? Did B do an act, which but for the
attempted formation of K witih A, B do something?
Yes, he had no obligation to weed my yard.
10

(ii)

b.

12.

A=s promise has the qualities of valuable

consideration.
Valuable consideration is a more expansive concept than pragmatic advantage. I
can show you legal detriment in unilateral and bilateral bargain where the party
that brings valuable consideration where he isn=t injured in any pragmatic sense,
but winds up richer/happier.
i.
Sister says to nephew, if you will take summer job this summer and save
$500, I will take you to the family home in ireland when you graduate.
Assume the boy were to take summer job and save $500, would he have a
contractual claim to have his aunt take him to Ireland?
(1)
Did she make an offer?
(a)
She either made offer of a bargain or a donative declaration
with a string attached.
(2)
If a court would construe as an offer to bargain, her son would
have brought legal detriment (even though he wasn=t injured, and
benefitted economically and got work ethic) to exchange. Children
have no obligation to work and no obligation to save.
ii.
And brother said to nephew if you do not smoke, drink or make out with
hippies on your 21st birthday I will give you 5000$.
(1)
Son makes the promise. Assume that for 5 years he keeps that
promise. On evening of 21st birthday, he makes demand upon his
uncle for $5000.
(2)
Assume uncle is looking for some means of evading the promise.
(a)
Son promised he would not drink. Not legal detriment.
(b)
Promise that he would not smoke. It is not illegal for a
minor to consume, but illegal to buy.
(c)
Son promised he wouldn=t associate with hippies. Legal
detriment. CONSIDERATION.
(d)
So long as any element carries the quality of bargained for
legal detriment then uncle owes $5000.
iii.
Courts are disinterested in the economics of the exchange, except (but
very narrowly drawn)
(1)
Transactions that involve the abuse of socially protected
relationship (fiduciary relationships or confidential relationships) e.g., guardian and ward, lawyer and client, trust beneficiary and
trustee. Confidential relationships are not established by law - any
human pairing featuring trust on one side and dominion on the
other. If a confidential relationship obtains between A & B, court
will look beyond legal detriment to scrutinize for fairness of terms.

Courts use three terms:

a.
Want of consideration: defense to the formation of a contract. Trump card. If it
can be established, no K relationship. Requires proof that at formation stage of
offer and acceptance, the other party incurred no element of legal detriment.
11

Party who gave valuable promise has defense to performance for want of
consideration.
i.
Suppose parties have exchanged promises, A gave consideration, the
promise that B is given has about it no quality of legal detriment, A has
defense of formation want of consideration.
ii.
Suppose parties have exchanged promises, the promise that B is given has
no quality of legal detriment, A has defense K void for want of valid
consideration. Also known as Awant of mutuality of obligation@.
(1)
E.g., A and B are both merchants in petroleum. A is seller at
wholesale level. B owns a chain of gas stations. Here the party
who actually commenced the negotiation was the buyer, he wrote
formal written proposal and he sent to seller saying AIf I decide to
order 10,000 cases 30 wt. Oil, you promise first to accept the
order, ship within one week, and grant me a 20% discount off of
your then list-prices. A wrote back, AI accept that deal.@ Discuss.
(a)
There is no deal. A has the defense want of consideration.
B promised to accept, ship in a week, and grant 20%
discount => all legally valuable. But the buyer didn=t
promise anything. He gave an illusory promise AIf I.@ So
conclude you could advise your client, seller, offeree, you
can refuse bc you have the defense want of consideration.
(i)
HOWEVER modern courts favor the reconstruction
of events that takes place to conclude K has been
formed.
1)
e.g., courts will look at subsequent history
and say full performance cures want of
consideration and cures K liability. E.g.,
Nov. 20 exchange and one makes illusory
promise, but the 5th of Dec when full
performance K is created.
2)
What about part performance of illusory
promise (e.g., B sends A case of 5,000) does
not cure want of consideration. CL rule is
that A was not obligated to perform unless
he got the benefit of his bargain.
(ii)
First step: So If you get this look to see if any
subsequent conduct on the part of the person who
gave the illusory promise that might cure it.
(iii) Second step: Imply a legally valuable promise to
overcome the fundamental flaw in the bargain at the
formation stage. This is a sweeping reform. Wood
v. Lucy Lady Duff Gordon: UK aristocrat entered
into bargain with Otis Wood in which Lady Duff
made Wood her exclusive agent for one year.
12

(iv)

Under the K, Otis promised Asplit any profits 50/50,

account to her once a quarter for any profits, protect
the integrity of her seal of fashionable approval w/
copyright & trademark.@ She signed in NYC, got on
a train to Davis, CA, then she breached the
agreement and sold her seal of fashion approval in
Hollywood. Otis was mad and brought a suit
against her in NY, sought an accounting and
declaratory judgment. But Duff-Gordon said Wood
gave illusory promise - didn=t say he=d make any
profits, if he didn=t sell anything he didn=t have to
protect copyright/trademark.
1)
The court accepted the challenge to look
carefully at the agreement and found it to be
a business deal. It was clear that on the day
they met and signed, they had mutual
business objective. All they said they had
to do was promise to give Abest efforts@
and want of consideration defense
vanishes.
2)
UCC: In every transaction for sale of good,
covenant of good-faith dealing between the
merchants.
Promise can be illusory in one of two instances
1)
Didn=t promise anything
2)
Preexisting duty
a)
Suppose individuals enrolled in
PMBR course were in the goodness
of this course to approach professor
and offer $100 if you promise to
show up tomorrow. No promise b/c
professor already legally obligated to
show up.
b)
Four ways to get around preexisting
duty?
c)
If you were to change the tenor of
preexisting duty (e.g., 30 seconds
earlier than my K requires with
PMBR, or stay 15 seconds longer)
any alteration in the tenor of my
preexisting duty overcomes defense
of want of consideration since law
doesn=t care about adequacy really.
d)
Even if no change in tenor, if B had
13

e)

a)

14

run into problems neither foreseen

nor forseeable at formation stage,
and has very high burdens of
performance, B might have equity of
recission (morally deserves it). If A
offers her 5k more if she will tough
it out, A=s promise is binding since B
has hidden behind equity of
recission.
CL doctrine of accord and
satisfaction: If good faith dispute
between B and A if B was obligated
to perform, then candidate for selfhelp remedy for accord &
satisfaction.
13.
B says >I think you should
pay me 10k more@ if element
of compromise in the
positions in the accord, then
accord performed, payment
of 5k between A&B, and
carriage, = satisfatction and
then A can ever litigate
whether B was entiteld.
Good faith bona fide
dispute, Resolution
(Accord), carryout out
terms of accord
(satisfaction).
UCC approach: Good faith
modification. The code is interested
in the reason B will not perform. If
B in good faith tells A that she can=t
perform unless A is willing to pay
her $5k more, A is not obligated to
make that payment or the promise.
She can say >I=ll see you in court@,
but if A promises the money his
promise is binding. Code abolishes
the need for a dispute, an equity of
recission supporting B=s demand,
abolishes need for any new element
of valuable consideration. Simply
makes A=s agreement to any good

a.

b.

16.

faith demand by B for a modification

of the terms of the original K binding
upon A the moment she consents.
14.
Good faith demand that B
could bring is a demand not
which lawyers would
recognize as being predicated
on a legal position that was a
winner, but if other
merchants in same
trade/calling would recognize
legitimacy moral legitimacy
in seeking the modification,
then the modification is being
asserted in good faith.
15.
Simply ask: is there a good
faith modification of the K?
Failure of consideration: Defense to the enforcement of my K duties (personal
defense) - admits that a K was formed, that other party incurred bargained for
legal detriment, but contends other party is in present, material breach of the K
and as a result the consideration fails.
Inadequacy of consideration: allegation that I have made a stupid deal, come out
hopelessly on the short end of the transaction, allegation that I made a stupid
bargain. It is no defense at all.
i.
EXCEPTION: permitted as a defense to the subservient party in a
fiduciary or confidential relationship.

PROMISSORY ESTOPPEL - Suppose we cannot find legal detriment on the part of hte one
of the traders and we cannot imply it and the subsequent conduct of the traders does not
cure the want of consideration, then there is no K relationship. But there may still be a
theory of breach under a theory of promissiroy estoppel - a significant substitute in
valuable consideration.
a.
As a result of the promise made, promissee says he is now unjustly impoverished
than he was before hte promise was made to him. Unlike restitution interest
reviewed in remedies material and protected in quasi-K, to recover under
promissory estoppel it isn=t enough to show that D is unjustly enriched, only that
P has been unjustly impoverished.
i.
Protects the reliance interest of the aggrieved party.
b.
If plaintiff brings his cause of action on claim of promissory estoppel, it is not a K
claim. It is a separate civil law theory of liability for breach of promise.
c.
First qualified promise - locate promise made from one to another and that
promise must have the foreseeable quality of inducing reliance on the party of hte
individual to whom the promise was made.
d.
Second: detrimental reliance by promisee - The promise must have occasioned
15

e.
f.
g.

h.

reliance through actions taken or actions forborn in reasonable expectation that

the promise would be take.
Third: Breach of promise by Promisor
Fourth: Promisee is now worse off
If all four are present. Section 90 of Restatement tells court to hold promisor to
the promise at least to the point necessary to allow aggrieved party to recoup his
reliance interest.
Doctrine of promissory estoppel extended into the business world. E.g., back to
the Boticelli. I couldnt= live in Bakersfield after that, couldn=t stand following, I
was forced to move and moved to Barstow, CA. Sleepy village where gourmet
food store sells velveeta. One day I=m walking down mainsteam in Barstow and I
recognize Col. Harlon Sanders and pour out of my hear and Col., moved my
compassion, tells him he will grant me a franchize to market. (No bargain, Col.
Made promise). In reliance on Col=s promise, at my own expensive, I enroll in
chickenology at Fowl university, my wife take our savings and plow it into
remodelling of structure that will be our place of business, and I convert my
spouse and children who won=t eat anything other than chicken. In the wake of all
of reliance, the Col. Changes his mind and breaches his promise.
i.
Can you bring thing for K? No, no offer. Element of bargain was missing.
No contractual relationship.
ii.
The Col. Did make promise, however and I am worse off today than
before I met him. What can the law do?
(1)
First, establish Col. Guilty of promise which on the day he made it
to a reasonable person had the foreseeable person of inducing
reliance on the part of the promisee. If yes, then
(2)
Second, show that I changed position in detrimental reliance upon
Col=s reliance.
(3)
Third, establish breach of the promise and
(4)
Fourth, seek recovery of such damages as are necessary to put me
in such position as I was in the day Col made the promise.
iii.
Analysis:
(1)
Would reasonable person in the Col=s position have seen that in
order to take advantage of his promise I would be given a franchise
to operate and that I would have to take steps to learn to prepare
the food?
(a)
Yes. Will recover of tuition at Fowl university, expenses
incurred in leaving home and taking up residence.
(2)
What about sinking family fortune into a remodelling store - was
that foreseeable?
(a)
Foreseeable that some structure required, should be able to
shift some costs but not all - just enough to shift
remodelling to another economic use. Consolation prize.
(3)
75 - 100k on psychiatric rehabilitation of my family. Was that
reliance in the realm of what was reasonably expected.
16

iv.

v.
vi.

To recover on a theroy of promissory estoppel the object is not to put you

in the position you were in had the promise been kept, but back where I
was before hte promise was given. It only protects those reliance costs that
were foreseeable and which were reasonable on my part.
Since promissory estoppel is not a K claim, the action is not affected by
statute of frauds. The fact that it=s oral is not problem at all.
If in the case of promise to convey real estate (oral) has induced promisee
to go on the real property and make permanent real alterations, promissory
estoppel has been held to be a sufficient basis to grant a decree of specific
performance quieting title in the promisee b/c here there is no resaonable
way to measure an award reliance money damages. If you encounter a
fact patter where no legal detriment on one side, so can=t be K relationship
but there is a promise given and promise breached and promisee worse
off, do promissory estoppel reocvery analysis.

March 12, 2008

17.

DEFENSES Fourth aspect of developing second issue of K law: If you found a bargain and
you looked to the terms of that exchange and you had found in the exchange of promises
that each party incurred legal detriment (consideration), you are prepared to say we have
an executory bilateral K But before you are comfortable with that conclusion look at facts
to see if there are any defenses. Defenses are of two types
a.
Real defenses which preclude creation of K
i.
Illegality in the bargain
ii.
Personal defenses - admit a K was formed, but if established by the party
that can avail himself of the defense.
iii.
Look for defenses under four categories
(1)
Defenses re form of bargain
(a)
Most common defense on Bar: Statute of frauds, that it is
an oral bargain when the law requires that it be in writing

(i)
(ii)
(iii)

(b)

Neither UCC or CL impose form on the K.

Oral Ks are perfectly valid
That factor may be hard in litigation if subject
matter falls w/I statute of frauds, if there is no
written memoradum of essential then there can be
no remedy at law recovering damages at law for
breach of that K unless the result of allowing
defendant to revoke the statute of frauds would be
gross injustice in which court will equitably estop
the D from hiding behind statute of frauds.
How to deal with SoF:
(i)
Basic subjects: Land, or any fixture permanently
attached to land;
(ii)
contracts for the sale of good if $500+
1)
Exception: Oral K for sale of goods is fully
17

(c)

enforceable to the extent the seller has

delivered to buyer and the buyer has
accepted. The seller=s oral promise to pay
$50m that have been tendered and accepted
is binding.
2)
If both parties are merchants, a written
confirmation of the terms of the bargain sent
by one merchant trader to the other operates
to satisfy the statue of frauds from the
sender to the recipient unless the recipient
objects promptly.
3)
Special goods - custom tailored or
manufactured to the specific buyer=s order or
specification and not suitable for ordinary
resale. To the extent the seller has actually
begun to manufacture those goods, the
buyers promise to pay for them is
reasonable. (Reason - economic waste).
4)
Any K which by its terms is incapable of
being performed w/I one year.
5)
If there is any possibility, no matter how
statistically remote, that the K obligations
could be performed in one year, subject
matter not w/I statute of frauds even if
actual experience requires 50 yrs to actually
perform.
6)
E.g., oral promise to pay $10/year for rest of
her life b/c she can die w/I one year - not w/I
statute of frauds and as she is qualifying for
social security, you would still be obligated.
If falls w/I SoF, law requires memorandum signed by the
party to be charged.
(i)
Do not confused writing that satisfies SoF w/
formal integrated agreement for Parole evidence
rule. All that is required for SoF is written evidence
of the essential terms - can be very informal, does
not have to be created any intention to satisfy
statute. If through written evidence we can
construct essential terms that evidence must relate
to the party to be charged (signed by the party to be
charged). All we have to do is trace it back to the
defendant.
(ii)
Why don=t we require it be signed by Plaintiff? The
Plaintiff satisfies the SoF when she files her
18

(2)

complaint, which alleged the terms of the K and

bears signature of her agent.
(iii) If no writing, Defendant has personal defense - the
K is not void, but her obligations are voidable.
(iv)
Civil procedure: defense must be asserted in a
timely manner or the defense will be waived.
(v)
Subject to equitable estoppel - Before Ct. Will
allow D to get defense, the Court will examine the
consequences, and if it would result in gross in
justice, the D will be forbidden on policy grounds to
hide behind SoF.
(vi)
But if timely assertion of D, and D isn=t equitably
estopped, no recovery of damages at law But that
means agrieved party P has no remedy at law, thus
have standing to sue in equity. Equity courts not
normally bound by SoF, and are wiling to look at
part performance of the promise as a substitute for
writing, so long as the performance points ot the K
that P alleges and not nebulus arrangement - there
may be equitable relief in decree of specific
performance or injunctive relief.
1)
*note: If the cause of action is predicated on
promissory estoppel, no SoF at all b/c not a
K claim.
Center on problem with capacity of one party to bargain
(a)
One of the traders was a minor, etc., or lacked requisite
mental capacity, in corps - ultra vires activity (beyond the
power of corporate entity)
(b)
If you would reconstruct former CA bar exams they ask
two questions - where one trader is a minor, we have a
problem b/c under the CL, the K obligations of minors are
voidable, yet their promises do amount to valuable
consideration. The bargain is not void and if hte minor
doesn=t assert defense he is deemed to have waived it, but if
during litigation minor says he was underage at the time the
K was formed, no recovery on terms by the adult. BUT if
the minor has consumed benefits of the K, and those
benefits are regarded as necesaries (food, clothing, shelter,
medicine) an exception is made to the adult who furnished
the necessaries. S/he may not recover a loss of bargain
message of money damages, but she may recover in quasiK for hte market value of necessaries minor received and
consumed.
(c)
Also mental incapacity: again a personal defense rendering
19

(3)

voidable the K obligations who either permanently or

temporarily lacked mental powers necessary to form a K. If
necessaries were subject matter of bargain w/ mental
defective, same rule apply with minors - recovery on theory
of quasi-K; if not a necessary, no liability at all.
(i)
If temporarily impaired due to self-inflicted
incapacity (e.g., drinking) - the CL is divided: if
capacity is temporary and self-induced, we have no
sympathy and defense cannot be raised.
(ii)
Modern view: if other person knowingly dealt
whom he appreciated or should have realized was
suffering, the dominant modern view B although
incapacity was temporary and self induced, if other
party knew about it, you may have the defense.
Content of the bargain
(a)
Illegality
(i)
Time in which subject matter/participation of one
party became illegal.
1)
If illegal when only offer was outstanding
(local church makes me an offer to be Bingo
parlor, before I accept, DA says crackdown
on religious gambling), offer is revoked by
operation of law.
2)
If offer was made and I accepted it, and K
was executory when illegality announced, at
CL I can claim relief from the obligations of
the bargain on a theory of objective legal
impossibility.
a)
Under UCC there will be effort to
save a bargain. If K is executory and
then supervening gov=tal regulation
saying subject matter/participation
illegal, then before I can walk away
from the agreement claiming
objective impossibility as a merchant
I must determine is substitute
arrangement can be made that is both
legal and practical. If yes, I must
offer to perofrm under modified
substitute arrangement. You=re not
obligated ot accept, but if you do,
then modified in good faith. If you
refuse, I avoid liability on original
terms on obj. legal impossibility.
20

(ii)

(a)

Nature of illegality is also important because that

determines if there can be quasi-K relief.
1)
St. Thomas Aquinas: if SJ/Participation is
intrinsically evil (malum in se) then
attempted bargain is void.
2)
If not intrinsically evil, but relates to
regulatory statute passed for convenience for
society (malum prohibitum), again no K
b/c CL contracts will never clash with
regulatory/criminal law but if subject matter
is malum prohibitum, the party who
rendered valuable services may well recover
in quasi-K for hte market value of those
services if s/he was unaware that subject
matter was regulated and therefore
offensive.
a)
If one innocent (not in pare delicto)
and he/ can potentially recover in
quasi-K.
b)
If, both parties in pare delicto, but
one party is in a protected class (a
person for whose benefit society had
regulated the Subj. Matter), then
although he was aware and thus g
uilty of knowledge, the party who
was a member of protected class may
recover for market value of
goods/services (e.g., child labor
laws).
18.
Minor couldn=t recover the
wage promised on a theory of
K, may recover against ER
for market value of any
services he performed.
substantive unconscionability: by term of agreement, one
party seeks to avail himself of a privilege contrary to public
policy - a seller of inherently dangerous article attempts to
disclaim all warrants (even implied warranty of
merchantability) - that=s not illegal, but it=s unconscionable.
A reviewing court may:
(i)
Refuse to have anything to do with that bargain, or
the court can blue pencil the bargain to
remove/modify the unconscionable term.
(ii)
or the Court can blue pencil the bargain to
21

(1)

remove/modify the unconscionable term while

enforcing the balance of the exchange between the
parties, if that is the only way it can prevent
suppression and surprise by the dominant party in a
transaction. This is especially true where at
formation stage of bargain/acceptance, but a
dominant party who made a K of adhesion who
because of limited ability to satisfy a pressing need
the other party agreed to.
Tactics of one of the traders informing the bargain: b/c society
takes umbridge at one of the tactics
(a)
Fraud:
(i)
Fraud in the factum (real fraud) - the most base any contrivance/artifice preventing the party from
appreciating that a K is even in contemplation.
(E.g., approach you in an upcoming break, would
you autograph this paper at the bottom, and later on
I fill in the terms of a promissory obligation to part
w/ all of your possession, you would have fraud in
the factum). Real defense - no K.
(ii)
Fraud in the inducement: victim is aware K is in
contemplation, his consent to enter into K is
seduced by lies or half-truths gives the victim an
opportunity to assert a defense and have his
obligations voidable.
(iii) fraud in the execution: sees victim aware that a K is
being formed and his consent is validly obtained.
Bargain is oral and now victim trusts the other party
to reduce agreement to formal written expression.
Here=s our deal, sign this paper w/o closely
examining and turns out party who prepared writing
had selective/creative memory and personal defense
=> victim of fraud in execution, personal defense.
Obligations are voidable if victim chooses to assert
defense.
(b)
constructive fraud
(c)
duress
(i)
Duress of the person - either mental or physical
force directed against the victim, they always render
consent of the victim voidable. (Duress they can=t
refuse). Threats of duress are called menace, and
are treated the same (e.g., point gun at you, or threat
that if you don=t I=ll execute you).
(ii)
Economic duress/duress of goods: e.g., requires that
22

(iii)

19.

one party have some desperate pressing need for the

subject matter, and the other trader taking conscious
advantage of that need, insists upon harsh and onesided terms and there must also be element of
active wrongdoing wherein she is guilty of creating
the pressure driving the victim or she has actively
intermeddled to make the pressure worse.
1)
E.g., what did we do after Chicken palace,
we converted it into last gas station on the
outskirts of barstow. One day you roar
through in your fancy car, oblivious to the
fact that you were headed into the desert.
You drag yourself onto our gas station and
say, got any gas for sale? I say, the gas is
$1000/gallon, container rents for
$100/minute. You charge this transaction.
Do you have defense of economic duress?
No. (But there may be a tad of
unconscionability, b/c we didn=t create the
plight that led you to drive to our station. It
would only be economic duress if I drained
your tank, or were otherwise responsibility
for ur circumstances.
Procedural unconscionability - one of the parties at
the formation stage uses formation packs designed
not to give other trader fair opportunity to
appreciate the terms she is objectively consenting
to. This is the individual who does business in fine
print - who expresses the terms of K In legalese and
takes fine print into area of dealing with consumers
who would never be able to notice terms they were
waiving the warranties - another species of
unconscionability.

Highlights/Summary
a.
Assume you=ve Found an agreement
b.
Qualify agreement as having legal enforceability
i.
As K
(1)
3 part test
(a)
Bargain?
(b)
Terms?
(i)
Did each traders incur bargained for legal detriment
(ii)
If bargain, presumptively executory K
(c)
Defenses precluding formation (real defenses) or
23

20.

21.

enforcement (personal defenses

ii.
Or promissory estoppel - promise breached leaving promisee worse off
than day she heard promise, test potential of p.e. analysis
CA Bar exam question: Bullyon, a financier whose hobby was growing orchids wanted to
help daughter in law Maude. Bullyon, knowing Maude would not accept charity, wrote
her the following signed letter Aif you will come to my country estate and cultivate my
orchids, you can have room, board, $500/mo until my death@. Maude moved from her
domicile in another state and efficiently tended the orchids. 1.5 years later, Bullyon evicts
and terminates $500/suits. Maude suits.
a.
Only 2 issues of K law - 1st and Second
b.
Do we find an agreement?
i.
No stipulation of offer, so find it in the fact pattern.
ii.
Was letter offer of bargain or a disguised gift? If Bullyon=s intention was
intended to give gift, no liability in K.
iii.
Today a modern court asks: were there any obligations imposed by
arrangement on the other party, if yes and they benefitted you, then court
will say offer of bargain. Bullyon said taking care of orchids too
burdensome, pragmatic advantage to him, most courts would say bargain.
iv.
Was offer still alive, if there was offer to bargain, it was to in unilateral
mode, so the only way to accept was to tend orchids until he died. So
problem of revocation while the offeree is merely attempting to accept. At
the time he attempts to revoke the offer, she=s been working 18 months,
she=s substnatially performed which cuts of Bullyon=s ability to revoke.
v.
No defective acceptance - he has told her what to do and she has done it
efficiently.
c.
Is the agreement a K?
i.
Bargained for exchange by Maude, yes, she moved.
ii.
No problems with defenses here so rationalize to conclusion that if there is
an offer, K is yet to be forms, but Bullyon is estopped from revoking the
offer.
d.
If no K, promissory estoppel?
i.
Did promise have foreseeable consequence of inducing reliance? Yes.
ii.
Did it induce reliance reasonable in dimension and w/I realm of
foreseeable. Yes. Now Maude is worse off.
iii.
If she can only recover in promissory, she won=t pick up $500 expectation
interest. She can only go back = any expenses she incurred in moving,
etc.
3rd Potential Issue of K Law: Rights and Duties of Non-Traders
a.
(Once you determine there is an Agreement, and Agreement has K status, look to
facts and ask if terms or subsequent conduct confer any rights or duties upon nontraders).
b.
Rights & duties of non-traders, we only talk of CL. UCC code Art. 9, and no
responsibility on Bar for Art. 9 (sales article).

24

i.

Non-trader is any person in the fact pattern who, at the formation stage of
the agreement, was neither the offeror nor the offeree.
(1)
3rd party beneficiary: If reading of facts show non-traders rights
arise by terms of the K, the relationship involved is that of a
potential, intended 3rd party beneficiary.
(a)
Facts will introduce 3rd party at formation stage of
agreement, and here the individual will have no function
informing hte agreement - he won=t be the offeror or the
offeree, once you recognize his presence in the fact pattern,
task is to verify that non-trader can qualify as 3rd PB.
(i)
If non-trader is 3PB, then with re: performance
obligation created as running to him, that non-trader
has primary cause of action to remedy any breach of
that obligation at law or in equity.
(b)
Approach:
(i)
Reconstruct bargain: if Bilateral, formed by
promises.
(ii)
FIRST: Is 3rd party intended beneficiary?
1)
Burden of 3rd party to allege intended
benficiary status and prove them.
2)
Elements: direct undertaking of the
promisor, the intention to benefit in the
mind of the promisee which 3PB must plead
and prove.
a)
To see if requisite direct undertaking
look at terms of bargain between
A&B, did one party assume
promissory obligation the
performance of which requires it be
delivered to 3PB, if yes, there is a
Adirect undertaking@
b)
State of mind/intent of promisee: did
he have requisite intention to benefit
the 3rd party. Legal test - that B
intended that A=s performance run to
3 PB, whatever motivated B ot have
that intent is irrelevant.
22.
E.g., suppose I=ve said harsh
things re: brother in law
(exercise fanatic). Suppose I
contact vitagro and ask how
much they would charge to
deliver 50 yards of manure,
and I say fine, deposit it in
25

(i)

the swimming pool at x

address. Vitagro agrees. =
Exectuory bilateral contract
with V, who has assumed a
promissory obligation. V
cannot satisfy K by bringing
goods to me, only by
delivering to brother in law=s
swimming pool. V carries
out its direct undertaking, and
I intended that result, thus
brother in law is 3pb.
a)
If either of those elemtns can=t be
establish, just b/c 3 party can show
carrying out terms of K benefits him
is irrelevant b/c 3rd party that can=t
prove 3rd party is considered by law
as incidental beneficiary and has no
status in the eyes of the law at all.
23.
e.g., 2 adjacent parcels of
unimproved real estate. I
enter into K with ajax to
create shopping center on my
land. Faithful performance
between me and Ajax would
treble value of your property,
but you are merely incidental
beneficiary.
SECOND: If yes, have his rights vested?
1)
You will know in facts if you should discuss
this, 3pb is passively awaiting performance,
say A & B seek to rescind/modify K made
for benefit of 3pb? Is there anything 3pb
can do to cut off rights to rescind/modify?
a)
Formerly CL distinguished between
creditors [shows that 3PB is creditor
of promisee, performance of A, if
rendered, would discharge that
indebtedness in whole or in part,
e.g., PMBR and professor, and
student 3pb] nd donee beneficiary
(manure example, supra] Modern CL
lumps both creditor/donee into
AIntended 3PB@.
26

b)

In the past rights of donee

beneficiary vested moment K made
for his benefit was formed (donee
needn=t know), however creditor
vested only when K formed, she
knew about it and changed position
in detrimental reliance.
3 ways to vest rights:
a)
Having learned of K made for her
benefit, she changes position and
vests her rights; or
b)
The moment the intended beneficiary
commences a cause of Action as
party Plaintiff for breach of the K
made for her benefit.
c)
If the intende beneficiary expressly
consents to receive the performance
of the promisor, when that consent
has been requested of her, she vests
her rights.
If she vests her rights, original K=ing parties
cannot rescind or modify the K and she has
an unshakeable right to direct undertaking of
performance as defined under original terms
of the K if she has vested her rights.
a)
If rights vested and A&B try to
rescind/modify - totally unavailing.
b)
Since her rights have vested, if
promisor pays promisee $5000 if
promisor would let her out of this
bargain, then agreement with
promisee is w/o any force/effect, and
vested 3pb can claim $5000 on
grounds of conversation.
c)
if I got nervous about what manure
brother would do and I called vitagro
to call it off and I will pay you off
(but brother had vested rights) then
brother has cause of action for
tortious interference b/c they are
>tampering= with K.
d)
If tampering occurs prior to 3pb
vesting rights, then prior parties can
rescind/modify.

2)

3)

27

(ii)

THIRD: If intended benficiary with vested rights,

legal consequences is that if there is any breach of
the K duties created for his benefit, the primary
cause of action to remedy belongs to nontrader/intended benficiary. If beneficiary commits
action against he who owed him, this party is the
promisor, but would ask what defenses may the
promisor raise faced with a cause of action brought
by an intended beneficiary.
1)
If you have an intended beneficiary and in
the factual development, A refuses to
perform the direct undertaking or performs
in a manner that disappoints the reasonable
expectations of the intended beneficiary, A
is in present material breach of the K. The
primary CoA to remedy does not belong to
other party, but to intended beneficiary. That
CoA having been asserted, what defenses
may A raise to defeat/diminish liability to
intended beneficiary?
a)
Rights of 3rd party are dependent on
K made for his benefit. Any defense
A had against B may be established
by A and used to defeat liability to
intended beneficiary. So if any real
defense, never was a K. If any
personal defense, obligations of A
are voidable. Rights of 3PB can
never be greater than would have
been enjoyed by B in 3rd party
trasnactionl
b)
If the reason A refused to perform
b/c B was already in material breach,
A can use that to defeat any liability
ot intended beneficiary.
2)
Setoffs: Any civil CoA A has against B,
predicated on any ground other than that K
(e.g., tort claim, breach of unrelated K)
3)
Counterclaim: Any CoA A has against B for
breach of K.
4)
Suppose $ value of #PB worth $100, but A
has counterclaim against B for breach worth
$75k, in litigation commenced by 3PB, A
may also establish counterlciam against B,
28

(a)

and if proved, use that counterclaim to

diminish liability against 3PB to difference
between K claim and value of counterclaim
= $25k.
a)
If counterclaim A has is worth
$170k, and if established greater in
dollar dimension, it totally defeats
recovery of intended beneficiary.
(iii) FOURTH: In the event of a K for the bneefit of a
3pd, and a breach of the terms of that by the
promisor, what rights (if any) accrue to the othe
rparty to the K who bargained for that arrangement
and supported it with consideration?
Summary
(i)
When we must discuss (if at all) vesting of rights
(ii)
If breach of direct undertaking, primary CoA
belongs to 3PB
(iii) If commenced, that promisor=s Dfeendant can raise
any defense, real or personal, to defeat liability ot
3PB whose rights stand/fall strength of K made for
his benefit.
(iv)
Although immune from setoffs, 3PB is vulnerable
to counterlaims - counterclaim is any breach of K
by breach any damages sustained by B. Any
damages sustained by A due to B breach, if less
dollar value will diminish, and equal/greater $ value
will defeat recovery but never affirmative recovery
required of 3PB.
(v)
What rights (if any) if promisor breaches, accrue to
B the promisee who bargained for that performance
(even though not receive it) and paid/supported it
with valuable consdieration. Since under terms of
K, B was not to receive performance of A, in the
event of breach, B cannot recover a loss of bargain
measure of $ damages because $ damages to B
would be speculative since he wasn=t to receive A=s
performance. Thus B has no remedy at law thus has
suit equity Sue for specific performance coercing A
to deliver as promised to the third party, however
no such thing as right to relief in equity only prayer
for relief at discretion of trial judge and if specific
performance withheld, consolation prizes withheld
e.g., if B paid A, recoer payment under quasi-K, if
B changed position in detrimental reliance he could
29

(1)

recover under promissory estoppel.

(vi)
You will only discuss remedies/rights for B is if in
fact pattern the intended beneficiary has not brought
primary CoA/fails to assert for A=s breach. If 3PB
brought/succeeded in recovering under primary
CoA, that is only relief for that K and B has no
cause of action.
1)
Only then do we get to rights of promisee
a)
No loss of bargain recovery of $
damages at law
b)
Standing to equitably enforce K, if
denied on discretionary grounds
c)
then any backward looking remedies
in restitution, quasi-K, reliance,
promissory estoppel.
Assignment of K rights: If the terms are silent with re; non traders,
but subsequent to the formation of that bargain one of the traders
takes the unilateral step of identifying a stranger and seeking to
transfer to that stranger either the right ot receive performance
owed to the party by the other trader to the bargain, you have
attempted assignment of K rights.
(a)
If original formation at stage 1 forming elements of
agreement, features an offeror and offeree and you
reconstruct terms of bargain and make no reference to
traders (garden variety 2 party K in which promises
exchanged by the partyies call upon performance running
to other party to the K).
(i)
If no other person named, no third party beneficiary
must be named in K.
(ii)
If subsequent to formation of K, A Identifies some
stranger and transfers to them the right to receive in
whole or part the benefits it was to receive under A,
then A is considered the assignor and the party to
whom he transfers right to receive B=s performance
the assignee.
(iii)
(b)
*In every bilateral bargain, A is promisor of own obligation
of performance and promisee of B=s obligation of
performance; B is promisor of own K duty and promisee of
A=s. Both parties occupy both positions.
(c)
3 general propositions re: introduction of stranger
(i)
Same bias of the modern law in favor of K
formation is now reflected in policy positively
favoring freedom of assignment and is increasingly
30

(d)

tolerant of freedom to delegate.

(ii)
In any fact pattern where assignment of rights or
delegation of duties is proper, it may be
accomplished w/o consent of other party to the K.
They are both wholly unilateral legal privileges the
exercise of which does not depend on the prior or
contemporaneous consent of the other party.
(iii) Since both assignment of rights takes place w/o
consent, they are never appropriate when the result
would be to add to or vary the obligations
undertaken by the other party to the K or to
prejudice or vary the performance to which the
trader was entitled.
(iv)
If you conclude assignment of the right from A to X
to receive B=s performance would add to/vary
obligations B consented to at formation stage, no
appropriate case for assignment. And if delegation
from B to Y of duties B assumed in forming the K
with A, would prejudice security A enjoyed or
quality of performance A would receive, no
appropriate case for delegation.
Go back to two party transaction at the formation stage:
(i)
An agreement, executory bilateral K between A &
B. No mention of non-traders.
(ii)
While K is still executory (parties exchange
parties), A will take it in mind to ID in the
marketplace a non-trader and seek w/o permission
to transfer to that non-trader the right to receive the
performance owed to A by B. (X is assignee). B is
the obligor. Whenever you find this factual
development in exam question, there are only four
possible issues that could be raised:
1)
Do I find a present assignment? If no, then
question is over.
a)
Requires only manifestation of
present intention by A to achieve a
present transfer of her present rights
to X. By any words/acts sufficient to
describe/identify subject matter
being transferred, A as assignor must
wholly and immediately divest
herself of all right/titleinterest in
subject matter and transfer to X.
24.
intention of assignor- no
31

25.

26.

27.

32

present assignment unless A

objectively manifests an
intention to make the
assignment right here and
right now. A statement by A
to X re: Anext week@ is not an
assignment. Requires here
and now.
Must be steps taken by A
sufficient to act upon her
intention: first she must
clearly identify the subject
matter of proposed
assignment to X. With re
that subject matter A must
express intention to totally
divest herself of
right/title/interest and
recognize it is exclusive
property of X.
that present intent + those
present steps must relate to a
suitable present subject
matter. (E.g., if executory
contract between A&B, is
suitable; eg., K says pay on
2/15/90, anytime before
3/15/90 a may assign to X
future rights).
Future rights under a future K
(if no K between A&B, then
no present assignment under
CL). An equity court would
permit an assignment today
by A to X of future subject
matter involving obligations
of B, provided established
economic relationship
between A&B supporting A=s
expectation of a future K.
E.,g., farmers get a loan in
the spring and pledge fall
profits. No K, but
established economic

relationship between farmers

and cooperative. Can be
equity using the machinery of
a present trust of assignment.
The assignment works as
follows: as far as quity is
concerned, assignment has
taken place - if economic
relationship generates
anticipated K, then the only
thing asignor has is legal title
to SJ, equitable interest in SJ
belongs to bank and it may
bring suit to unite equitable
claim to legal title.
a)
What about attempt by A to assign
rights in future K he hopes to form
with B but not esablished economif
relationship - that=s impossible.
b)
Elements: intent + steps of present
assignment (identify SJ, extinguish
of assignor, put in assignee, suitable
present SJ (gen. Executory rights
under existing K)
Iif yes, is the assignment between A and X
operative?
a)
Look at K between A&B, ask is
consequence of that assignment to
change duties assumed by obligor or
risks of A, or offend the K
attempting to restraint the creation of
rights. Right to make an assignment
is unilateral legal privilege.
b)
CL restrictions of assignment. B is
privileged to ignore assignment if:
(through X, A can never materially
alter the K)
28.
if B can prove that
consequence of present
assignment materially add to
or vary the nature of the
duties she had assumed at the
formation stage; or
29.
contention by B that if forced

1)

33

to render services to X,
material change in risk B
assumed at the formation
stage.
30.
The burden of proving
material alterations/prejudice
is on B. (E.g., nature of K
between A&B is B renders
services, A paid B $15k
retainer and B says he will
represent interes, would
affect if A tried to change to
X b/c the nature of so
personal - would material
change; or see K of
insurance: Under K
insurance, assume you try to
assign benefits of insurance
to 16 y/o wouldn=t change
duties to pay in the event of
the loss but would
dramatically increase risk to
carrier so insurer could refuse
to recognize.
If yes, is that operative assignment
revocable?
a)
X must face two dangers: that A has
changed his mind and now wants to
reacquire personally the sj that
yesterday he assigned to X, A has
changed his mind and one day after
making the assignment to X, makes a
second conflicting assignment of
same SJ to subsequent rival assignee.
31.
The facts will tell you A is
trying to reacquire dominion
over SJ or that A has taken
steps of setting up rival
subsequent assignee. The
law is quite straightforward.
If X achieves a present, operative
assignment and if the assignment was
irrevocable or there has been no problem
with revocation, the legal consequence is

1)

1)

34

(a)

that the legal right to receive performance

has been extinguished in A and has become
the right of X (assignee). In the event of B=s
refusal to perform/defective performance,
cause of action to remedy is that of the
stranger, the assignee. If assignee
commenced CoA against B, what defenses
may obligor raise so as to defeat/diminish
liability to assignee?
Operative nature of assignments that offend provisions in
the K designed to prohibit/restrain creation of rights in
strangers: If there is a K term offended in course of
assignment, Courts distinguish with respect to those terms
as to whether they have succeeded in extinguishing the
power to make an operative assignments vs. those that
destroy the right to make illicit assignment. If the only
thing that is offended when A makes assigmnmetn to X, is
some provision in the K that they won=t sent up rights in
strangers by way of assignment, the present assignment is
illicit/violative of that covenant but that language doesn=t
destroy the power that A has to make an effective present
operative assigmmetn if X is innocent that the assignment
violates the K terms and if X has paid value for that
assignment (bona fide purchaser).
(i)
consolation to B: CoA against A for breach of the
covenant - but that doesn=t mean anything re: X.
(ii)
How to get iron clad protection to make sure client
never has to perform for a stranger?
1)
Rescission clause in K between A&B saying
that B may regard any attempt by A to
assign rights under the K as an offer to
rescind the K. IF attempt assignment to X, B
would treat as offer to rescind which he
accepts. If X was innocent and had know
knowledge of this term, X has achieved
assignment in rescinded K.
2)
Put a provision in K treating any attempt by
A to assign as triggering an express
condition subsequent extinguishing all of
B=s duties under the K. This is superior to
recission b/c recission only protects B if she
chooses to protect herself; this one achieves
protection automatically. Even as
assignment is made, Sj is destroyed.
35

a)

a.
b.

X has CoA against A, the assignor

for breach of implied warrant that
runs from every assignor to every
assignee who pays value for the
assignment.
32.
Terms of implied warranty: I
warrant I have right and
power to make present
operative assignment and
thereafter I will do nothing to
interfere w/ ur quiet
enjoyment of that subject
matter. If that assigmennt
triggers recission clause,
breach of implied warranty is
transaprent. But if I am
lawyer of B, I have afforded
my client full protection
1)
How will you know to discuss operative? If
B resists having to recognize that A has
made effective present assignment of X.
(1)
Delegation of K duties: Or if original K makes no reference to
non-traders, but subsequent to the formation of the bargain, one of
the traders id=s non-trader and seeks to make arrangement with
non-trader under the terms where non-trader assumes the
obligation to perform the duties owed by the trader to the other
party under the K (attempted delegation of K duties).
(a)
Subsequemt to formation of bargain, B can identify a
stranger in marketplace and seeking to enter into terms
whereby stranger would carry out terms of promise B made
to A. If B unilaterally seeks to create in Y primary
responsibility for K duties, B is then delegor, and Y is
delegate.
rd
Because material on 3 party beneficiaries is always last chapter, this is a new
topic.
Material on non-trader rights is appearing a lot on Bar.

3/13/08
33.

When does assignor have right to change his mind and reacquire personal dominion
over subject matter assigned?
a.
An assignment can be oral, doesn=t need consideration (can be gratuitous), but the
fact that it is oral in form and gratuitous in form is important re: limited
circumstances where assignors can change mind and revoke assignment.
36

i.

34.

Assignor has right to revoke if: An assignment is revocable if oral and

gratuitous; all other assignments are irrevocable as far as rights of assignor
are concerned.
ii.
A gratuitous assignments becomes irrevocable if in writing and that
writing is delivered by assignor to assignee
iii.
For wrongful revocation of a irrevocable gratutious assignment aggrieved
assignee has CoA against assignor in tort for conversion.
iv.
If assignee paid value for the assignment (not gratuitous), whether oral or
in writing it is irrevocable. If assignment supported by consideration, it
takes place in the context of a contract assignment.
When (though he has no right) does assignor have effective power to revoke assignment
by setting up rival subsequent assignee that has superior claim to obligor=s performance:
a.
E.g., assume that K between A&B has B promising to pay A at formation stage
$100k on March 15, 1990. The K was formed on Oct. 1, 1989. From the moment
the K is formed there is suitable subject matter - right to receive B=s performance
though fixed in the future. Assume on 2/3 A makes the following statement to X,
AI hereby assign to you the right to receive B=s performance - a $100k payment on
3/15/90.@ That is present assignment (intent, identify subject matter, express intent
to extinguish interest in himself). The assignment is operative (doesn=t change
B=s duties or risks), no K language offended, so present operative assignment. But
notice gratuitous in nature and oral in form. One day later on 2/4 A approach
Assignee #2 and says AI hereby assign to you the right to receive performance of
B my obligor.@ That is gratuitous, but the declaration of assignment is put in
writing. It is now the 2/5 and we=re finished with charity, A says to assignee #3,
If you will pay me the sum of $75k today, I will transfer to you the right to
receive $100k in 6 weeks time. Assignee pays $75k to assignor for that
assignment. Approach assignee #4, if you pay me $60k I will give you my right
to receive $100k on 3/15. As we=re packing for Rio we go to assignee #5, you
could double your money, for $50k you=ll turn it into $100. Discuss.
i.
Which assignee has exclusive right to receive performance because they=re
all operative in terms of B on 3/15 march.
(1)
Assignee #1: the assignment was oral and gratuitous, it was
revocable. The creation of subsequent conflicting assignment
destroyed assignment #1.
(2)
Assignee #2-5, each possessed revocable assignment.
(a)
#2: irrevocable b/c gratuitous, but in writing and delivered.
(b)
Between assignees with irrevocable assignments, all courts
agree that assignee with superior equity prevails. Assignee
#2 loses b/c has inferior equity (gratuitous).
(c)
#3 paid the most, but remember the law is indifferent to
economic dimension of consideration looking only to legal
detriment. #3-#5 have equivalent equities b/c paid $
amount.
(i)
Between equivalent equities, the AAmerican@ rule,
37

ii.

iii.

the equity arising first in time is first in right. So it

goes to Assignee #3, because he=s first in right
due to being first in time.
1)
One jurisdiction - California - does not
follow the American rule. In CA, assignees
with equivalent equities are in a race to give
notice of assignment to the obligor. So the
question here is not who was first in time,
but who in #3-5 was the first to provide
notice to the obligor.
(d)
Consolation prizes
(i)
Assignee doesn=t get anything
(ii)
Assignee 2 has CoA against assignor for conversion
(iii) Unsuccessful assignees that paid value bring CoA
for breach of implied warranty.
The essence of holding a present, operative assignment in which I=ve
prevailled as sole surviving assignee is that subject matter promised to A
under original K has been extinguished in A and has been transferred to be
exclusive immediate claim of assignee X.
(1)
If that assignment was operative, B has no choice but to perform K
duties to the demand of assignee or materially breach the K. If in
the facts you are told that B the obligor fail/refuses or defectively
performed, that is a breach.
(2)
Legal consequence of assignment is that primary right of breach is
excl. right of assignee. If assignee wanted to commence CoA,
what defenses can B raise to defeat or diminish?
(a)
Assignee stands in the shoes of the assignor for the
purposes of seeking a remedy. Any defense B would have
against A had there never been an assignment may be
freely used to defeat liability to the assignee. If real
defense there would be no K (e.g., B didn=t pay her);
personal defense would render voidable.
(b)
Counterclaim and setoffs, standing in shoes of assignor, he
is vulnerable to every counterclaim and any setoffs
(provided setoff had matured prior to effective date of the
assignment). If the setoff arose 5 days prior to the effective
date, standing in the shoes of A, that setoff may be used by
B to defeat or diminish liability.
Review
(1)
If simple 2 party K, no intended beneficiary, if one party makes
unilateral step of identifying non-trader and seeking to rransfer the
right to receive - assignment. Thereafter
(a)
Determine if present assignment (intent, suitable steps,
suitable subject matter).
38

(b)

b.

If yes, was assignment operative (no material alteration of

duties/risks assumed by B). If K has been offended - have
they made provisions illicit or extinguished K.
(c)
Look to facts - should we discuss revocation (yes, if
assignor has changed her mind)
(d)
If set up rival assignees, identify which rival assignees
possesses the prevailing claim.
(e)
If you have present operative assignment, the right to that
subject matter is exclusively right of assignee.
(f)
If assignee brings CoA, obligor may use any defenses,
because assignee stands in shoes of assignor.
(g)
CL on both counterclaims and setoffs: the assignee is
vulnerable to any counterclaim and standing in shoes of
assignor has a large vulnerability to setoffs.
The delegation of K duties: You will know you have delegation fact patter
because at formation stage offer & acceptance, it will have been simple 2 party
arrangement (no non-traders mentioned), subsequent to formation of K, one trader
will have sought out an arrange with a stranger w/ stranger under the terms of
which stranger agrees to assume primary responsibility for carrying out
obligations of the K.
i.
Delegor seeks the arrangement
ii.
Stranger who agrees to assume primary responsibility is the delegate
iii.
The other party is the obligee b/c she is the one who is to receive the
performance of the duty.
iv.
The law has never known a gratuitous delegate. The delegation itself is a
K. So in delegation fact pattern you have 2 Ks to worry about.
v.
Delegation is a matter of unilateral legal privilege, but the K of delegation
is never effective if the consequence of the delegation is to prejudice the
interests.
(1)
An example of K in which other party could not delegate duties b/c
would prejudice commercially reasonable expectations A had
formed in bargain with B. E.g., if K1 calls upon B for personal
services to A, it would materially prejudice reasonable
expectations A had if she found the party she had selected was not
B but a selection made by B of total stranger Y.
(a)
Ask: any threat to commercially reasonable expectations
formed by A in K with B. If yes, the delegation is null and
void. If no, the only interest A had was not who performed
but that duties were performed and if performance could
easily be gauged to see if satisfactory, then suitable setting
for delegation and that would be operative. If operative b/c
doesn=t threaten commercially reasonable expectation of
obligee, the consequences are that A is under duty to
cooperate with delegate in receiveing from delegate of
39

(2)

35.

duties originally defined by K1 and duties now delegated

under terms of K2 to stranger. If the performance by the
stranger is satisfactory and satisfies all of his reasonable
interests in K1, all live happily ever after. But if delegate
refuses/fails/defectively performs, A is put in powerful
position: A has election to (a) treat breach by delegate as
breach by delegor or (b) assert status as an intended third
party beneficiary of the 2 and bring CoA against delegate
for breach of K2. In every case of successful delegation,
the obligee of K1 becomes intended beneficiary of K2 b/c
delegate assumes direct undertaking of performance that
can=t be satisfied yby rendering performance to B but
requires that performance to B, but requires that the
performance be delivered to designated third party - A the
obligee. That is the intention of the delegor. Present
creation of intended 3rd party beneficiary status.
(b)
Steps:
(i)
Formation of K2 (tipoff)
(ii)
Determine if K2 is an operative delegation, then
make test against commercially reasonable
expectations A had in having K performed acc=ding
to terms by B, if those expcetations are threatened,
attempted delegation is null & void.
(iii) If not, affirmative duty to cooperate with delegated
duty. If satisfactory, ok.
(iv)
If unsatisfactory, we reward A with an election.
If as a matter of civ. Pro A brings CoA ignoring the delegate
directly against B, B may implead delegate as 3 party D on the
grounds that if I am liable to A for breach of K1, you have
identical liability to me for breach of K2.

CA Bar question: On 2/2/75 Builder B and Owner O k=ed. B was going to construct a
house in accordance with plans, specifications, O was going to pay A 80k, part in
monthly installments equal to 85% of costs incurred. The remainder to be distributed 30
days after completion of structure. B began, payments maturing 2/2 and 3/2promptly paid
by O. On 4/2 the architect issued certificate covering work of proceeding mo., house was
2 finished. 4/3 B, while not surrending certificate to son, said to S you may have
payment due for last month. O refused to make payment to S. Discuss whether A is
entitled to collect from O the installments that accured on 4/2.
a.
6 issues of K law:
i.
Stipulated formation of K
ii.
Issue 1 & 2 not being asked.
iii.
3rd issue: If you have a K look to terms
(1)
S is a non-trader at formation stage.
40

(2)
(3)
(4)

36.

Doesn=t enter picture until 4/2, so can=t be intended beneficiary.

Either assignee or delegate.
He had a right to receive, so S. Is assignee of rights.
(a)
Present assignment?
(i)
We=re told suitable present SJ.
(ii)
did the father have intent to act in here/now?
(iii) Suitable steps? He had certificate. If he had
handed it to his son, it would create SJ, but he kept
it and made oral statement.
(iv)
Owner could raise question as to whether suitable
present assignment b/c adequate steps of present
assignment had not been taken.
(b)
If present assignment, was it operative?
(i)
No offending K provisions, because facts have no K
provisions.
(ii)
Materially alter homeowner=s duties (no, b/c that
was to make payments for work accomplished).
(iii) Materially alter nature of homeowner=s risks? At
first blush no, b/c payments relate to work done in
the prceding month. But this is another issue:
1)
We=re told bldg. Was financed with 80%
progress payments. Homeowner could
argue builder was financing next mo=s work
out of payments made for previous mos=
expenses. If builder is permitted to part w/
those funds by giving to son, argument
could be made that builder will not be able
to be in the same position to carry out his
side of the bargain - threat to risk assumed
by homeowner (not very powerful).
2)
No problem of revocation or defenses
a)
B/c we=re told work was satisfactory.
3)
Son would stand in father=s shoes subj. to
defense of homewoner, but facts show no
defenses.
Big Picture: On both the essay and objective portions of CA Bar, there are six major
issues liable to be testing:
a.
Formation of the Agreement
b.
Qualification of private bargain of legal status of K relationship: bargained for
legal detriment on both sides
c.
If we found a bargain, and concluded it was a K, canvas facts to see if terms of K
or subsequent conduct of the parties imposed any duties or conferred rights on
non-traders.
d.
If we=ve formed executory bilateral K, fourth step is to determine time and order
41

37.

for performance of promises parties have exchanged using the law of conditions.
e.
If K, and fully matured duty of performance, if factually it=s not being performed
then conclude the trader is in breach. Consider if K duty has been excused. 5th
Step: canvas fact pattern for doctrine of excusable non-performance, if no
doctrine excuses party, then failure/refusal/defective performance is a breach of
the K.
f.
Breach and its remedial consequences
Law of Conditions: Have the performance obligations created by the K matured? I
a.
Fix a schedule under which performance should take place. Apply law of
conditions.
i.
E.g., simple, executory bilateral K. If there was bargained for legal
detriment, a K relationship occured. If we move beyond promissory stage
to perform, looking at diagram proposes this issue; which party A or B
must perform first?
(1)
Either A, B going second
(2)
B must perform first, A going second
(3)
A and B must render performances simultaneously
ii.
To settle the K, we use the material of conditions. Every condition
modifies a promise by setting up contingency that must be removed before
liability on promise matures (condition precedent or concurrent) or the
condition modifies by inserting contingency if triggered discharging
liability to perform on K (condition subsequent).
b.
Step 1: Look at fact pattern and ask:
i.
Does phrase of fact pattern create or condition liability? (Distinguish
covenants in bargain from the conditions, covenants create liability,
conditions modify).
c.
Step 2: If isolated conditions, ask what is the impact of each condition on the
convenant or promise it modifies.
d.
Step 3: Once you=ve found and typed performance, ask Ahas condition been
satisfied?@
i.
Question of fact
e.
Step 4: If you=ve found a condition, determined its impact, and it=s a condition
precedent or concurrent but itn=s satisfied, then you conclude the party who had
protection of that condition has never matured and she is privileged to refuse to
perform that promise. However, ask if condition has been excused.
i.
Conditions v. Covenants
(1)
Conditions= purposes: fix time and order of obligations created at
formation stage.
(a)
At the formation stage when A&B are bargaining over the
terms of a K, conditions provide traders w/ machinery to
accomplish the allocation of risk. The Aifs@ and Abuts@ of
ordinary conversation.
(i)
By fixing order of performance where they go first
and you go second, and making his performance a
42

f.

condition to maturing your liability. Traders use

conditions to allocate risk.
(b)
Provide courts at law the ability to assign primary fault.
Only one remedy for breach at law and that is award of $
damages (vs. equity, aim to make parties perform). Law
courts simply order transfer of wealth from one to another.
(2)
Covenants (determine what must be performed to carry out K
obligations - fancy synonym for promise) v. Conditions (determine
when and if promises made in agreement must be perform at peril
of breaching the K).
(a)
Failure to perform covenant = breach of K
(b)
Failure to satisfy condition, means conditional obligation
never matures = never a breach of K.
(3)
How to distinguish between covenants and conditions?
(a)
Covenant = creates obligation
(b)
Condition = circumscribes or extinguish an obligation
mentioned in the fact pattern.
(i)
Second mention of duty of performance normally
means insertion of express condition.
(c)
1.: But what if ambiguous phrase - then examines are
testing you for knowledge of rule of K construction doubtful or ambiguous language is regarded as language of
covenant - never regarded as language of condition (this
attitude protects interest of the other trader).
(d)
2: Once you have isolated conditions what is their impact?
(i)
A promise modified by promise is dependent.
(ii)
If contingency must be eliminated before liability
on dependent promise will mature - that is condition
precedent or concurrent.
(iii) If impact of condition will discharge/extinguish a
matured obligation to perform, that is a condition
subsequent.
Conditions precedent: any contingency which under the terms of the bargain
which under the terms of hte bargain must occur before there is a present duty to
perform the modified or dependent promise.
i.
Ask: if you translate the language of the problem and it comes out to have
this meaning: One parties has just said to the parties AI am not liable on
this promise until . . . (stipulated contingency)@ = condition precedent.
ii.
E.g., conditions of satisfaction are the most common - Fox is a
housepainter, Brown owns a home. Fox approaches Brown and says for
$500 I will paint your house (offer), Brown says I agree and will pay you
the $500 provided I am satisfied by your work.
(1)
Agreement? No. Hardly a mirrored image reflection of the world.
Brown seeks to shift all element of risk to Fox sought to make the
43

(2)
(3)

(4)

promise to pay dependent upon his satisfaction with Fox=s

performance.
In coutneroffer, there is time and order but not agreement yet.
Assume Fox says, I agree. Now agreement, but is there a K?
(a)
Is there bargained for legal detriment on both sides?
(i)
One conclusion: Brown made an illusory promise,
if construed to me only in unfettered judgment, that
would be an illusory promise and there would be no
K.
(ii)
Remember modern K that courts favor a K to exist,
so may impose upon Brown implied duty to
exercise judgment in good faith.
(b)
Thus executory bilateral K, Fox goes first.
(c)
Because Fox is in vulnerable posture, whenever K calls for
me to perform first and wait for your satisfaction first
before maturing your liability to pay me, you know
understand CL rule that if Subject matter made the object
of condition of satisfaction is not personal, then a level of
performance of the party that would gratify the reasonable
person=s expectations will mature/satisfy the condition of
satisfaction even though in good faith and subjectively the
particular party Brown is saying he isn=t satisfied.
(i)
Is this a personal subject matter? No litmus test for
subject matter, but guideline: if the performance is
dominated by qualities of taste or aesthetics, then
courts are willing to concede it=s of a personal
nature.
1)
But if dominated by utility and function,
objectively look at and determine that it
does work, service, then that is a nonpersonal subject matter.
2)
House painting for exterior of the house
would probably be non-person. So even tho
express condition precedent, a level of
performance by Fox that would satisfy the
reasonable person serves to remove the
condition precedent.
Another example (literal satisfaction): If I would pay him $5k, he
would sculpt a bust of myself in the classical style of Baracchio
that would capture the essence of my personality. I was intrigued,
but I did not accept. Instead I told him I would pay such a sum,
provided I was satisfied by the likeness. He agreed. Any court
would grant that subject matter of a personal likeness is dominated
by tastes and aesthetics, thus through use of express condition
44

(5)

g.

precedent, I fixed time/order of performance (sculptor performs

first) and I shifted all elements of risk in the transaction => express
condition of personal satisfaction.
(a)
I have no obligation to pay under terms of K, b/c my
dependent promise will never mature.
(b)
If I say take it away I want nothing to do with it, I have no
liabilitiy under quasi-K because no unjust enrichment.
(c)
No recovery against me under promissory estoppel b/c
promise to pay if and only if I am satisfied is not a promise
with quality of detrimental reliance - no reasonable reliance
on a promise that advertises insecurity.
Suppose on the day of the unveiling that I confide to wife I found
it an acceptable likeness, but wife threatened to leave me if I
bought it, and I come into the room and announce I don=t like it
(even though that=s a lie), then I=m liable for hte full K price, not on
theory condition has been satisfied, but on the theory that it has
been excused b/c there was convenant that I was to make my
judgment in good faith, I breached when in bad faith I feigned a
lack of satisfaction.

Doctrine of excusable non-performance: We have been talking about excuse of

conditions, now we=re talking excuse of performance. The refusal of a party to
perform an otherwise fully matured K promise may be a matter of legal privilege
if it has been discharged on a theory of:
i.
Objective Impossibility
(1)
If subsequent to formation of bargain, either physical or legal
barriers arise so as to render obligor=s promised performance
objectively impossible, suhc an obligor is excused by operation of
law. The critical factor: it must be objectively impossible - given
the circumstances as they have changed subsequent to formation of
bargain, the promisor must be unable to perform and no person on
earth can carry out terms of promisor=s obligation either.
(a)
E.g., Fox the housepainter. Suppose he agreed to paint the
interior of Brown=s house, he=s midway and w/o fault of
either party Brown=s house burns down. This destruction
would discharge obligation of Fox to do the painting b/c
nobody can give a pile of ashes a coat of paint.
(b)
Physics essence
(2)
If the only consequence of barriers is that I cannot perform, though
another person w/ greater capacity could, that is subjective
impossibility and is not an excuse.
ii.
Commercial Impracticability: Cannot be accomplished except through an
expenditure grossly disproportionate to the agreed upon exchange. I can
do it, but it would cost me so much more than either you or I anticipated at
45

iii.

38.

the formation date and it=s intrinsically unfair to hold me to my promise.

(1)
I must show the factors arising subsequent to formation were not
foreseen by you or me at formation stage.
(a)
(The old CL said the after factors must be unforeseen and
unforeseeable to a reasonable person as well).
(b)
The UCC has relaxed this standard: if I conclude neither
you or I anticipated the after factors, then all I have to show
is that these post-facotrs have cast upon me an unexpected
cost unforseeable to us then I am excused.
(2)
Economics essence
Frustration: The gist of this is that subsequent to formation of our bargain,
circumstances have so dramatically changed that your performance is no
longer of any value or utility to me. I now ask to be excused from having
to perform my promise to you claiming frustration.

6th Issue: Remedies

a.
In the fact of breach, 2 critical factors:
i.
First, canvas in your mind what is the impact of that breach upon the
affirmative duties of the aggrieved parties.
ii.
Second, discuss remedies.
b.
Before you can work with either, you must first do a major analysis with re:
breach as either being material (going to the essence of the expectation of the
aggrieved party) or as being minor. Single most important value judgment on
the Bar.
i.
Material: it will go to essence of bargain
ii.
Minor: Impaired the bargain in some insignificant sense with re: quality or
quantity or some inconsequential manner with re: time.
c.
How to set up on Bar:
i.
Set up in 2-3 sentences the commercially reasonable expectations of
aggrieved party coming from bargain.
ii.
State the consequences of the breach.
iii.
Draw conclusion that expectations and breach has destroyed (material) or
not (minor) the agreement.
(1)
If material, K is dead for all purposes other than ascertaining
appropriate remedy. (Immediate CoA for loss of bargain, remedy
at law).
(a)
The aggreived party must immediately forego all efforts to
perform his own K duties. Must ambark on new behavior
designed to mitigate his damages.
(2)
If minor, the aggrieved party must go forward and perform her
own K duties while looking to damage remedy at law to make her
whole for any loss which she can prove.
(a)
An aggrieved party that views mistake to be material, when
it actually is minor, that is a big problem (because then I
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d.

am in material breach).
(b)
Err on conservative side.
Affirmative obligation of aggrieved party if material breach
i.
Abandon all efforts to perform K (CL doctrine) and embark new behavior
to mitigate damages and avoid loss. Use this if subject matter doesnt= fall
in Art. 2 of UCC (especially if K for personal services). If Subject matter
is unique it may be impossible to mitigate damages.
ii.
If for goods and governed by Art. 2 UCC
iii.
Hypotheticals
(1)
K between seller and buyer, both merchants, subject matter of K =
=100k cases of naval oranges. K price = $3/case. Under terms of
K, seller is to deliver the goods at the buyer=s warehouse on or
before the 10th of June (executory bilateral K they form in the last
week of may). Assume on 6/8, the seller places in motion 3 large
trucks loaded with 100k cases each case labelled as containing
naval orangers. On 6/8 arrive at buyer=s place of business = tender
by the seller.
(a)
First affirmative duty of the buyer under UCC: inspect
the goods for conformity. The buyer must conduct
prompt inspection. If buyer does not promptly inspect,
then the goods have been received and are to be paid for at
K price, no matter what is in those boxes.
(b)
Suppose on 6/9, buyer inspected and finds that while
99,900 contain goods conforming to K, 100 cases
mislabeled and proved to contain lemons (not conforming
to K description). So 6/9, inspection and non-conformity is
discovered. Next affirmative obligation of buyer who is
now an aggrieved buyer.
(c)
Buyer must give prompt and specific notice to the seller
of the alleged nonconformity. Failure to give prompt &
specific amounts to waiver of nonconformity leading to
conclusion that buyer is obligated to pay for good as
tendered at K price.
(d)
If 100 cases have lemons, having made prompt/specific
notice, UCC Code says aggrieved seller can take advantage
of perfect tender doctrine - permits seller to reject buyer=s
tender of goods for any nonconformity. Seller has election
of three alternatives:
(i)
Reject all of the goods (conforming oranges and
non-conforming lemons)
(ii)
She may elect to accept goods that conform to
description, but limit rejection to non-conforming
lemons.
1)
Then I must immediately pay you for goods
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(iii)

39.

I accepted at K price.
Aggrieved seller may elect to waive nonconformity
and accept tender as is w/ knowledge of the
nonconformity since they don=t want to litigate.
1)
I must pay you K price, treating lemons as if
they were orangers.
2)
If any time remains (and on our fact pattern
24 hours remain), and when given notice on
6/9 and seller announces intention to cure by
replacing or arranging to replace
nonconforming lemons with orangers, then
afffirmative obligation of aggrieved buyer to
cooperate with that effort and if in that
period, seller replaces nonconforming
lemons with orangers then breach has been
healed in marketplace and buyer must pay
full K price.
3)
If the buyer notifies seller of nonconformity
and seller reacts in good faith by claiming
surprise, then Code=s interest in using
marketplace to heal requires buyer to grant
seller a reasonable extension of time, unless
the buyer can show it would prejudice her
own commercial interests. So here 99% of
goods are here, it=s unlikely an addition half
day would prejudice aggrieved buyers
interest so there would be obligation to help
seller. No I pay K price and go about my
business.

Review
a.
Prompt inspecition to ascertain conformity
b.
If non-conformity, specific prompt notice to other trader
c.
Election under perfect tender doctrine
d.
Observing duty to cooperate in cure effort (absolute duty if time remains)
e.
Duty to grant extension of time unless prejudice or unreasonable
f.
Suppose I call seller on 6/9 and tell him of nonconformity and he makes no
indication of intention to cure, if clear no cure obtained from defaulting seller,
then seller is in breach of K.
g.
Now aggrieved buyer has affirmative obligations:
i.
Follow any instructions of the defaulting seller with re: disposition of
goods that I am objecting under perfect tender doctrine (ask seller what to
do with goods I am rejecting) and I must at my own expense follow any
reasonable suggestions.
ii.
Suppose I seek instructions and he refuses to give them, then I must
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40.

recognize that although the oranges and lemons (whatever is rejected)

have no use to me, they are economically valuable to society and morally
valuable since food. So if defaulting seller won=t tell me what to do, then I
must use self-help to preserve the goods I am rejecting.
(1)
Given perishable nature of subject matter and the fact that I
rejected nonconformers, I have two needs:
(a)
I must get rid of rejected goods
(b)
and I have to get goods that conform to K description
(2)
I should go to produce market as seller of lemons and buyer of
oranges and resell the lemons and form a cover-contract for
oranges. Suppose I accepted conforming goods and reject lemons,
so I go to produce market looking to buy 100 cases for naval
oranges and pay $5/case, I fix a certain measure of my damages as
K price - $5/case = 200 of consequential damages.
(3)
Any expenses gone to in getting hauling nonconforming lemons
and cover K = incidental K. Say, $50 in enhanced expensesion +
consequential damages of $200.
(4)
Now I sell nonconforming lemons for $3/case bc now I have
benefit of my bargain = 100k cases of naval orangers (I just got
missing 100), I have disposed of nonconforming lemons, I deduct
from $300 proceeds of lemons the $250 sum of consequential
losses of $200 and I send a check for $50 to the defaulting seller
and I live happily ever after.
Affirmative obligations of buyer under UCC.
a.
If you dump 100 cases of goods, my first duty to inspect promptly at peril of
having to pay as is.
b.
If discover nonconformity, prompt & specific notice. Failure is a waiver and I pay
as is.
c.
If I give prompts/specific notice, I qualify for perfect tender doctrine hedged by
duty to cooperate in any cure effort (he has right to it if time remaining, and legal
duty to cooperate in extension of time if no prejudice), if cured, it=s all over.
d.
If no cure, then I go to marketplace follow instructions re: nonconforming goods I
reject. Any expenses I incur are incidental damages. I must now use self-help to
conserve value of nonconforming goods by turning to market to procure
replacement (cover K).
e.
Fix as certain measure the difference (if any) between K price and cost of cover K
(consequential damages)
f.
Add incidentals, and if I=ve disposed of nonconforming goods I now deduct
damages from proceeds of sale.
g.
What of the obligations of an aggrieved seller? Buyer breaches by calling seller
and saying I can=t take 100k cases, don=t ship then (that=s a breach).
i.
This is ok, seller is in possession of her own property. She must recognize
the only reasonable way to handle this is to recognize the benefit of this K
is that she will turn 100k cases naval oranges into money (no court can do
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ii.

iii.
iv.

41.

this).
Aggrieved seller must go to marketplace and resell the goods. Any
difference between K price and fruits of resale opportunity fix measure of
resale opportunity. If there are additional items of expense, those become
incidental. Any commercially reasonable resale arrangement will be
respected by the law.
At CL Amitigate your damages@
Under UCC: if aggrieved party is buyer in possession of seller=s
nonconforming tender.

Remedies
a.
Insofar as remedies at law are concerned, there is only one: an award of money
damages - taxed against party in breach and given to aggrieved.
b.
Radical different measures of damage remedy: Loss of bargain recovery of money
damages - nominal damages.
i.
Loss of bargain (client preferred): sum of money which insofar as $ can
approximate, puts aggrieved party in the position she would have
occupied had there been full and timely performance and not breach
(expectation interest). (K price - market value of Def=s performance at the
time/place when Def. Should have performed under the terms of the K).
(1)
Defaulting breaching party receives nothing by way of
performance by other trader and must now make out this huge
check.
(2)
So CL erected barriers that P must hurdle to obtain the big check:
(a)
P, in order to recover loss bargain remedy at law, must
plead & prove that damages she alleges were consequential
upon the breach (cause + effect). Any expenses P occured
in forming K may not recovered b/c not consequential upon
the breach (that was cost of attaining K, not benefit coming
from it).
(b)
Of damages proven to be consequential, P may recover
only for those items of loss or injury forseeable at the
formation stage of the bargain. See Hadley v. Baxendale:
loss has divided loss into two categories - generally
foreseeable vs. specially forseeable.
(i)
Distinction: D will only pay for those damages that
a reasonable person situated as was D on the day he
agreed to K and familiar with only the terms of the
K might had he stopped to think about it have
foreseen as the probable (not inevitable)
consequences of breach. Objective test.
(ii)
What was probable in terms of loss or injury if I
didnt= carry out.
1)
E.g., suppose I own automobile and I=m
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43.

having problems with it and I bring it to ur

shop in Davis, CA. You ask me how much it
will cost to get car back on road by Fri., and
I say I have to go through assessment and on
Monday I tell you that I=ve figured it out and
it will cost $1800. You say AOk, you
promise it by 4pm Friday@ I say APromise.@
At 4pm on Friday the car isn=t roadworthy.
a)
Generally foreseeable damages:
42.
Probably, cost of renting an
automobile.
a)
But say I=d have used ferrari to pop
question, and I would have lived life
of luxury, and as consequence I lost
$50m but recovery of consequential
damages is limited only to the
foreseeable. Since you didn=t tell me
about this big weekend, I didn=t
foresee the $50m.
1)
You can enlarge upon foreseeable loss if
you disclose at formation stage some items
of special need or vulnerability on your part
- so if you say red ferrari meant something
to significant and was material matter in
getting her to marry you and I promised it to
you at 4 pm, then far better argument that
your foreseeable damages go beyond renting
a car.
(i)
Only items of loss that are unavoidable given
reasonable expenditure of efforts to mitigate may be
recovered. If therefore you could have gone to a
highly specialized automobile vendor/seller/renter
and rented a replacement then if you=re looking for
$50m in this weekend, you would have obligation
to take reasonable steps to avoid that loss you can=t
just lie back an say AI=m ruined.@ You=re only
obligated for reasonable, not heroic efforts. (E.g.,
don=t have to go to seattle).
(ii)
Must prove losses to a certain dollar amount.
How can you prove that but for my breach and
absence of ferrari you would have won your heart=s
desire?
If you walk away with $1, an inadequate remedy at law which gives standing to sue in
equity. If for any reasons court declines to grant equity assistance, then we come back to
51

44.

law side for consolation prizes.

a.
If aggreived party has bestowed own performance prior to breach, she can recover
market value of that performance in quasi-K; or
b.
AWaive the K and sue on the tort@ abandon efforts under law of K, and if you have
lots of expenses incurred in detrimental reliance, you can seek remedy seeking
protection of reliance interest on the theory of promissory estoppel (loss of
bargain remedy is no means certain).
Litigants are not free to contractually govern the issue of breach and its consequence
(that=s for a court), so if you put stipulated remedies provision, the court will scrutinize it
and may categorize as a penalty clause (void for public policy) and small chance as
accepted as valid liquidated damages clause.
a.
What will enhance chance the clause will survive:
i.
Damages inadequate
ii.
At formation stage of bargain, when parties are exchanging promises, they
must have anticipated breach, have foreseen that damages remedy at law
will not likely function (due, perhaps b/c can=t be reckoned to $ amount.),
So acting on mutual recognition that damages remedy at law would not
function, adopted a stipulated remedy seeking to remedy loss sustained by
aggrieved party.
(1)
What is not permitted is to build into K a deterrent against breach.
It must be remedial, not deterrent in nature. (Must only make you
whole, not penalty clause, contrary to public policy).

52