2017

CONTRACTS

1. DEFINITION
A promise or set of promises for the breach of which the law gives a remedy, or the
performance of which the law in some way recognizes as a duty. Restatement 2d §1.
K=voluntary.
The enforcement of obligations/promises voluntarily assumed by private agreement.
A. Sources of K Law
Primary source is the judicial branch (state judges); Secondary is the state legislature.
i. Statutory law: highest and binding
ii. Case law: binding in jx and persuasive when out
1. Stare decisis: adherence to past decisions (precedent)
2. Sub judice: under adjudication
iii. Uniform Commercial Code (UCC): Binding
1. Adopted by all legislatures; this is the uniform law.
2. Only applies to sale of goods (things that are moveable at the time of
identification to the K for sale other than $)
3. §1-103 Purpose:
a. to simplify, clarify, and modernize the law governing commercial
transactions;
b. to permit the continued expansion of commercial practices through
custom, usage, and agreement of the parties; and
c. to make uniform the law among various jxs.
iv. Restatement: persuasive to courts NOT bindings; secondary authority w/o force
of law
1. When a judge adopts the restatement it becomes the common law.
v. International Commercial Law: CISG acts similar to UCC (only applies to
international Ks)

2. FORMATION
§17 Formation of a K requires a bargain in which there is a manifestation of mutual
assent to the exchange and a consideration.
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A. Two Elements
i. Mutual Assent: meeting of the minds
OBJECTIVE TEST: looks at conduct from a reasonable person perspective
ii. Consideration: exchange of two things
Most frequently a PROMISE (assurance to do or refrain from doing something)
B. Two types of K
i. Bilateral: mutual agreement to a bargained for exchange of promises
ii. Unilateral: a promise of performance between 2 people
C. Remedies for Breach of K
i. What you need to show the court by a preponderance of the evidence in order to
win your lawsuit:
1. Contract
2. Breach
a. Statute of limitations runs from day K is breached.
3. Causation
4. es
ii. Remedies
1. Expectation interest: when breach causes party to be worse off than if the
promise was performed.
a. Purpose: to place promisee in position as if the promise had been
performed.
b. Non-breacher deserves the benefit of the bargain so take [what worth-
what paid=for recovery] or [expensive second offer-cheaper initial
offer=net positive recovery position]
c. Normal remedy = the net plus
d. Best option*
2. Reliance Damages aka out of pocket measure: When worse off than if
never made promise/K
a. Purpose: to put back in original position
b. At least get the amount you were out. Remedy the harm suffered > not
any better off.
c. Measure by reliance interest.
d. 2 nd best option but if get expectation these are built in
3. Restitution Interest: promisee gets benefit from promisor but then
promiser breaches.
a. Purpose: protecting the restitution interest; about fairness. (not fair
for him to keep my $ if he breaches)
b. Recover the reasonable value of the benefit conferred.

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c. Get back what put in, like when forming the K.

d. Worst of 3 options.
4. Specific Performance: have the actual promise carried out
a. Is a rare, unique alternative to expectation damages.
b. Ex: promise to paint a house so you have to paint it.

3. MUTUAL ASSENT
A. (Definition) §22 Mode of Assent: Offer and Acceptance
The manifestation of mutual assent to an exchange ordinarily takes form of an offer or
proposal by one party by one party followed by an acceptance by the other party or
parties.
i. Objectively manifest: meeting of the minds
ii. Reasonable person as to characteristics of those people in the K
B. Bilateral K
Mutual agreement to a bargained for exchange of promises. Even if the promise is to do
something in the future, the K is bilaterally formed immediately when promises are exchanged.
i. Elements of Formation: Offer and Acceptance
ii. Offer: §24 The manifestation of willingness to enter into a bargain, so made as to
justify another person in understanding that his assent to that bargain is invited
and will conclude it.
iii. Acceptance: §50(1) of an offer is a manifestation of assent to the terms thereof
made by the offeree in a manner invited or required by the offer.
1. §60 Manner of acceptance: Offerer as the master of the K prescribes place,
time, or manner. If this is included in the offer another method of
acceptance is still necessary.
iv. The manifestation of MA to an exchange ordinarily takes the form of an offer or
proposal by 1 party followed by an acceptance by the other parties or parties.
v. A manifestation of MA may be made even though neither offer nor acceptance
can be identified and even though the moment of formation cannot be
determined.
C. Offer in Bilateral K
W/o offer there can be no acceptance or mutual assent so that means no K.
How long when an offer stay open? When do we start time?
The offeror controls. Law does not consider fractions of a day so usually won’t count the
first day and if a merchant most courts will say the end of a biz day.
Must communicate in the offer when it ends.

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i. NOT an offer:
Invitations to deal/preliminary negotiations: statement looking toward or indicating
that only wants to begin a bargain.
a. Prediction of future/statement of future intention
b. Estimate (bc not binding)
c. Inquiry/invitation to make an O (just prelim negotiations)
d. Advertisements: Solicitation of an offer is not an offer ) (Lonergan)
i. (not usually an O but an exception is when there is public
policy matter at stake/play; ex: Izadi case)
e. Catalogs
f. Electronic offers
g. Anything w/ reservation for final approval (“need to check with
manager…”)
h. Anything preliminary/non-committal
ii. Factors to determine if objective RP/an offer:
1. Is it the 1 st communication?
2. How promissory is the language used? (“I will,” “I promise,” “This is an
offer…”)
3. Vague or detailed?
4. Others involved? Narrowed discussion?
5. Real or personal property? Real may need more certainty.
6. Relationship b/t parties
7. Circumstances surrounding? Emergency?
8. Prior practices of the parties
9. How many people is the communication addressed to?
iii. Ways to terminate an offer: §36
Whichever happens 1st terminates
a. Rejection or counter-offer by the offeree, or
b. Lapse of time, or
c. Revocation by the offeror, or
d. Death or incapacity of the offeror or offeree.
i. §38 Rejection: An offeree’s power of acceptance is terminated
by his rejection of the offer, unless the offeror has manifested
a contrary intention.
(2) A manifestation of intention not to accept an offer is a rejection
unless the offeree manifests an intention to take it under further
advisement.
Must be communicated.

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ii. §39 Counteroffer: A counteroffer is an offer made by an

offeree to his offeror relating to the same matter as the
original offer and proposing a substituted bargain differing
from that proposed by the original offer.
(2) An offeree’s power of acceptance is terminated by his making of
a counteroffer, unless the offeror has manifested a contrary
intention or unless the counteroffer manifests a contrary intention
of the offeree.
Anything that changes the original offer means the power to
accept terminated
Your acceptance must mirror the offer.
iii. §41 Time: at the end of a reasonable time, even if you don’t
specify a time it will still end and be a question of fact
reasonable value could depend on time and reasonableness could
depend on the course of dealing beforehand, etc.
Look at nature of what is sold to determine the reasonableness.
iv. §42 Revocation by the offeror: if turn a mini promise (and
give $ back to them to make it an “option”) into keeping it
open then it is not revocable
revocation must be communicated
An offeror’s power of acceptance is terminated when
the offeree receives from the offeror a manifestation of
an intention not to enter into the proposed k.
General rule: offers are freely revocable. The offeror
is the master and can take it back whenever,
v. §68 Receipt of Revocation: written revocation received when
comes into possession or into someone’s possession that you
have authorized for you (face-to-face, electronic, mail)
vi. §43 Indirect Communication of Revocation
An offeree’s power of acceptance is terminated when the offeror takes
definite action inconsistent with an intention to enter into the
proposed contract and the offeree acquires reliable information to that
effect.
vii. Death of Incapacity: Common law rule…
D. Acceptance in Bilateral Ks
i. Varies a little if it is bilateral or unilateral K
ii. §58 Must comply with terms of offer: An acceptance must comply with the
requirements of the offer as to the promise to be made or the performance to be
rendered.

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iii. §59 Counteroffer: A reply to an offer which purports to accept it but is conditional
on the offeror’s assent to terms additional to or different from those offered is not
an acceptance, it is a counteroffer.
iv. §60 Manner: place, time, manner specified must be met but if not specified than
any way invited or reasonable is ok.
v. §63 Time when acceptance takes place: MAILBOX RULE
Unless the offer provides otherwise,
(a) an acceptance made in a manner and by a medium invited by an offer is operative
and completes the manifestation of mutual assent as soon as put out of the
offeree’s possession, without regard to whether it ever reaches the offeror; but
(b) an acceptance under an option contract is not operative until received by the
offeror.
- Option Contract §25: An option K is a promise which meets the requirements
for the formation of a K and limits the promisor’s power to revoke an offer.
- Also requires Mutual assent and Consideration.
- At Common law a Seal constitutes for consideration.
- As seen in Normile: Generally recognized as a K by which the owner agrees
to give another the exclusive right to buy property at a fixed price w/in a
specified time.
vi. §66 More of the mailbox rule:
must be properly addressed; if lost in transmission you still have a K; if don’t take
precautions for safe transmission is not operative when dispatched > this becomes
a credibility/party issue > whoever is more convincing
only applies to reasonable mediums: telephone, mail, fax has been debatable and
electronic usually has a statute on point for rules.
vii. Does the mailbox rule apply to electronic communications? UETA
UETA §15 Time and Place of Sending and Receipt
a. Doesn’t know- varies by state.
b. Issues: could be lost, duplicated, hacked

4. UNILATERAL K:
Not mentioned in restatement or UCC; the bulk of Ks are bilateral.
A. Between 2 people it is a promise of a performance.
B. Completing the act is the manifestation of Mutual Assent and Consideration.
C. K not completed until promise is completed/carried out.
D. If the offeror hasn’t made clear the performance is the only way to accept the K then
it turns into bilateral. For example, as soon as you start the act then a promise is
implied on my part to do the act and immediately start a bilateral K. Can still do a

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unilateral K IF you make it clear. (ex: rewards: I need the recovery of my wallet and
return it and you get a reward. Prizes, lotteries, hole in one contest, brokers
commissions, sports bonuses, etc.)
E. Problem in a classic unilateral K is if the offeror revokes their offer before the
offeree completes their performance bc acceptance does not occur until the
performance is 100% complete. No K remedy under unilateral law.
F. Also see UCC notes above. It was discussed under this section.*
G. §32 is the closest definition: Invitation of Promise or Performance
i. Manifestation of assent that are in themselves sufficient to conclude a K will not be
prevented from so operating by the fact that the parties also manifest an intention
to prepare and adopt a written memorial thereof; but the circumstances may show
that the agreements are preliminary negotiations.
ii. If can change into a bilateral K then court will.
H. §45 Option K Created by Part Performance or Tender (Modern approach)
i. Where an offer invites an offeree to accept by rendering a performance and does
not invite a promissory acceptance, an option K is created when the offeree tenders
or begins the invited performance or tenders a beginning of it.
ii. The offeror’s duty of performance under any option K so created is conditional on
completion or tender of the invited performance in accordance with the terms of
the offer.
iii. Tender is a readiness to perform and notice to the other party you are ready.
iv. A compromised approach.
v. Does not mean the K gets formed at the beginning, it gets formed only when
100% complete. This ONLY means that the offeree if not stuck until he is
finished – they can choose not to finish which means no cause of action for
breach.
vi. Give offeree reasonable time to complete the act. Still not K formed until act is
done.

5. AGREEMENT TO AGREE: (POSTPONED BARGAINING)

Reasons a K could be incomplete – as to material terms:
a. Different understanding about unaddressed terms
b. Costs of continued bargaining
c. One party’s assumption that it will prevail under implied terms
d. Explicit designation of certain matters for postponed decision making
3 different approaches:
B. COMMON LAW: If any material term is left out, there is no k.

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The courts at CL reasoned that:

(1) if the parties left out a material term, the documents were really just preliminary
and so mutual assent to the K was missing; (2) the courts could not enforce a remedy
when the parties haven’t agreed on all the terms of the K
i. Material terms are different for every K, but subject matter always must be
sufficiently definite and certain.
a. Won’t work IF:
i. Terms too mushy
ii. Terms left out
iii. Parties made agreement to agree on material term at later
time
b. Material Terms = reasonably certain
i. Subject matter
ii. Payment terms
iii. Quantity
iv. Duration of the contract
v. Quality
vi. What work is to be done?
2. Must be reasonable certain and that depends on circumstances
3. Are reasonably certain if they provide basis for determining a breach and
giving appropriate remedy
4. Open terms may indicate no intention to contract
ii. Must be sufficiently certain in order for the court to grant a remedy. If not
sufficiently certain, then K is VOID and has NO LEGEAL EFFECT.
1. Less definite supports $ damages but has to be much more definite and
certain in order to support a specific performance remedy.
iii. Ramification of mutual assent; if there is still something that needs to be
hammered out, still in prelim negotiations, no intent to contract yet
iv. Note that conduct might imply there is a K
v. Indefiniteness may be cured by acceptance.
vi. Ie: If i have 100 blue shirts and 100 white shirts for sale and you say that you
will buy 100 blue shirts
vii. Not likely to get specific performance because that requires too much certainty;
may get something if only an immaterial term not present, depending on the
prior practice/relationship of the parties

C. MODERN: If can prove intent, courts will be willing to enact gap fillers.
i. If it is reasonable, the court will try to save the K.

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§ 33 Certainty
1) Even though manifestation of intention is intended o be understood as an offer, it
cannot be accepted so as to form a K unless the terms of the K are reasonably
certain.
2) The terms of a k are reasonably certain if they provide a basis for determining the
existence of a breach and for giving an appropriate remedy.
3) The fact that one or more terms of a proposed bargain are left open or uncertain
may show that a manifestation of intention is not intended to be understood as an
offer or as an acceptance.
ii. §2-204 UCC Formation in General (Sales of goods)
(3) Even though one or more terms are left open a K for sale does not fail for
indefiniteness if the parties have intended to make a K and there is a reasonably certain
basis for giving an appropriate remedy.
iii. Gap fillers for selling goods:
§ 2-307 Delivery in Single Lot or Several Lots
2-308 where deliver, 2-309 time for shipment or delivery
(May try to plug in): § 2-305 Open Price Term
1) Parties if they so intend can conclude a K for sale even tho the price is not settled. In
such case the price is a reasonable price at the time for delivery if…
a. Nothing is said as to price; or
b. The price is left to be agreed by the parties and they fail to agree; or
c. The price is to be fixed in terms of some agreed market or other standard as
set or recorded by a third person or agency and it is not so set or recorded.
2) A price is to be fixed by the seller or by the buyer means a price for him to fix in
good faith.
3) When a price left to be fixed otherwise than by agreement of the parties fails to be
fixed through fault of one party the other may at his option treat the K as cancelled
or himself fix at a reasonable price..
4) Where, however, the parties intend not to be bound unless the price be fixed or
agreed there is no K. In such a case the buyer must return any goods already
received or if unable so to do must pay their reasonable value at the time of delivery
and the seller must return any portion of the price paid on account.
1. Point: UCC is much more tolerant for open terms for sales of goods and
will in certain circumstances plug such in.
iv. But is it intent to contract now or later???
Question of fact or intent §27

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Extent to which agreement has been reached on all the terms to be included,
Whether the k is of a type usually put in writing,
Whether it needs a formal writing for its full expression,
Whether it has too many or few details,
Whether the amount involved is large or small,
Whether it is a common unusual k,
Whether a standard form of k is widely used in similar transactions, and
Whether a standard form of k is widely used in similar transactions,
Any whether either party takes any action in preparation for the
performance during the negotiation.
v. So if there is an agreement on ALMOST everything, but there was an agreement
to agree LATER on a material term, there are 2 big issues:
1. Is it definite and certain enough to be a K?
2. What did the parties intend (now or later)?
3. Using Quake Factors:
a. Is this type of K usually in writing?
b. Does this K need formality?
c. Are there many/few details?
d. Large or small $ amount?
e. A common or unusual K?
f. Have parties carried out K?
g. Where in negotiation process did we abandon?
h. Why did the parties abandon negotiation process?
i. What assurances were previously given?
D. THIRD APPROACH: Good faith bargaining.
i. Recognizes agreement to agree. Essentially, just a “mini K” so not binding as the
WHOLE K just MINI BINDING. (the one part that the parties agree to negotiate in
good faith)
ii. This is RARE and if court ever recognizes this is the minority/radical approach.
1. Only works when parties have agreed to agree on “term 5”
a. Three different possibilities does not constitute as “term 5,” a mushy
term
i. Parties negotiate in good faith and come up with “term 5” on
their own
ii. Parties negotiate in good faith and fail to agree on “term 5”
iii. Parties negotiate in bad faith or not at all
Problem 2-1 pg. 95:
I: Can we suspend or simply break off K w/ no liability? Do we have a binding K?

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Parties in dispute: Super Comics(we are representing)-D. Hunter (president)-

VP/Attorney G(this is us)
V.
JayRan – J.Randolph (prez)-VP-AG
We met to agree on essential terms and then I sent over draft. Here, we have Mutual
Assent and Consideration and could possibly say yes this is a K, but we can argue that
§26-furhter manifestation on their part is needed and same for us – our president needs
to sign off.
So… is it a K now or later? This is an issue of intent.
Run through Quake factor to argue not fully hammered out (they would probably say is
though)
Usually needs writing  indicates K later. Yes, formality. Many details  K later.
Common K  K now. Is it standard form? Yes, they have used before  K now. Taken
action in preparation.
 These are all a pretty good argument for a K later.
BUT, bc we sent the message out  looks like a standing K (it was our draft I messaged
to them). So since mailbox rule only applies to acceptances  if already sent it back this
would be a more difficult argument.
To revoke, we must communicate it: (something along the lines of…) “We know it is
under consideration, we just wanted to let you know there are some terms we think
needs further modification and we believe we still need to give this a look over. We
know neither of us are bound yet, but we wanted to let you know.”
 We would then advise Hunter of all of this but let her know if she does go forward this
could affect her business reputation since it could go either way legally. Ethically, if we don’t
want to revoke we could just try to modify (take out lunch boxes) to get the best of both
deals and benefit everyone.

6. STATUTE OF LIMITATIONS FOR K

The legal equivalent to “ya snooze, ya lose”
A. If you sit on rights, you lose them.
B. Protects court bc we don’t want stale claims.
C. Protects D bc they can move on w/ their life.
D. LACHES: Is the SOL equivalent for equity court.
E. SOL time starts to run from time of breach.
i. [[AR Limits:]]
1. Written K5 Years
2. Oral K3 Years

7. CONSIDERATION
Not in restatement so there are different definitions.

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Good definition from Hamer v. Sidney: [Valuable consideration may consist either in
some right, interest, profit, or benefit accruing to one of the parties or some
forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the
other party.]
A. Motive, reason, what you are getting back.
B. That for which you give the promise.
C. What makes it legally binding.
D. What is NOT consideration:
i. Past consideration
ii. Moral obligation isn’t a legal consideration
iii. Appreciation/gratitude, etc.
iv. Nominal/sham/token
v. Purely donative (circumstances may change bc made emotionally)
E. 2 Tests for consideration:
i. Benefit/Detriment test: Traditional C/L
[You should 1st id what promise you are trying to enforce.]
1. This is about a LEGAL benefit or detriment, not just factual
a. There is either a BENEFIT PROMISOR or DETRIMENT PROMISEE.
There has to be 1 or other, NOT both.
b. Ask: Is whatever coming back from promise a benefit or a detriment?
i. A traditional bilateral K will automatically meet both tests.
ii. The K for consideration can go to 3 rd party.
iii. EX: I will give you watch at the end of class. not binding
consideration. If you drive me home, I’ll give you watch 
passes bc is a benefit. If you donate to X, I’ll give you XX
not benefit to be but valid bc a detriment to you
ii. Bargained-For test: Modern
[To prove, all you have to convince is that 2 things got traded for each other.]
1. Whether two things were traded or bargained-for but this test doesn’t
really have to bargain or negotiate  it is met as long as 2 things are
exchanged
a. § 71 Requirement of & Types of Exchange (clearly adopts bargain-for)
1. (forbearance is giving up a legal right)
2. (creation/modification/destruction of a legal relation applies
to K)
b. § 79 Adequacy of Consideration; Mutuality of Obligation (obviously
rejects traditional approach)

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iii. Hypo: A offers to pay B for computer

A  B (A is promisor and B is promisee)

Benefit A BARGAIN Detriment B
B OR? D Test: Is there consideration?
This meets the tradition and modern approach.
1. *AR applies both tests. *On test apply both.
2. In most cases, it passes both tests.
iv. When do these tests not come out the same?
1. Past consideration is no consideration. (Plowman case*)
a. In regards to pension, it works as long as promise was in advance.
v. Conditional gifts: Is it consideration or conditional?
1. If just a string attached to a gift, promisor can back out w/ no breach.
2. Issue: they are often worded life offers and it is difficult to distinguish
between the two.
3. For conditional gifts, you aren’t really trading two things. You have to
have a bargain even if it is an act, the act has to be sort of bargain.
a. Ex: If you come to my bday part, I’ll give you some land.
i. Not a K. There is a string attached so this is just a condition.
ii. Ex: book’s homeless man/tramp example
4. Why does the law ever require formalities? They serve a…
a. Evidentiary function.
b. Cautionary function  safeguard
c. Channeling function  separate from what is and is not legally
enforceable
i. But once a gift is given, you can’t take it back.
ii. Today, promissory notes aren’t good enough either: a
promise for the future.
5. General rule: (Doughtery)
a. Fake recital consideration won’t work.
b. Token consideration won’t work.
c. Shams, token, pretext, charade, consideration that is nominal in name
only won’t work.
i. Just bc I call it consideration doesn’t make it work. Ie. loce,
affection not consideration.
d. A will would work as consideration. But problem w/ will is that it is
revocable.

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i. But creditors come first so if person dies and they have no

money it must satisfies creditors first so recipient may
actually not get anything.
e. Trust would work best.
i. Jenna has notes.*
6. Agency is a consensual relationship in which one person, the agent, agrees
to act on behalf of, and subject to the control of, another person, the
principal.
a. Is a fiduciary relationship so law imposes standards on that
relationship
b. Confer actual authority on you – manifestation from principal directly
to the agent
c. How can the principal create power to the agent?
i. Expressed authority: in words – oral or written
ii. Implied authority: conduct and surrounding circumstances
1. Has to come from me but judged by a reasonable person
2. Most power is implied
iii. Another way is to make it appear to the third power that the
agent has power.
1. Apparent authority: also judged by what a reasonable person
may think; manifestations through the third power
a. Some courts may view apparent authority through an estoppel
iv. Estoppel if I do something that misleads the third person and
they change their mind according to detriment that person is
precluded from saying they didn’t mean it to the third party”
Requires a detrimental change of position-apparent
authority does not.
1. “estopped to deny his power” requires a detrimental chance in
position – a reliance (additional element but mostly relies on
manifestations like others)
2. principal is estopped from denying agency relationship bc
conduct misled X. X acted in reasonable good-faith reliance on
existence of an agency relationship and X changes his position to
his detriment.
v. Ratification authority-retroactive it relates back to the
original contract and gives the agent authority from the
beginning. In order to ratify you have to know all the
material facts and has to be done on purpose.
vi. Illusory Promise: simply sounds like a promise and phrased
in promissory language but it really has no content.

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1. Ex: promise to pay 10K, if you don’t sue, until I want my money.
“I’ll pay you for that, but I can change my mind”
2. o Normally comes up with ‘optional’ performances—it’s
terminable by one of the parties.“
3. o Main thing here is that nobody is bound
4. o Not weighing or valuing consideration, just saying there’s no
commitment
5. o VOID
vii. Mutuality of Obligation: both parties must be bound or
neither is bound.
1. Unnecessary for this to be separate from consideration. A court
may say “void for lack of mutuality of obligation” but this isn’t
right – it should be “void for lack of mutuality of consideration”
Who cares? If you use obligation language it makes the court
think something additional is required.
2. Cohesive with consideration.
3. Most courts want to get rid of this but Arkansas still uses it.
a. Tyson case ex: competent parties: not an element – a defense to
void a K. subject matter: definite and certain? Not really an
element. Mutual obligations: just another way of saying you
need mutual consideration for a K.

8. UNIFORM COMMERCIAL CODE (UCC)

A. A statute by legislature. We are primarily concerned with Article 2.
B. How UCC fits in with our common law § 1-103
i. If UCC doesn’t address it, we use CL to fill in the gaps.
C. Scope: the sale of goods
D. What are goods? § 2-105
1. “Goods” means all things (including specially manufactured goods) which
are moveable at the time of identification to the K for sale other than the
money in which the price is to be paid, investment securities, and things in
action. “Goods” also includes the unborn young of animals and growing
crops and other identified things attached to realty as described in the
section on goods to be severed from realty.
2. Goods must be both existing and identified before any interest in them can
pass. Goods which are not both existing and identified are “future” goods.
A purported present sale of future goods or of any interest therein
operates as a K to sell.

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ii. Must be moveable: can’t be fixed realty

iii. NOT limited to transactions b/t merchants
E. §2-204: Formation  wants to encourage easy k-ing
1. A K for sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the
existence of such a k.
2. An agreement sufficient to constitute a k for sale may be found even
though the moment of its making is undetermined.
3. Even though one or more terms are left open a k for sale does not fail for
indefiniteness if the parties have intended to make a k and there is a
reasonably certain basis for giving an appropriate remedy.
ii. easy way to get mutual assent (conduct)
iii. even if we can’t id precise offer  all we need is mutual assent
iv. UCC can have open terms  unlike CL, doesn’t fail for indefiniteness
F. So do we apply UCC or CL for mixed sales…
i. Ex: fix car and sell carburetor
ii. Ex: sell biz and all tangible goods w/ it (packing rights, etc.)
G. Predominant factor test: extent the price allocated to each ….
i. Look for primary purpose  what does the bulk of the k address?
ii. AR applies  says UCC inapplicable if principle object is not for the sale of goods

9. CISG: CONVENTION ON INTERNATIONAL SALE OF GOODS

A. Both countries have to be parties
B. Think of as international equivalent to UCC

C. Difference: doesn’t apply to consumer K  just international merchant

D. What is a merchant? § 2-104
1. “Merchant” means a person who deals in goods of the kind or otherwise
by his occupation holds himself out as having knowledge or skill peculiar
to the practices or goods involved in the transaction or to whom such
knowledge or skill may be attributed by his employment of an agent or
broker or other intermediary who by his occupation holds himself out as
having such knowledge or skill.
2. “Financing agency” definition…
3. “Between merchants” means in any transaction with respect to which
both parties are chargeable with the knowledge or skill of merchants.
ii. Deals in goods of the kind

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iii. Otherwise by occupation has knowledge/skill and familiar w/ what involved in

transaction
iv. Basically, anyone who is a professional in biz.
v. Anyone acting in biz capacity. In business = a merchant.

BATTLE OF THE FORMS

Remember Article 2 to modernize CL. 1 way changed CL  can have open terms.
Must mirror exact terms of offer.

10. UCC TRYING TO FIX 2 ISSUES @ C/L:

A. Is the LAST SHOT RULE (last person to get the forms in prevails and trumps other
one who gets the last shot at the terms) fair?
B. If forms don’t match we don’t have K after counter-o because terms expire in certain
time and A must show manifestation after the counter-O from B.
i. At C/L, if forms don’t match and the offeree doesn’t do anything to assent to
agree, there is NO CONTRACT

11. UCC OVERALL POLICY:

A. How Article 2 changes C/L rules
i. Whether merchants or not we should have a deal whether there are minor
changes or not.
1. Doesn’t have to mirror like C/L.
ii. If both parties are merchants, they should understand the process/may be new
details. So, all additional stuff/details that are in the form becomes part of deal
and is binding unless it is a big significant change or we really really object.
1. If not merchants, new stuff is not part of the deal but are treated as mere
proposals.
B. Summary:
i. Even if acceptance doesn’t mirror the offer, there is a K at UCC.
ii. If merchant  new stuff part of deal
iii. Not merchants  NOT part of the deal

12. § 2-207 ADDITIONAL TERMS IN ACCEPTANCE OR

CONFIRMATION
Approaches:
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A. Art 2 doesn’t apply

1. All it is a proposal
2. Different terms fall out
3. Don’t like- there 1 st wins
B. = Additional Terms

1. Not merchants  not part of deal  No K

2. If merchants  …
C. Knockout Rule (majority of courts take this approach)
1. Both get terms knocked out, get gap fillers
2. Criticisms of knockout rule: Relies on comment 6, which is really more
applicable to a ‘written confirmation’ instead of the change of forms fact -
pattern we’ve been talking about. Second, you are plugging in a term that
neither party intended

ii. (1) A definite and seasonable expression of acceptance (or a written

confirmation) which is sent within a reasonable time operates as an acceptance
even though in states terms additional to or different from those offered or
agreed upon, unless acceptance is expressly made conditional on assent to the
additional or different terms.
iii. (2) The additional terms are to be construed as proposals for addition to the k.
Between merchants such terms become part of the K unless:
1. (a) the offer expressly limits acceptance to the terms of the offer;
2. (b) they materially alter it; or
3. (c) notification of objection to them has already been given or is given
within a reasonable time after notice of them is received.
iv. (3) Conduct by both parties which recognizes the existence of a K is sufficient to
establish a K for sale although the writings of the parties do not otherwise
establish a K. In such case the terms of the particular K consist of those terms on
which the writings of the parties agree, together with any supplementary terms
incorporated under any other provisions of this Act.
1. Materially alter comment pg. 32
a.
2. Different terms comment #3 pg. 32
a. If they are such as to materially alter the original bargain, they will
not be included unless expressly agreed to by the other party.
b. If, however, they are terms which would not so change the bargain
they will be incorporated unless notice of objection to them has
already been given or is given within a reasonable time.

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v. Electronic purchase orders have very small written terms; be very careful with
those
2/9/17 *missed  Jules’s notes below*

13. BROWN (P SELLER) V. HERCULES (D BUYER)

A. Background:

They are both corporations  no problems with authority of agents.

Worker at Hercules got injured—he sues Brown; Brown seeks indemnity from Hercules
Indemnify—Hercules would be liable to Brown if any suit occurs
Original suit was settled; so then Brown sues Hercules
For this to work, P8 would have to be part of the K
B. Fact Pattern
October: Hercules contracts Brown to get a quoteà11/7 Brown sends out a proposal;
including the indemnification clauseà1/7 they argued about the 20% deposit (which
was never sent lol);
Brown received purchase order on the 19àsent to shop on 20àinvoice for 20% sent to
Herc on the 21
Order of acknowledgment on 2/5 w/ indemnify clauseà2/9 Herc sends a letter
responding to order acknowledgement (reverse trim)
Brown delivers the trim pressàHerc pays the trim press in full and then lawsuit ensues
Contract shit: breach of contract for P8 (indemnify clause)
Brown wins below; trying to recover against Hercules
Difference between the forms; is it C/L or sale of goods?
UCC—sale of goods
i. Mutual Assent
ii. Offer  C/L definition
1. Is quote an offer? NO! It is an invitation for an offer. It says “no K w/o
order acknowledgement” cover letter, additional stuff..
2. Even if it was an O, it has expired (30 day limit)
3. Phone call about 20%? No. Oral purchase order? No. It says, “will issue
revision when formal purchase order received”
4. Purchase order? YES  OFFER: assent is invited and will be concluded.

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5. Then invoice doesn’t affect anything. What about acknowledgment order?

Problem here is the indemnify clause—additional or different term. Can
you have an acceptance here under UCC? Yes! §2-207(1).
C. Their argument is that there’s nothing in Brown’s Acknowledgment acceptance was
NOT enough to turn it into a counter offer (has to be clear and explicit) and they
didn’t explicitly reject the terms or find any unwillingness to continue. So, there’s a
contract.

D. THEREFORE A K.
E. So now, what about the additional term? Well they are both merchants—any
professional in business (super broad)
i. o §2-207(2): becomes part of the deal UNLESS:
1) The offer was expressly limits acceptance to terms
“acceptance limited to the terms stated herein” BINGO; should be done
2) new terms materially alter terms of offer
YEP—cuz then Herc would be liable! (p174)
3) notification of objection to new terms has been given in advance or within a
reasonable time
“any additional or different terms are rejected unless expressly agreed to in
writing”
So here, the terms fall out in ALL 3 ways… P8 = nope!

ii. But wait—didn’t Herc. agree to it when they accepted the purchase?
1. NO! It requires some kind of express assent to the additional terms. They
said “all other specs are correct”-but the court saw this and unambiguous
and said it only referred to the protocol for the machine’s manufacture.
iii. Bottom line: P8 was NOT part of K. Herc. never expressly agreed. No
indemnification. Brown loses.

14. ELECTRONIC K
A. How UCC is adjusting C/L to apply electronic K
B. Can there be an electronic K?
i. Yes. Courts will apply the C/L objective test for offer and acceptance.
ii. Problems:
1. Fear of fraud (can’t tell if there’s tampering), big typos, document being
lost or delayed in transmission (spam, battery dies, etc is it serious or a
joke? Is further manifestation necessary? What about websites? Not
offer—a solicitation for an offer

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iii. Modern courts do recognize electronic Mutual Assent; but the states were ALL
over the place in deciding on what to do. So we got a federal statute called the E-
Sign Act (90s); but then UETA—Uniform Electronic Transactions Act; if a state
adopted this, then it outlawed the federal statute. Ark adopted this (25-32-101)
1. §7 is the <3 of the act—if ya wanna do electronic, do it (p263). But it’s not
mandatory—§5(b) says both parties have to agree; but it can be
determined from the context and surrounding circumstances, including
conduct (ex: giving a business card w/ email, saying hey send me an
email) (c) says you aren’t bound forever though just cuz you do it once
iv. So should the mailbox rule apply? We don’t know!
v. But how do you prove electronic signatures are applicable to the persons if
there’s a breach/conflict?
1. An anonymous word or code that only they knew (lol); a witness;
fingerprints; whatever!
vi. What’s the issue? What about additional terms? Courts generally will apply the
same rules electronically that they apply to outside electronic rules.
vii. So if it’s land (not a good); C/L rule—acceptance has to mirror offer. If it’s a
good—UCC 2-207 applies (see if merchants and so on)
viii. What about the terms in the box on a website? Big issue
1. Even if you order it by mail, terms will be “in the box”
ix. Terms on the website
1. Clickwrap term: you have to click on an agreement to those terms
a. (like the “I agree” box)—this is sufficient to become part of the K
b. Can be clearer if you make buyer scroll through them all, or if you
make buyer initial. Obvi these will benefit seller
c. Have to agree somehow by manifesting intention to like clicking I
agree.
2. If they don’t make you click through them; it’s a “browsewrap term”—
generally not part of the contract
a. courts don’t look at favorably (may be called legal notices… other) bc
don’t
C. Mutual Assent under Electronic K
i. Terms on website  internet, Terms in box  can be over internet, in person,
over phone. In box can occur electronically but are not only electronically.
ii. Terms in the box  often called shrinkwrap terms
1. These are terms that are literally in the box when you purchase a good.
Terms accompany the physical goods.
2. Some courts are calling these layering terms/K and also “rolling k”
3. Some terms agreed to earlier and some when opening the box.
D. Terms in the Box (shrinkwrap)
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i. Minority: Traditional Approach [ Klocek case p. 195]

a. Website usually a solicitation of an offer.
2. Additional or different terms do not become part of the deal.
3. This approach favors the buyer.
4. The offer occurs when the buyer makes the purchase. The seller accepts
the offer at the sale of the good, ie. sell it in store, ship it, promise to ship.
5. Use Battle of the forms analysis:
a. Non-merchants or one merchant: Additional terms are seen as mere
proposals to K. DON’T BECOME PART OF DEAL.
i. Buyer usually wins.
b. Between merchants: Additional terms become part of the deal unless:
1) O is expressly limited, 2) material alteration, or 3) objection.
ii. Majority Approach:[ ProCD case]
1. Favors the seller of the good.
2. Seller offers the good; Buyer accepts.
a. The terms become a part of the K when the buyer keeps the good after
a reasonable time.
3. There is an economic justification for this approach – it would not be
efficient if the seller had to read all the terms to the buyer before making
the sale.
a. DeFontes case notes
i. Legal theory of case violation of Deceptive Trade Practices
Act.
ii. D motion to compel for arbitration. Trial court denied this.
iii. Conflict of law issue here  state where the last act
necessary is the state where the law gets applied. In this
case, it is Texas law and the test under the state is the TX
UCC.
iv. Arbitration method of dispute resolution involving one or
more neutral third parties (arbitratorssome lawyers act as
such), who are usually agreed to by the disputing parties and
whose decision is binding (an award).
1. Is outside court proceedings  total separate dispute
proceeding
2. Designed to be faster and cheaper for litigants
3. Sets no precedent
4. Issue: sometimes seen as biased to co. (bc they are reoccurring
there)

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v. (arbitration clause: footnote on pg. 191) P want to avoid this

clause.
1. Pg. 193: argue unconscionable
2. Pg. 193: argue illusory*  TC doesn’t find illusory.
a. AR on the other hand does find illusory.
b. “unsettled principle: ‘although mutuality of obligation is
necessary to create a valid K, ‘equivalency of obligation is not’”
3. Ex:  we talked about the Tyson (v. Archer) case that we have
previously discussed in regards to breaking down arbitration
vi. 3 options in case: in box, invoice, and hyperlink
1. court said hyperlink was a “browsewrap term”
2. put the invoice option in their discussion of box terms bc they
were both apart of seller’s offer
3. At issue here: must be express that you can return goods w/in 30
days if issue w/ product or if you just don’t comply w/ terms.
vii. Court rejected the minority approach
a. OFFEREE seller
b. OFFEROR buyer
viii. Court adopted the majority approach
a. OFFEREE BUYER
b. OFFEROR SELLER
c. However, this creates the issue of determining whose product
it belongs to in the interim? (b/t the reasonable time period
mentioned is over)
i. For further elaboration, review case brief.

LEGAL THEORIES OTHER THAN

BREACH

15. PROMISSORY ESTOPPEL (LEGAL THEORY 2)

A. A way to make enforceable what would otherwise be an unenforceable promise,
when that promise has been relied on.
i. ELEMENTS
1. Notion of promise-enforcement based on reliance
2. Promise

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3. Promisor (A) could foresee that B would rely on it

4. [Reasonable Reliance] B reasonably relies on it
5. [Justice] Fair and just to enforce it
6. [Damage] B is damaged
ii. §90 Promise Reasonably Inducing Action or Forbearance  this is
Promissory Estoppel (courts also refer to as detrimental reliance)
(1) A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does
induce such action or forbearance is binding if injustice can be avoided only
by enforcement of the promise. The remedy granted for breach may be
limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under
Subsection (1) without proof that the promise induced action or forbearance
iii. AR case law says estopped from their promise/prevented
iv. Can imply a promise for PE from conduct (ie. Harvey case)
1. Their acquiescence, support, and encouragement of the construction of
her house on their land
a. When a claim of reliance stems from an intra-family transaction, it is
natural to assume that the promisee was justified in expecting the
promisor to perform his promise, bc of the familial relationship
between them.
v. Amount of reliance will be related to the remedy granted  even though the
restatement 2nd doesn’t state so
vi. Reasonableness of the reliance is built into requirements through justice and
fairness.
B. PE REMEDY
i. Measure detrimental reliance separately.
ii. Remedy can be entire promise  like specific performance; or can be limited as
justice requires.
iii. EX:
A  $10k(land)  B
B’s reliance$1k
Could give him land  specific performance. OR Could give him expectation
damages like in regular K. OR Could just do reliance damages  $1k.
C. Charitable Subscriptions: PE has been an action for charities
i. Promises to make/give gifts are not forcible under traditional K analysis.
ii. Much more flexible than K remedy look to what is most fair based on facts.
1. EX: Promise to donate money there is mutual assent but no
consideration.

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iii. Can you make it where a gift is enforceable under PE?

1. Courts might stretch (ie. if charity names a room after the donor)
2. Or might find two promises in exchange for each other to be consideration
3. If charity spends $, relies on commitments, then might be binding.
4. Not enforceable under K law bc they are not bargained-for
a. To remedy the consideration problem, charities will name a room or a
building after the donor, and some court will stretch it to say that
naming the room or building after the donor is the return
consideration
i. Or sometimes 2 donors promise each other that they will
each donate money to the charity (ie. I promise to give 10k
to JDP if she promises to give 10k to a charity)
ii. Mutual assent and consideration is included.
b. Can be contracted to flow to a 3 rd party
5. § 71 Requirements of exchange, types of exchange (pg. 135)
6. PE: charity must show detrimental reliance
a. Typically, charities aren’t going to spend the money before they have
it based on a just a promise.
7. Most states would not adopt §92 (bc these can only become law if a state
adopts it)
D. Commercial Settings: Now PE has reached over to commercial promises
i. If no consideration with K, courts try to enforce by PE
ii. If promise is only illusory, neither party is bound
iii. At-will employment: law wants to give each flexibility to walk away; employee
can’t recover in K law, may recover under PE if he relied to his detriment on a
promise made by employer or vice versa
iv. Promise to give a pension will probably count
v. Just have to change one’s position; can be giving up something that isn’t
necessarily a legal entitlement
E. Revocability?

C/L offers are freely revocable unless you can prove an exception.
4 Exceptions
1. Restatement §45 reasonable length of time in a unilateral K
2. Option K restricts power to revoke an O and requires consideration to
be enforceable. We are holding the offer open.
3. Promissory Estoppel
4. Statute
i. Restatement §45?
ii. Option K:
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1. Courts are more liberal for taking different considerations for an option
K. Smaller consideration acceptable. We don’t have as much concern or
worry for an option’s consideration as we do a K’s..
a. Arkansas says nominal consideration is not enough though.
b. §87 Option K
1. An offer is binding as an option K if it
(a) is in writing and signed by the offeror, recites a purported
consideration for the making of the offer, and proposes an
exchange on fair terms within a reasonable time; or
(b) is made irrevocable by the statute.
2. An offer which the offeror should reasonably expect to induce
action or forbearance of a substantial character on the part of the
offeree before acceptance and which does not induce such action
or forbearance is binding as an option K to the extent necessary
to avoid injustice.
2. Mailbox rule: should an option K apply the same rule as a regular K?
a. §63: Time When Acceptance Takes Effect (mailbox)
i. See earlier notes for full section.*
ii. “an acceptance under an option K is not operative until
received by the offeror.”
iii. If the offeree has an option, the K not formed until the
acceptance is received back by the offeror.
iii. So, what about Promissory Estoppel to keep the offer open?
1. If we used this then it wouldn’t be PE, it would be cause of action for
breach of K. Using PE to form mutual assent to keep the offer open.
a. Ex: promise to sell someone my car for 5k promise to keep it open
until 12/31/17. Both knows O revocable. The other person sells their
ring, widens garage  does a lot of stuff for reliance. Can I revoke?
General rule, yes. The difference here is that if the other person takes
steps to rely on the mini promise to hold it open then that pe rson
relies on it to their detriment; therefore, they have an argument for
PE.
i. For ex. above99/100 will not work law will look and law
will say w/ relationship, can’t say there was reasonable to
foresee forbearance…
b. It does usually work in bids by subcontractors.
Subcontractoroffer $50k General Contractoroffer $500k  Owner.
i. Rule: PE will work to keep the subcontractor’s bid open.
ii. Arkansas: we say that when the sub makes this offer we are
going to imply an offer to keep it open and they are stuck

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with the offer to keep it open for a reasonable time to get the
bid and the general contractor relied on that promise to his
detriment so if subcontractor won’t do the work for his offer
of $50k then it is a breach of K not a PE case.
1. What difference does it make if the cause of action it is?
2. Changes elements of proof, statute of limitations, the measure of
damages (breach usually expectation damages while PE is
whatever justice requires).
iv. Statute:
1. UCC firm offer rule §2-205 allows to a merchant to make a gift.
a. §2-205: Firm Offers
i. An offer by a merchant to buy or sell goods in a signed
writing which by its terms gives assurance that it will be
held open is not revocable, for lack of consideration, d uring
the time stated or if no time is stated for a reasonable time,
but in no event may such period of irrevocability exceed
three months; but any such term of assurance on a form
supplied by the offeree must be separately signed by the
offeror.
2. UCC supplements the C/L, but that doesn’t mean you can’t argue one of
the other 3 C/L ways.
a. First, has to be an offer. O isn’t defined by UCC so we follow C/L.
b. Second, offeror must be a merchant. Doesn’t matter about the offeree.
i. This is different from the battle of the forms, where this does
matter.

16. RESTITUTION (LEGAL THEORY 3)

A. “A person who is unjustly enriched at the expense of another is subject to liability in
restitution”
B. “Unjust enrichment”
C. A confers a benefit on B; and
D. In fairness and justice, B should have to pay/compensate A for the benefit
i. ELEMENTS
1. Benefit conferred
2. Justice requires payment

2/20/17 **missed—Julia’s notes below:

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E. Q of Fact; broad remedies

i. No promise, consideration, nothing
ii. Restitution will not apply to a pure gift or strangers
iii. Gratitude, affection, friendship, etc
iv. Helping or rendering aid to randos (good samaritan, volunteer, officious
intermedler)
v. But what if they expected payment? Look at profession.. Say they’re a doctor
that stops on the side of the road, they could have lost business for rendering
services
F. Recovery is not automatic! All circumstances of P and D = relevant
i. What’s the remedy here? The value of the benefit conferred
ii. “Unjust enrichment” –really just the principal and reason we allow recovery
G. Quantum Meruit—common counts; original pleadings (c/l)
i. “as much as he deserves; quantity he merits”
H. Quasi-contract; constructive contract; contract implied-in-law
I. Now into the “Restitution” stage
Credit Bureau (P) v. Pelo (D)
i. Hospital assigned it’s claim to credit bureau. County dipped out (but their theory
was bc of a statute)
Lets try K, PE, and R
K
1. Hospital rendered services, wants Pelo to pay for them
2. He did eventually sign to promise to pay for the services, but he claims he
did it under duress by the nurse. No MA. Lack of mental capacity too = no
MA
3. Consid: passes C/L (ben/det) but not bargain-for
4. Court punted it bc they went through implied = no express
PE
5. No promise by Pelo; donezo
R
6. We don’t let people just officiously shove benefits on people and demand
payment § But in certain situations, we make exceptions (mental
handicap)
7.
It’s a hospital, we don’t do this gratuitously! Lol. Not a charity . There was
a benefit conferred. Mental treatment. It IS fair to make him pay! Remedy:
pay the hospital bill (value of benefit conferred)
Note 3, 4, & 5
ii. K implied in fact
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iii. A true contract; implied from conduct and surrounding circumstances rather
than words. You get expectations here, elements of proof are different, stat of
lims applies here, in contrast to “K in law”
iv. K implied in law: Restitution; quantum meruit, etc
1. Not a “real” contract. We care very much!!! Procedural rules are very
different
v.
Restitution also applies to saving someone’s property. Restitution isn’t just
moral stuff, it’s an economic recognition that if the parties had the chance to
bargain this is probably what they would have done
Commerce (D) v. Equity Inc. (P—subcontractor)
K—no MA bc there was no K with COMMERCE!
PE—Same; no PROMISE with commerce; only World
R*
Facts: P subcontracted by World Properties (gen contractor); they did their work and
didn’t get paid. World went bankrupt so can’t recover from them

17. PROMISSORY RESTITUTION (LEGAL THEORY 4)

A. § 86 Promise for Benefit Received
1. A promise made in recognition of benefit previously received by the
promisor from the promisee is binding to the extent necessary to prevent
injustice.
2. A promise is not binding under Subsection (1)
(a) If the promisee conferred the benefit as a gift or for other reasons the
promisor has not been unjustly enriched; or
(b) To the extent that its value is disproportionate to the benefit.
a. A confers benefit on B;
b. B promises to pay for the benefit;
c. Fairness and justice call for B to pay.
i. ELEMENTS
1. Benefit conferred
2. Promise to pay
3. Just to enforce promise
ii. Has the element of K and also like it that there is a benefit conferred, but UNLIKE
K law, this benefit is NOT bargained for because this promise comes AFTER.
a. UNLIKE restitution that is just measured by the value of the benefit
conferred… the remedy here is based on the promise and enforcing it.
b. Starting point is the promise. May be more flexible than restitution.

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B. The traditional rule does not enforce a promise for benefits previously received on
the ground that such benefits are past consideration. The modern trend is to enforce
a promise based on a moral obligation if the promise is based on an economic
benefit previously given to the promisor and enforcement is necessary to prevent
injustice.
C. Not enforceable in K law bc the benefit is PAST CONSIDERATION; however, there
are exceptions where the court will enforce a promise with no consideration:
a. § 82 [K w/o consideration] Promise to pay indebtedness; Effect on the
Statute of Limitations
i. A promise to pay all or part of an antecedent contractual or
quasi-contractual indebtedness owed by the promisor is
binding if the indebtedness is still enforceable or would be
except for the effect of a statute of limitations.
ii. The following facts operate as such a promise unless other
facts indicate a different intention:
(a) A voluntary acknowledgment to the oblige, admitting the
present existence of the antecedent indebtedness; or
(b) A voluntary transfer of money, a negotiable instrument,
or other thing by the obligor to the oblige, made as
interest on or part payment of or collateral security for
the antecedent indebtedness; or
(c) A statement to the oblige that the statute of limitations
will not be pleaded as a defense.
ii. There are exceptions to the C/L rule of binding promises without new
consideration. (Pg. 147 of restatement)
1. Pre-existing debt
a. New promise is binding and enforceable on the basis of “moral
obligation” even without new consideration. Modern court may say
that the new promise revives the debt, or by promising again, you are
waiving your defense.
b. Facts indicate such a promise: voluntary acknowledgment admitting a
present obligation to pay the debt or the person pays part of the debt.
2. Discharge by operation of law
a. SOL
i. Operation of law being the statute of limitations
b. Bankruptcy
i. After bankruptcy, a party promises to pay the debt, then that
promise ought to be binding (must be in writing)
ii. § 83 Promise to Pay Indebtedness Discharged in Bankruptcy

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1. An express promise to pay all or part of an indebtedness of the

promisor, discharged or dischargeable in bankruptcy
proceedings begun before the promise is made, is binding.
3. Voidable
a. Voidable K is one that can either be affirmed or rejected by one of the
parties (ie. minor); must be in writing to be enforceable.
b. § 85 Promise to Perform a Voidable Duty
i. Except as stated in § 93, a promise to perform all or part of
an antecedent K of the promisor, previously voidable by him,
but not avoided prior to the making of the promise, is
binding.
4. Statute of Frauds
a. Oral promise from A to sell land to B, B is not bound because it was
oral.
b. But now say same thing but now B puts it in writing and it is going to
be enforceable w/o consideration under the SOF.
i. *AR SOF on handout.
5. Promissory Restitution
a. Make a promise in recognition of a benefit previously conferred; the
promise ought to be binding under PR § 86.
b. A subcategory of restitution.
c. This is the minority approach and is adopted by the Restatement.
i. Note: that the Restatement does NOT always adopt the
majority approach. It adopts what it thinks is the best
approach—even if the adopted happens to be the minority.
ii. AR has not addressed this yet.
iii. Growing trend in recognition of it but does not usually work
for commercial transaction.
D. § 86:
i. Restrictions: promise is not binding if the benefit conferred as a gift (good
Samaritan) and the promise is not enforced to the extent the value is
disproportionate to the benefit. (keeps from recovering too much or the benefit
conferred.)
1. Different from normal restitution.
E. What to look for:
i. $$$ in the eyes of A (just like pure restitution)
ii. Won’t work if it is a pure gift  no $ in eyes
iii. Promise won’t be enforced if it is more than the value of the benefit.
iv. A modern court would enforce promise on grounds of fairness/justice.

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Mills v. Wyman:

2/23/17 I missed bc I suck; See Jenna’s notes below.*

02/23
Modern approach allowing enforcement
· Webb v. McGowin
· 168 So. 196 (Ala. Ct. App. 1935), cert. denied, 168 So. 199 (Ala. 1936).
· Facts. Webb (P) was cleaning the upper floor of a mill and was about to drop a
heavy weight to the floor below. P saw McGowin there, and in the process of avoiding
harm to him, P himself fell and sustained permanent injuries. McGowin promised to pay
P a monthly sum for life, and made payments for eight years until he died. McGowin’s
executor (D) stopped the payments. P sued. D was granted a nonsuit. P appeals.
· Legal theory: assumpsit-the writ to state a cause of action (get money from a
promise)
1. K: MA-yes. Consideration: D/B? McGowin received a benefit because he is alive
and Webb received a detriment because he was physically injured. Wouldn’t have
worked because its not induced. Bargain for/Exchange? It wasn’t traded the promise
was after. Past consideration is no consideration.
2. PE: Promise, yes. Promisor relied? Have to be something he could foresee. Webb
didn’t rely on it by jumping out of the building, no reasonable detriment. Doesn’t work
because the actions happened before hand. Anything that something happens for
someone to rely on has to happen after the promise.
3. R: Benefit-saving of his life and justice/fairness is it just and fair to make McGowin
pay? The problem is proving that there are dollar signs in Webb’s eyes. Restitution
does not allow a gift.
4. PR: Benefit was conferred directly. Is justice on Webb’s side? Yes. Was the benefit
conferred as a gift? The Court stretches the gift and stated since Webb took the money
then there was intent for dollar signs in his eyes. If he had expected saving someone the
guy would probably compensate him. (hard argument but it works here MBM says this
is backwards but argue it). Can’t be disproportioned to the benefit? The 15$ wasn’t too
big. Webb wins.
· Issue. Is moral consideration sufficient to support a promise given in recognition of
a past economic benefit received by the promisor?
· Held. Yes. Judgment reversed.
· Where the promisor receives a material benefit, and the promisee suffers a
material detriment, moral obligation is sufficient consideration to support a promise.

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· In this case, McGowin received a material benefit of not being injured, and P
suffered a material detriment of permanent disability.
· Comment. Note that even when the only consideration is moral obligation, the
courts may enforce the contract if the promisee has detrimentally relied on the promise.
Problem 3/5 pg. 327
Issue: Does Patricia have a legal claim against her brother?
1. K: MA? Ronald offered to give her 1 million but he was “making arrangements”
therefore that is a statement of “future intent”. This results a problem because it may
not be a definite promise. Did Patricia accept it? Yes. (MBM says that there is MA
though. Consideration? D/B: Benefit to Ron and detriment to Patricia. Patricia has
detriment is there a benefit to Ron? No benefit because the benefit was conferred on
the mom. Consideration could be conferred through a third person (MBM says
maybe). Bargain for? The million dollars was not bargained for because by the time
you got to the letter it was “past consideration.”
· Slim recovery under K. Remedy would be the expectation damages aka the million
dollars. Good recovery but slim chance she would get it.
2. PE: Promise? Yes. Promisor has to foresee she will rely on it? She didn’t rely on it
because it was before the letter. The 2/3 months after the letter she could argue but she
would have continuously cared for her mother without the letter. Therefore problem
with the reliance. Justice/Fairness? Yes. Remedy? Limited as justice required she may
be able to get money from 2/3 months, but she may not get that because she didn’t rely
on the letter. IF she spent money applying for school she may be able to recover.
3. R: Benefit conferred? Nothing on Ron. May have to stretch for her. Justice
fairness? Maybe because she has taken care of their mother. Remedy? Benefit
conferred over time?
4. PR: Promise made? Kinda same problem as above. Made in recognition of benefit
previously made? Yes. Benefit by promisor? Benefit is conferred by a 3rd party---no,
but could be stretched. Was the benefit conferred as a gift? No, she’s a good
Samaritan. If she’s trying to get the promise the court could stretch it and say it wasn’t a
gift. Promise disproportionate to the benefit? Is it worth million
dollars? Probably. Recovery? Likelihood is better here.
· Tell bank officer that maybe on the first (3) theories and a 50/50 shot on the last
theory. Talk to the family first then try to settle with Patricia.

STATUTE OF FRAUDS
If K falls within SOF and it is purely orals, then K is NOT enforceable. To satisfy the SOF,
there has to be a writing, signed by the party to be charged. So, both parties do not
have to sign the writing, just the D. So, it behooves you to get the OTHER guy to sign.

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18. ASSERTED AS A DEFENSE AGAINST THE ENFORCEMENT OF AN

ALLEGED K.
A. General rule, oral K binding. SOF is the exception to the general rule.
i. Only person whose signature is necessary is the one you are seeking to hold to
it.
B. Functions: to prevent fraud and perjury.
i. Evidentiary function to provide better evidence in case of dispute
ii. Channeling function helps court separate K into legally enforceable and legally
unenforceable
iii. Cautionary function makes people pay attention, think before you sign. Stop
and think.
C. Failure to comply with the Statute renders the contract VOIDABLE but not void. So,
relates only to remedy and not to substantive validity of the K.
D. Penalty: if K falls within SOF and there is no sufficient writing, it is unenforceable;
courts do not like the SOF because of this harsh penalty, and the fact that it prevents
the enforcement of honest oral Ks.
[Jenna’s notes: K theory. Certain types of K’s have to go through formalities. The
formality is the K has to be in writing. Even if all elements of a K are met it will not be
binding/enforceable if it falls under the statute of frauds and there’s not sufficient
writing to satisfy the statute of frauds.
1. Can’t read the statute of frauds on its face you also have to read the case law
associated with it.
2. Problem: Many honest oral agreements will not get enforced if they fall under the
statute of frauds.
3. Statute of frauds is interpreted very narrowly.
4. Signature necessary to enforce it, it has to be signed by the party charged. Do not
have to have both signatures just the one you are trying to enforce it against. (Writing of
the party charged) Usually to avoid this you get both signatures.]
E. Types of Ks SOF require to be in writing are Ks that cannot be enforced within one
year, for a guarantee of another’s debts, and for Ks involving an interest in land,
including leases.
i. ARKANSAS SOF: §4-59-101. Agreement; Writing Requirement.
1. Executor Provision: (A 3 party fact pattern  debtor (then
executor/administrator) to Creditor)
a. : when the person managing the estate of decedent promises to pay
for the debt of a deceased’s out of his own pocket.

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b. Purpose here is that people are normally distraught after decedent’s

death, so they should stop and sign something before they agree to b e
liable for the debt.
2. Surety provision: Again, a 3 party kind of fact patter.
a. “Promise to answer for the debt, default, or miscarriage of another”;
b. EXCEPTION to this is if the surety makes the promise to the DEBTOR;
another exception is if the surety makes the promise mainly for his
OWN ECONOMIC ADVANTAGE.
c. Rationale: that there is evidence that you really did it and you were
careful with your signed writing.
3. Promise made in consideration of marriage: Outdated.
a. Says oral promise not binding. (if you marry my daughter, I’ll give you
this land). Had to be in writing.
4. Sale of land (or any interest in land):
a. “Person upon any K for the sale of lands, tenements, or hereditaments
for a longer term than (1) year” (hereditament means any interest in
land not heritable)
b. Must be in writing.
c. Interests have been any lien (like materials men), mortgage, fixtures,
growing timber, an option K, boundary line petition agreements, life
estate, a remainder, an aversion, partitions, future interests,
reversions, leaseholds.
d. Mineral rights? Depends. If sold along with land then probably but if
sold separately then probably not bc no longer a fixture  a good.
e. Not in SOF K to build (a service K not a land K), promise to
landscape.
5. Leases of land for a longer term than 1 year: A lease is an interest in
land.
a. “Person upon any lease of lands, tenements, or hereditaments for a
longer term than (1) year;”
b. A short term oral lease is binding. Don’t need as much evidence, is
short term, doesn’t need as much caution.
6. Ks that can’t be PERFORMED w/in 1 year:
a. “Person upon any K, promise, or agreement that is not be performed
within (1) year from the making of the K, promise, or agreement.”
b. Measuring time frames are the creation of the K and time of
performance by both parties is completed.
c. MODERN: if the K COULD be completed w/in 1 year, then it doesn’t
have to fall within the SOF; this rule is interpreted very narrowly.

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d. Test is not the length of performance that matters, it is the time of

completion compared to the time the K was put into.
e. Must put into writing.
i. Points of measure:
1. Making of the K
2. Time when performance is completed.
7. If SOF violated  K is unenforceable but not totally void.

19. IS THERE A SUFFICIENT WRITING TO SATISFY THE SOF?

A. §131 General Requisites of a Memorandum
Unless additional requirements are prescribed by the particular statute, a K within
SOF is enforceable if it is evidenced by any writing signed by or on the behalf of the
party to be charged, which
(a) reasonably identifies the subject matter of the K,
(b) is sufficient to indicate that a K with respect thereto has been made between the
parties or offered by the signer to the other party, and
(c) states with reasonable certainty the essential terms of the unperformed
promises in the K.
a. Similar to AR requirements but has additional needs: 1) ID subject
matter; 2) sufficient to indicate K has been made, and 3) reasonably
certain essential terms.
B. Requirements for AR:
i. ID both parties
ii. State subject matter
iii. Have ALL essential terms and conditions.
iv. Signed by the party to be charged (any kind, anywhere)
C. Form of writing:
i. Doesn’t matter, can be anything. Just an acknowledgment by the party to be
charged that he’s assented.
ii. Writing doesn’t have to be prepared for the purpose of the SOF.
iii. Doesn’t have to be prepared at same time as the K
iv. Doesn’t have to be delivered to anyone.
v. Paper doesn’t have to exist anymore, just had to exist at some point. Just not
oral.
vi. Letter, will, check, suicide note, etc.  all satisfy/work.
D. Signed writing:

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i. Can be any kind of signature.

ii. If there is no signature, then K is unenforceable.
iii. Can be signed by an agent.
E. Multiple Writings:
i. Look for:
1. Physical connection
2. Internal references to same subject matter.
3. ______ Crabtree (AR has never gone this far/past 2).
ii. When there is only 1 signature, on 1 page, you must show either:
1. There WAS a physical connection between the papers—ie. staple, glue,
same envelope, paper clip.
a. Wording in the signed document that incorporates the unsigned
documents.
b. Best way is to have unsigned docs refer to the signed docs.
c. It does NOT help if the unsigned docs refer to the signed docs.
2. When the signed doc doesn’t incorporate the unsigned docs and there is
no physical connection, there is a court split:
a. Some courts let you put on the docs as evidence, and you have to show
that the unsigned docs were assented to by words or by conduct and
all of the writings together have to establish the K. Oral testimony can
show the acquiescence to the unsigned docs when the unsigned docs
refer to the same subject matter as the unsigned doc (and there is no
objection to his acquiescence).
i. This is an alternative, liberal test to satisfy SOF. (these notes
above (#1/2 are from outside outline)*
F. AR:
To permit consideration of two or more instru together in a trans for the sale of real
eastate they have to invorporate ach other in some way…

20. SOF CONTINUED | CRABTREE CASE

A. Issue: was there a memo with sufficient terms to validate Ds SOF defense? Do the
multiple documents satisfy? One of three was unsigned and there was not a
specified duration for employment listed.
i. The SOF does not require the memo to be in done document.
ii. Secretary typed up an employment agreement signing the present party agents
names  would be a pretty good argument for having the authority to make this

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by their authority and in their presence to constitute a signed K but court rejects
this.
iii. Issue is that the other K don’t include the employment duration looks illusory.
Not a promise to be there for 2 years just saying if you are then you can make X.
iv. No physical connection – no envelope, staple, glue, etc. Is there reference
between them? No- just referred to same subject matter, does not refer to the
same document.
1. In AR has to be a REFERENCE to the document.
2. But this court lets them be connected even though there is no reference.
Adopts a more liberal approach:
a. Must show they all relate to the same subject matter.
b. Must have oral testimony establishing the things are linked.
c. Also, must show in some way acquiescence by the party to be charged
agreed to the unsigned document. (does their conduct manifest
agreement)
i. Here, meets subject matter, oral testimony links, and yes
through all of Elizabeth’s Arden conduct show acquiescence.
ii. Meets SOF.
1. Remember SOF is just a hurdle and you still must show all
elements of a K.
v. Now, interpretation question: what did the parties mean by “two years to make
good”?
1. Court says this means they were promising two years in K and reference
back to Crabtree’s request for a firmer employment.
2. Crabtree wins and gets his damages.
B. “One year” provision: Oral K is ENFORCEABLE if it is possible for it to be performed
in one year, even if the performance is remote or unlikely.
C. §130 Contract Not To Be Performed W/in a Year (p. 149)
i. Any promise that could happen within a year on some condition, if oral
condition
1. Promise to pay you $50k to build a swimming pool if I can get a loan, (can
happen wit in a year)
2. I promise to buy your house if I can sell my house.
ii. So any oral promise conditioned on DEATH is enforceable bc anyone can die
within a year.
a. So these oral one year clause/provisions DO NOT fall within the SOF
if can happen within a year.
b. So, what falls within the SOF?

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i. If either promise between parties CANNNOT happen within a

year, then falls under SOF.
1. EX: Promise to pay back installment note over 10 years.
c. But what if it is an oral promise that takes exactly one year?
i. If hire today but performance doesn’t have to start until next
Mondaythen falls under SOF. Bc boots it into not being able
to be performed within 1 year.
1. Rule If performance takes exactly 1 year and enters today but
starts tomorrow, it does ? or does not ? fall under SOF and is
binding.
D. UCC & C/L both liberal as what constitutes a signature.
i. Letterheads
E. Electronic K-ing
i. UETA (Uniform Electronic Transactions Act) (pg. 250 definitions)
ii. §7 Legal Recognition of Electronic Records, Electronic Signatures, and Electronic
K (pg. 263)

21. EXCEPTIONS TO THE SOF:

A. 3 Steps to ask when working through:

i. Step 1 does this K fall within the SOF?

ii. Step 2do I have sufficient writings to satisfy the SOF?
iii. Step 3if no/doubtful, re: writingslook for exceptions around SOF
B. 2 ways to get out of writing requirement:
i. Part Performance: a defense to the SOF (a defense to the defense?)a way to
get out of SOF
1. POLICY: courts willing bc strict enforcement of SOF would actually
encourage fraud and sanction unethical conduct.
2. What is a sufficient part performance to take a K out of the SOF?
a. Full performance on both sides is clearly enough. This is outside the
SOF. Not a defense.
b. Partial performance of an oral K for the sale of land can make the
agreement enforceable despite the Statute.
i.  full payment of purchase price does not satisfy
ii. one area where restitution lies – under an unenforceable K.
can get damages back in restitution.
iii.

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iv. IN AR: If buyer has taken possession and has either made
payments or substantial improvements on land that is
sufficient.
1. Has to be something that is attributable to the new K.
2. Breaking ground not enough  must be a valuable and
substantial improvement that would make it inequitable to not
enforce the K.
v. Some states do not accept part performance at all.
vi. Some states let it apply for money damages, but AR limits the
remedy to specific performance (some others do like AR as
well).
Have to argue the part performance is enough  makes substantial payments or
substantial improvements.
ONLY IN EQUITBALE REMEDIES (specific performance)

ii. Promissory Estoppel

1. So, must show there was a promise, it was reasonably foreseeable that
one would rely, and that he relied.
2. This is controversial– like partial performance–bc gunning the SOF.
3. NOT limited to specific performance.
§ 139 Enforcement by Virtue of Action in Reliance
1 A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does
induce such action or forbearance is enforceable notwithstanding the Statute
of Frauds if injustice can be avoided only by enforcement of the promise. The
remedy granted for breach is to be limited as justice requires.
2 In determining whether injustice can be avoided only by enforcement of the
promise, the following circumstances are significant:
a. The availability and adequacy of other remedies, particularly
cancellation and restitution;
b. The definite and substantial character of the action or forbearance in
relation to the remedy sought;
c. The extent to which the action of forbearance corroborates evidence
of the making and terms of the promise, or the making and terms are
otherwise established by clear and convincing evidence; (  higher
standard)
d. The reasonableness of the action or forbearance;

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e. The extent to which the action or forbearance was foreseeable by the

promisor.
4.
iii. Difference between two: remedies different (PE can actually get money
damages; PP in AR is specific performance ie. land); elements of proof different,
statute of limitations different.
C. Distinction b/t Law and Equity:
i. Originally based on a background of fairness and justice and people weren’t
happy with their relief/$ damages from law so went to equity and remedies
were more discretionary so..
ii. Equity can to certain areas of jx where money damages weren’t enough
(custody, adoption, land) and remedies [remedies, jx, land]
1. Promissory Estoppel not limited to specific performance, can get money
damages.
2. Part performance limited to equity which is specific performance.
iii. Remedies in equity are something OTHER than money damages money is not
enough to remedy the harm.
1. Don’t forget, equity can use money as an additional reward.
2. Specific performance  order an injunctive to keep the D from doing
something that could cause harm.
3. These did not have jury. And have some weird kinds of remedies:
a. Revision  undoing a K and putting back where was before
b. Constructive Trust  remedy to treat her as she is holding that
property for me so can recover anything she makes from it
c. Accounting  go thru the books to see who owes what
d. Shareholder derivative suit  business brings on behalf?
4. Typically, equity came to light over land matters.

22. UCC SALE OF GOODS: STATUTE OF FRAUDS

A. § 2-2-201: Formal Requirements; SOF
i. Except as otherwise provided in the section a K for the sale of goods for the price
of $500 or more is not enforceable by way of action or defense unless there is
some sufficient writing to indicate that K for sale has been made b/t parties
and signed by the party against whom enforcement is sought or by his
authorized agent or broker. A writing is not sufficient because it omits or
incorrectly states a terms agreed upon but the K is not enforceable under this
paragraph beyond the quantity of goods shown in writing.

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EXCEPTION: (2) Between merchants if within a reasonable time a writing in

confirmation of the K and sufficient against the sender is received and the
party receiving the K has reason to know its contents, it satisfies the
requirements of subsection 1 against such party unless written notice of
objection to its contents is given within 10 days after it is received.
EXCEPTION: (3) A k which does not satisfy the requirements of subsection 1
but which is valid in other respects is enforceable
a. If goods are to be specifically manufactured for the buyer and are
not suitable for the sale to others in the ordinary course of the seller’s
business and the seller, before notice of repudiation is received an d
under circumstances which reasonably indicate that the goods are for
the buyer, has made either a substantial beginning of their
manufacture or commitments for their procurement; OR
b. If the party against whom enforcement is sought admits in his
pleading testimony or otherwise in court that a K for sale was made,
but the K is not enforceable under this provision beyond the quantity
of goods admitted; or
c. With respect to goods for which payment has been made and
accepted or which have been received and accepted.
i. Comment 1: required writing does not need all the material
terms. All that is required is that the writing must have
quantity term (but does not need to be accurately stated for
recovery) Ie. can omit the price.
ii. Comment 2: Partial performance as substitute for the
required memo can validate the K only for the goods which
have been accepted or for which payment has been made and
accepted.
1. Receipt and acceptance either of goods or the price
constitutes an unambiguous overt admission by both parties
that a K actually exists.
a. If court can make a just apportionment, therefore, the
agreed price actually delivered can be recovered without a
writing or, if the price has been paid, the seller can be forced to
deliver an apportionable part of the goods. The overt actions of
the parties make admissible evidence.
2. Part performance by the buyer requires the delivery of
something by him that is accepted by the seller such as
performance. Thus, part payment may be made by money or
check, accepted by the seller. If the agreed price consists of goods
or services, then they must also have been delivered and
accepted.

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iii. Comment 3: Between merchants, failure to answer a written

confirmation of a K within 10 days of receipt is tantamount
to a writing under subsection 2 and is sufficient against both
parties under subsection 1. The only effect, however, is to
take away from the party who fails to answer the defense of
the SOF; the burden of persuading the trier of fact that a K
was in fact made orally prior to the wri tten confirmation is
unaffected.
1. Something that notifies me we have a K; does not have to say
confirmation but must alert that there is a deal.
2. The written must satisfy the SOF not just against your opposing
party but also against me. Prevents speculation. Trying to
make sure the same writing satisfies the SOF against both
parties. But all this does is satisfy SOF and still must prove K.
iv. Comment 4: Failure to satisfy the requirements does not
render the K void for all purposes, but merely prevents
judiciary enforcement in favor of a party to the K.
ii. Sale > $500
iii. Merchant confirmation
iv. MSC exceptions: (to writings)
1. Specifically manufactured (3)(a)
a. If specifically manufactured can get over SOF hurdle to let you prove
the K bc people wouldn’t make something just for one person if there
was not some intent to K.
2. Admission (3)(b)
a. During pleadings or course of events  cause to protect person like if
they happen to break down under pressure in trial on stand, etc.
3. Part performance (3)(c)
a. Designed to recognize that this oral K existed bc I wouldn’t have sent
the good and she wouldn’t have accepted it. Similarly, with payment.
b. BUT, only to extent  if you send shoes and she only accepts half, you
can only enforce for the half she accepted.
c. Part performance under GENERAL took K out and made the whole
binding BUT under UCC it is ONLY TO THE EXTENT IT IS CARRIED
OUT.
d. Also, part performance under UCC will actually let you get money
damages for part performance here.
B. Buffaloe v. Hart:
i. Theory: breach of K

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ii. What is being bargained? Goods over $500, 5 barns. (attached barns aren’t
typically goods)
iii. Trying to enforce K against the Harts (D).
1. Does it fall within the SOF?  Yes.
2. Are there sufficient writings?  No, Ds didn’t sign the check P gave them
but P signed.
3. So no sufficient writing… do 1 of the 4 exceptions apply?
a. Good argument for merchant confirmation but fails.
i. Both merchants (person in business  farmers), over sale of
$500, sent in reasonable amount of time, check stated
quantity, P signed, but D sent a written notice of objection
(ripped up check and sent back letting P know was no longer
interested in him selling the barns) so no confirmation .
b. No specifically manufactured or admission so what about part
performance?
i. (Procedure here matters bc we only have to prove enough to
let it go to the jury for retrial).
ii. P did a lot of things to lead someone to believe that he had
taken possession of the barns and is sufficient. Would have
been difficult for P to use payment (so he was seen more
than just a leasing the barns) because it was only for ¼ of the
total agreement.
1. Essentially, he took overt action different from the rental
relationship and because P’s delivery of the check was not partial
payment since Ds never accepted it.
iv. Buffaloe wins to extent that goes to jury to hear the case.

SHIFTING FROM K FORMATION TO

“MIDLIFE” OF K
Assuming here that we have K. We are trying to figure out what the words mean here.
No issue as to whether we have a K but issue is of INTERPRETATION of the K.

23. CONTRACT INTERPRETATION

A. Giving meaning to language when there is uncertainty as to the meanings of the
parties’ expressions or parties attach different meanings

Approach Definition Issue/Notes

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Subjective Different meaningsNO Very difficult to apply,

K bc NO meeting of inefficient, and
minds essentially causes more
litigation/conflict
Pure Objective (Seems more fair,
efficient, and less time
than subjective)
BUT makes no sense.
Not really fair and then
we have to sacrifice
parties’ intent
Modified Objective Tip scale against BEST TODAY
Approach party most at 3 mental states
fault. §201
Innocent party 1st mental
rule. stateLIGHTBULB
2ndPLUG
3rd DUH

B. Modified Objective Approach in interpreting K, ct should answer 2 questions:

[Rest. § 200 follows:]
i. Whose meaning controls the interpretation of the K?
ii. What was that party’s meaning?
1. § 201(1)  if both attach the same meaning, that meaning governs.
a. Thus, mutual understanding controls, even if not interpretation that a
reasonable person would give.
i. [3 mental states:]
1. (a) party did not know of any different meaning attached by the
other, and the other knew the meaning attached by the 1st party:
a. Good guy doesn’t know so wins
b. Have actual knowledge PARTY KNOWS “LIGHTBULB”
2. (b) party had no reason to know of any different meaning
attached by the other, and the other had reason to know the
meaning attached by the 1st party:
a. Good guy wins bc still does not know
b. Reasonable person (background, prior dealings,
education, language) in my shows would get it REASON
TO KNOW “PLUG”
3. (3) except as otherwise stated, neither party is bound by the
meaning attached by the other. Even though the result may be a
failure of mutual assent:

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a. Both are semi-bad guys so who is more innocent? The one who
has reason to know instead of the one who actually knows so it
is interpreted as to the one who has reason to knows meaning.
b. Reason to know is more innocent than the person who
actually knows DOES NOT KNOW “DUH”
2. § 201(2)  if different meanings  must determine if one party knew
or had reason to know of the others attached meaning, if so  that one
governs.
a. WHERE BOTH PARTIES ARE AWARE  K if they both agree on same
interpretation
b. WHERE ONLY ONE PARTY KNOWS, or has reason to know, but other
party does not know  K according to innocent party
c. WHERE BOTH ARE UNAWARE  NO K bc there is no mutual assent.

C. Joyner v. Adams: Principles of Interpretation | Meaning of the Agreement

i. Basics:
P Joyner, D Adams (D was substituted as a party so there is a brand-new K w/
this substituted D; original was Brown Investment Co.)
Joyner promising to lease the land. Brown promising to develop the land and
cover rental payments.
K was formed and in place.
Was in SOF bc was a long-term lease over land. Was a writing so SOF was
satisfied.
ii. Issue:
Are P going to get additional money from escalation clause bc the development
was not done they were arguing over if development was to a sufficient
period or done enough. (TC said no meeting of minds on escalation term.)
The development needed to be done to a specific stage.
1. P says: at least beginning construction on each.
2. D says: the lot was ready for development.
iii. We have to figure out Do we have a K when they mean these two different
things?
1. Mental state is subjective. How do we determine this? Testimony, etc.
Here, they use memos introduced by P.
2. Both parties had substantial experience. D argued to show what
standards were in industry.
iv. Court used modified objective approach. (middle of p. 387)

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1. If Joyner can convince that they both intended her way. She argues and
tries but court does not find this and instead, is convinced they both
meant two different things. So, go from restatement paragraph 1 to p2.
2. Construe K against party who drafted it. Bc as a drafter you woul d write
it to favor yourself. So, general rule of thumb  if any ambiguity it is the
drafter’s fault.
3. Here, they construed it against D Adams and Joyners P win.
4. But this is wrong on appeal bc neither party more sophisticated over
other and we throw this rule out to follow that more innocent party wins.
5. Remand case to look at the mental states  TC should have determined if
either party knew or had reason to know.
v. Party know or had reason to know?
1. D Adams  “DUH” Party does not know
2. P Joyner  her testimony reveal two versions of intent/meaning, she
didn’t directly communicate, lack of evidence that D assented to K, and Ds
extensive evidence showing previous experience but he still didn’t know.
(pg. 389 note explains this)
3. If they both have equal mental states, and we can save by looking at
industry standard we can save K but if nothing to sue/agree on then … ???
(something about question asked around going back to original/tradition
C/L?)
4. Must have met all 5 essential terms of the K and if they fail to meet on
term 5 is what we are talking about here.
D. (10) Interpretive Principles: justifications for reaching decision
i. Construe a word in context
ii. List of specific terms and then a catch all term, then list includes only like
specific terms
iii. If specific list with no catch all phrase, then specific doesn’t get picked up
iv. Construe K to try to make valid
v. Construe it against the drafter  only usually applies if adhesion K or a take it
or leave it K (don’t negotiate out all terms in these kinds of Ks)
vi. Construe K as whole – don’t take out or isolate any individual clauses, phrases,
or terms
vii. Purpose of the parties?
viii. Specific controls over the general
ix. Handwritten or typed terms prevail over printed terms in K already  assume
this better reflects our intent
x. Public interest preferred
1. Many of these are seen in (pg. 158) § 202: Rules in Aid of Interpretation

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a. Course Performance
b. Course Dealing
c. Usage of Trade
2. Also in UCC (& MBM says better defined here: pg. 17)
3. § 1-303
a. A “course of performance” is a sequence of conduct between the
parties to a particular transaction that exists if:
i. The agreement of the parties with respect to the transaction
involves repeated occasions for performance by a party; and
ii. The other party, with knowledge of the nature of the
performance and opportunity for objection to it, accepts the
performance or acquiesces in it without objection.
b. A “course of dealing” is a sequence of conduct concerning previous
transactions b/t the parties to a particular transaction that is fairly
to be regarded as establishing a common basis of understanding for
interpreting their expressions and other conduct.
c. A “usage of trade” is any practice or method of dealing having such
regularity of observance in a place, vocation, or trade as to justify an
expectation that it will observed with respect to the transaction in
question. The existence and scope of such a usage must be proved as
facts. If it is established that such a usage is embodied in a trade code
or similar record, the interpretation of the record is a question of law.
d. A course of performance or course of dealing b/t the parties or usage
of trade in the vocation or trade in which they are engaged or of
which they are or should be aware is relevant in ascertaining the
meaning of the parties’ agreement, may give particular meaning to
specific terms of the agreement, and may supplement or qualify terms
of the agreement. A usage of trade applicable in the place in which
part of the performance under the agreement is to occur may be so
utilized as to that part of the performance.
e. Except as otherwise provided in subsection f, the express terms of an
agreement and any applicable course of performance, course of
dealing, or usage of trade must be construed whenever reasonable as
consistent with each other. If such construction is unreasonable:
i. Express terms prevail over course of performance, course of
dealing, and usage of trade;
ii. Course of performance prevails over course of dealing and
usage of trade; and
iii. Course of dealing prevails over trade.

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f. Subject to Subsection 2-209, a course of performance is relevant to

show a waiver or modification of any term inconsistent with the
course of performance.
g. Evidence of a relevant usage of trade offered by one party is not
admissible unless that party has given the other party notice that the
court finds sufficient to prevent unfair surprise to the other party.
i. Express Terms of K (1 st place to look is at language of K and
then move on to others)
1. If no express term then…
ii. Course of Performance
1. How we have been carrying out this K
2. If no express term or course of performance then look to
history
iii. Course of dealing history of prior transactions b/t parties

24. THE PAROL EVIDENCE RULE  ANY EVIDENCE AS EXTRINSIC

TO THE WRITING (OUTSIDE THE WRITING)
A. Excludes certain evidence at trial.
i. Once parties put their document into a final writing, that is final and what they
meant.
ii. Rule of interpretation designed to do the best we can to figure out what the
parties intended. What is in the final writing and we want to keep the other stuff
out.
iii. Reflects preference for definiteness and certainty. Adds to business stability.
iv. Writing should prevail.
v. A lot of same concerns we had with SOF – do we really need to reward for a
writing? Also, sometimes instead of preventing injustice we might cause it. It is
also complicated, not applied consistently, and has a lot of exceptions.
vi. Why are we looking at this in K law and not evidence? One federal courts have to
apply in the state law in which it sits instead of procedural rules (remember Erie
Tompkins RR…) And can be raised for the first time on
B. Admissibility of the evidence is a question of law for the judge. What does this
mean? On appeal, it gets review de novo.

1. Is it a final writing?  done as the terms stated in it, not necessarily

that K or the writing is complete
a. Just look at surrounding circumstances to decide.

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b. Does not have to meet same test as Statute of Frauds. Just has to be a
final writing, does not have to be signed by the parties.
c. If there is not a final writing, all of those extrinsic terms come into
evidence. Can come in even if it is contradictory.
i. If is final may use integration this means that it is final
ii. § 209 Integrated Agreements
1. An integrated agreement is a writing or writings constituting a
final expression of one or more terms of an agreement.
2. Whether there is an integrated agreement is to be determined by
the court as a question preliminary to determination of a
question of interpretation or to application of the parol evidence
rule.
3. Where the parties reduce an agreement to a writing which in
view of its completeness and specificity reasonably appears to be
a complete agreement, it is taken to be an integrated agreement
unless it is established by other evidence that the writing did not
constitute a final expression.
d. So, is it final or not? 2 approaches:
i. 4 corners: look at the writing itself, within document
ii. Modern: let in all circumstances, judge hears all parole
evidence (may be preliminary –in camera- outside of jury
and if judge finds finality then never goes to jury but if j udge
doesn’t find finality then it goes to jury.
C. PER to explain? Yes IF…
i. PER admissible to explain an ambiguity in the writing.
ii. You can get parol evidence in IF you are trying to EXPLAIN a term rather than
CONTRADICT. But most courts require you to show there is an ambiguity.
Ex: Will and MBM k to have Will build a divider on her land. Well, issue here is
what does she mean by ambiguity? She talks about two types.
1. Problem is what if the word does not look ambiguous on its face?
Ex: Now bakers and K and talk about a dozen. Is a dozen ambiguous?
Maybe. Such a court in AR will probably at least let you put on your
evidence to explain.
a. AR courts: will let you introduce the (1: Can I convince the court of
ambiguity. Then, 2: judge makes a decision.)
b. Some courts will (if you can convince there can be more than one
meaning) then will at least let you bring evidence in to judge. If judge
finds ambiguity, then goes to jury to see what this means to the
parties. Then, we apply modified objective approach. [aka if t hey both

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agree – then we take that meaning; if different – we take the more

innocent approach/party’s meaning].
D. PER to supplement? Yes  but only if final and incomplete.

i. FINAL but not complete  you can add terms.

ii. FINAL AND COMPLETE  (1-5 is it and there ain’t no more) can’t add tem 6
under PER, it falls out
1. Here, must answer 2 questions:
a. FINAL  can supplement with additional consistent terms
i. Final but INcomplete: partial integration
1. writing intended to be final but not complete bc it deals with
some but not all aspects of a transaction b/t parties
b. Final AND COMPLETE  [Merger Clause]
i. Complete integration: final and complete
1. writing that is intended to be a final and exclusive expression of
the agreement of the parties
iii. § 210 Completely and Partially Integrated Agreements
1. A completely integrated agreement is an integrated agreement adopted
by the parties as complete and exclusive statement of the terms of the
agreement.
2. A partially integrated agreement is an integrated agreement other than
completely integrated agreement.
3. Whether an agreement is completely or partially integrated is to be
determine by the court as a question preliminary to determination of a
question of interpretation or to application of the parol evidence rul e.
§ 210 (b): A writing cannot of itself prove its own completeness, and wide latitude
must be allowed for inquiry into circumstances bearing on the intention of the
parties.
4. How do you tell if its final or complete?
Determining integration inclusion of writing in a merger clause would
conclusively establish writing as integrated [4 corners]
a. 4 corners approach: if it looks complete that means it and you don’t
get evidence in (only look at face)
b. Modern: 1 st it is final - all evidence sufficient on evidence of
completeness; but on second step  is it complete – supplementary
stuff does not come in, if final and not complete – doesn’t come in.
5. Merger Clause  (for final and complete) writing/term intended to be
final and complete, all prior understandings deemed to have “merged”
into or superseded the final writing
a. To convince final and complete (p. 417 book)

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E. To apply PER
1) determine whether the writing in question is intended to be a final expression of
the parties’ agreement; and if so,
2) whether it is a complete or partial statement of the K terms

F. PER to contradict?
i. Any prior oral stuff is superseded by writing
ii. Oral stuff said as we printed out document and talked about terms to be put in it
– superseded
iii. What about contemporaneous writing stuff? Courts don’t agree as to whether
this should come in or not.
1. Generally, most courts will probably keep out bc was probably superseded
by final writing unless you can convince the court it was all part of the
same deal to come in.
iv. What about subsequent? PER has NOTHING to do with PER  this stuff
ALWAYS comes in.
v. UCC:
1. Only keeps out contemporaneous oral stuff not written. So, what does this
do? It goes to jury. And if both goes to jury then you have an ambiguity
and you have something that needs to be explained.
vi. Bottom line: CAN’T USE PER TO CONTRADICT.
1. Prior oral and written: out.
2. Contemporaneous oral: out.
3. Contemporaneous written: UCC in but most probably out, but maybe.
4. Subsequent: ALL IN. (admissible to explain)

THOMPSON V. LIBBY:
looks at document on its face to make determinations if it is final, and if you were trying
to supplement  is it also complete?

Parol Evidence Rule where parties typically arrive at K thru prelim

negotiations and then produce a writing. This final writing is then
considered the best evidence of the K and displaces any earlier
agreements or proposals whether oral or written.
inquiry into circumstances bearing on the intention of the parties.
A finding of integration should always depend on actual intent of the
parties and court should consider all facts and circumstances
surrounding the execution of the K, as well as writing, to find intent.

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Libby buying logs from Thompson. Libby not paying, claims

oral warranty agreement not in writing
Warranty: agreement that logs would be of certain
quality
“Sold all my logs marked HCA in winters of 1982 and 1983 for
ten dollars a thousand feet, boom scale at Minneapolis”
Contradiction: perhaps, K says all logs marked HCA
Saying all marked HCA of good quality may contradict
Trying to put the oral warranty in.
i. Is it prior or contemporaneous?
ii. Is it in writing?
iii. Offering evidence as to warranty  not purpose/offered to
contradict or explain  just to supplement
Ex: see the warranty as term 6 (bc when we look at Ks we
understand it as terms 1-5)
iv. Issue: Can PER be admitted?  must answer 2 questions:
1. Is it final?
a. Court looks at 4 corners of document and says yes-it looks final
(all parties, dated…)
2. Is it complete?
a. Court says yes by looking at fact of the document.
v. So, Libby won bc Thompson promised quality logs and got
bad ones.
vi. Holding: lower ct. erred in admitting parol evidence, strict
“four corners” approach
Writing completely integrated b/c doesn’t seem
“informal or incomplete” on its face
Therefore, exclude all parol evidence unless
exception
Warranty term of sale, not separate K  not collateral
agreement
Doesn’t relate to subject distinct from writing
Extrinsic evidence admissible “if necessary to apply K to
its subject matter or in order to a more perfect
understanding of its language”
vii. Hypo: assume Libby and Thompson talk about warranty,
Thompson sends follow-up letter promising logs of certain
quality
1. Seems letter isn’t prior or contemporaneous to
agreement
a. Evidence shouldn’t be barred
2. What if Thompson says he will send letter before K
signed, but never gets around to it?

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a. Helpful to deciding if agreement partially

integrated or not
vii. Why would it be unjust to let such contradictions in? Not fair and best
evidence is the writing  answer just like SOF – wouldn’t want bad
memory? Or lying.
viii. Like the SOF, a rule that can only be understood in light of EXCEPTIONS:
1) Does not apply to exclude evidence offered to interpret or
explain the meaning of the agreement
2) Does not apply to agreements, whether oral or written,
made after the execution of the writing  Subsequent are
ALL OK
3) Does not apply to evidence offered to show that
effectiveness of the agreement was subject to an oral
condition precedent (cp  there is a binding K but not
obligated to perform unless condition met – string not
met w/o performance) Before comes binding on me that
condition precedent must be met so that writing doesn’t
bind me.
4) Does not apply to evidence offered to show that the
agreement is invalid for any reason, such as fraud, duress,
undue influences, incapacity, mistake, or illegality
a. If invalid for fraud, illegal  then ALL evidence comes in;
always admissible
i. Bc the policy in favor of this to ensure these defenses are
more important than our small PER rules
ii. These aren’t designed to attack the writing all we are
saying is this K is not good
iii. Most of the time these don’t show up in the writing
anyways
5) Does not apply to evidence that is offered to establish a
right to an “equitable” remedy, such as “reformation” of
the K
1. Reformation just allows ….
2. These doctrines arose in equity and haven’t seen
much justification for them sense maybe bc of
origination and bc they have a higher standard of
proof but is still a recognized exception
6) Does not apply to evidence introduced to establish a
“collateral” agreement b/t the parties

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1. Separate ks…
TAYLOR V. STATE FARM: [called on* 3/8]
Julia’s notes below:
ix. Background Facts
Ring, Winstrom, and Taylor in car accident
Taylor was P in first law suit, State farm used their attorney (Hoffman) and
Randall, Taylor’s personal attorney
Taylor’s original claim is a negligence claim for the wreck
Rings and Rivers settled against SF, Winstrom got a ‘stipulated judgment’
x. Now Taylor is suing state farm for “bad faith”
He’s claiming that SF could have settled for the $1M (the policy limit), since they
risked going to the jury, leaving him with the excess
He sues in excess, and when it goes to trial they say the release was “ambiguous”
and allowed PER and he wins 2.1M
Court of Appeals reversed
xi. Before the bad faith claim, there would have been a K between SF and Taylor for
insurance. Valid K. In SoF? Not classically. BUT, its definitely going to be in
writing and signed. Just how they are
xii. So are we fighting about coverage? NO. They’re fighting about the release that he
signed while SF was representing him.
xiii. The Release
1. When was the release made??? AFTER, the verdict was returned and
Taylor had lost in the first action for 2.5M
2. Who prepared it? Randall. Taylor’s attorney. So we can’t automatically
enforce it against SF. They both signed and assented to it.
3. Taylor was going to relinquish his uninsured motorist coverage against
Winstrom and SF was going to pay 15K.
4. SF says he was giving up all contractual claims in the release
xiv. What are we fighting about? Interpretation. Taylor is trying to say he only
released the uninsured motorist, not the bad faith claim
1. What kind of Parol Evidence does he want to introduce? Extrinsic
evidence such as testimony from the lawyers, etc.
2. So what does he want to show? How? That he had a potential claim for
$2.5M and he only got $15K, a jury is likely to see that he was not
intending to release ALL claims when he had this much against him!
Which additionally was labeled as “uninsured motorist” by state farm.
Release was signed AFTER. Also tried a garnish claim, something ab
debtor creditor idk
xv. Parol Evidence

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1. Was the release a final writing? Yes. It was signed, all the terms they
wanted were in there. Final and complete? Probably so, unlikely that they
would try to add terms.
xvi. Now we ask why we are trying to get the Parol Evidence in.
1. To add? No. To contradict? That’s what SF says! Taylor says it’s to explain.
To get it in to explain, he must convince the court that there’s something
to explain (ambiguity).
xvii. A lot of courts are going to take the plain meaning approach. This is what the
Court of Appeals did after trial court said it was ambiguous.
xviii. What about the Corbin view? (Arkansas & Restatement)
1. Even if it looks pretty clear on its face, you can introduce evidence that
there is an ambiguous meaning to the judge. The judge will then de cide if
the evidence will be heard by the jury
xix. Court here lets the evidence in. Why? AZ doesn’t require a finding of ambiguity.
“Reasonably susceptible” to more than one meaning. The judge looked at all of
the evidence and determined that it was susceptible to more than one meaning.
So then all the evidence can be determined by the jury. Trial court decision
affirmed

My notes before class:

Bobby Sid Taylor P in accident and mad at his insurance company
ii. Didn’t settle w/ other parties w/in amount of his policy, now has
judgment against him for $25 million
iii. Claiming company refused to settle in bad faith
iv. Taylor gets some uninsured motorists money for a release of future
claims
1. “In full satisfaction of all contractual claims, causes of action
he has or may have against State Farm and all subsequent
matters”
v. Taylor argues didn’t intend release to limit tort claims, only K claims,
uninsured motorist**
vi. Trial judge found release ambiguous  allowed parol evidence
vii. Appellate court said not ambiguous
viii. Issue: decide if release language reasonably susceptible to Taylor’s
proffered interpretation in light of evidence relevant to parties’
intent
ix. Holding: reversed and remanded; language reasonably
susceptible to Taylor’s proffered interpretation in light of
evidence relevant to parties’ intent
1. AZ adopts Corbin view:
a. (1) Examine all evidence to determine integration
and intent of parties
b. (2) Use parol evidence rule to exclude evidence
that would vary or contradict the meaning of the
written words

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c. Judge may stop listening if proffered interpretation

highly improbable
2. Legal character of bad faith not universally established so
release could be reasonably interpreted as Taylor asserts
3. Parol evidence to support Taylor’s interpretation:
a. State Farm apparently didn’t insist that release
contain broad language  suggests knew Taylor
wouldn’t sign if it did
b. State Farm knew large size of bad faith claim, Taylor
would seek something more than $15,000 to release
claim
c. Parties used limiting language in release, confining it
to “contractual” and “subsequent” matters
4. Substantial evidence supports State Farm’s interpretation as
well
x. Concurrence: rule amorphous, only this court can make final
determination in K
b. Comparing Thompson with Taylor (approaches to parol evidence rule and
interpretation)
i. Thompson = supplementation; trying to add warranty term
ii. Taylor = interpretation; extrinsic evidence didn’t show separate
agreement
1. Showed conduct and background circumstances Taylor
claimed were relevant to issue of whether release covered
bad faith tort claim
iii. Cases demonstrate tension b/w views of parol evidence rule:
1. Classical “Willistonian” view: great weight to formal writing
(both to parol evidence rule and questions of interpretation)
2. Modern “Corbinian” view: much greater use of extrinsic
evidence in determining the completeness and meaning
of written K
iv. Cases show relationship b/w “four corners” approach to integration
under parol evidence rule and “plain meaning” approach to
interpretation:
1. Courts relying on facial completeness of written K to
conclude complete integration more likely to rely on
plain meaning of words to bar extrinsic evidence to aid
interpretation
a. Occurs even though parol evidence rule explicitly
states rule doesn’t bar use of extrinsic evidence to
explain or interpret!
b. Existence of merger clause may further compel such
courts to assign plain meaning to words
2. “Plain meaning” doesn’t allow extrinsic evidence to uncover
latent ambiguity (see above)
v. Modern approach in Taylor allows use of extrinsic or parol
evidence if disputed language “reasonably susceptible” to
different proffered meanings
1. In making determination, court will consider at least
preliminarily extrinsic evidence and need not find agreement
patently ambiguous

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25. IMPLIED TERMS

A. Public policy; happens when you are missing a term
B. Can come from common law or statute
i. C/L: due to requirement that material terms will be definite
ii. Modern: courts are willing to save the K from invalidity
iii. UCC §2-204: just need intent to form a K and the ability to craft a remedy, gap-
fillers prevent K from failing
C. Implied in FACT v. implied in LAW
i. Implied in FACT-implied as a matter of fact by MA
1. A RPP would believe that the parties did agree to this term based on their
conduct and surrounding circumstances but they left it out on accident,
question for jury
a. Ex: employee K for receptionist, even if it didn’t specify the time,
would be implied that she should show up at 8 or 9, not 5
ii. Implied in LAW-court reads in the term regardless of whether or not the parties
intended it
1. Ordinarily a question for the judge, implied in by the court, like good faith
2. Good faith, duration, UCC gap filer
3. Legislature may say a term has to be in there (statute)

WOOD V. LUCY LADY DUFF:

premise that reading in as a matter of law
Radical thing to ask the court to read something in that is not there.
Here, does so to save the deal and for policy reasons. (What are those
policy reasons?)
i. K signed by both P and D giving P the exclusive right to use D’s name
on fashion items that he finds and then promote the sale of those
items
1. D gets half of all revenues and profits
ii. Breach: D began to promote herself through Sears
1. D says agreement is not a K b/c no consideration; P didn’t
have a performance minimum  no mutuality
iii. Trial ct. denied D’s motion for judgment; appellate ct. reversed
iv. Holding: reversed; court reads in a garden variety best efforts
requirement
1. An implied obligation to use reasonable efforts will prevent
a somewhat indefinite promise from being illusory
2. Must imply terms for K to have “business efficacy”
a. Otherwise Wood could do nothing, while at same
time represent whomever else he wants
3. Cardozo believes promise to pay = promise to use reasonable
efforts

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a. Why would P bind himself if he wouldn’t benefit?

i. Implies term b/c believes reflects intention of
parties
v. What if it was a non-exclusive agreement? One sided  no K
UCC § 2-306(2): duty to use best efforts to supply goods or promote
sale where K is for an exclusive deal
D. UCC Gap Fillers-Article 2 §2-306 (pg. 42)
i. Default, fallback provisions that only apply when you’ve left a gap
ii. Only have to address terms that are most likely to occur or those that you really
care about.
E. Exclusive Agreements (Illusory Promises)
i. If K doesn’t specify an amount the party would have to buy/sell for, the promise
is illusory.
F. K W/out a Duration
i. C/L view: terminates at will if either party can quit whenever, no binding K bc
their promises are illusory
ii. 3 Modern views:
1. terminable at will if K is silent as to duration
2. perpetual if silent (unlikely)
3. K endures for a reasonable time
a. Imply a reasonable duration
b. Read in GF, which implies a reasonable duration
iii. UCC K W/out Duration
1. Reasonable duration for successive performances
2. Also, read in notification for termination
G. AR approach to duration
i. Read in duration
H. Franchise Agreements
i. How to protect the franchise if the franchisor decides to terminate the K early?
1. UCC Applies (involves sale of goods)
a. Reasonable duration, have to fill in with gap fillers bc without
duration the promise is illusory and there would be no Ks.
b. Read in reasonable notification for termination
i. Look at circumstances…. how was it communicated, amount
of time in advance was reasonable, how long would it take to
recoup the investment
ii. AR approach [Implied Terms/Franchise K Termination Statute §4-72-204]
When no duration??
1. Question is how long you think is reasonable?

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2. Franchisor must give 90 days-written notice in advance, unless

termination is for good cause. (AR says 90 days is reasonable/3 months)
3. Once notification of termination is given, 30 days left open to fix (to
rectify any claimed deficiency).
LIBEL V. RAYNOR:
vi. Dealer-distributor relationship for garage doors
vii. Dealer is Leibel (P); Raynor (D) is the manufacturer and supplier of
the garage doors
viii. Dealer has exclusive right to sell Raynor’s garage doors for
indefinite time period
ix. Sales decrease over two yrs.
1. Supplier contacts dealer and terminates dealership (effective
immediately), informing dealer that he is giving the exclusive
right to another dealer
x. Supplier says he can terminate at will
xi. Dealer agrees, but says he is entitled to a reasonable amount of
notice
xii. Holding: summary judgment vacated; written notice was not
reasonable; what constitutes reasonable is a question of fact for
a jury
1. Reasonable = acceptable commercial conduct based on
nature, purpose, and circumstances
xiii. Is it within SOF?
1. Over $500
2. What exceptions can we try? Part performance and merchant
exception.
xiv. Trying to argue and say UCC applies.
Is he trying to do what last case says to read in? UCC comes from
legislature not court so different than last case (where court uses
power to read in); now want legislature to read in as a matter of law.
In order for this to work, we have to prove that UCC Article 2 applies
to this transaction.
xv. Court says is goods  garage doors (and yes they are moveable).
Question is, is this a sale? Court is saying regardless of how you
phrase this relationship (whether you call it dealer/seller, franchise,
or even if K labels as a service K), court will say UCC Art. 2 applies if
the intent is really to get and sell these items/goods to the public.
xvi. How did Raynor D terminate? Gave him written notice that he was
terminating that day. “Here’s your notice, today you are terminated.”
This means P did not get prior notice. What is the problem? If they
terminate that day, he is left stuck with a lot of inventory…etc.  to
serve as a protection.
“The time has come that a distributorship agreement in K must be
recognized as a sale of goods under UCC Article 2.”

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xvii. What does it mean if the UCC applies to this transaction?

They should have afforded Libel (P) a reasonable notice of
termination. This has been implemented by the legislature.
xviii. §2-309 Absences of Specific Time Provisions; Notice of Termination
1. Reasonable notification.
2. Reasonable duration depends on the facts of the situation at
hand.  a question of fact

26. GOOD FAITH

A. Read into every UCC K § 1-303 p. 18
B. § 205 Duty of Good Faith and Fair Dealing (p. 159)
C. What is good faith?
i. Has generally been defined by what is bad faith
ii. § 1-201 (20) (pg. 11)  means honesty in fact and the observance of reasonable
commercial standards of fair dealing
1. Honest in fact  no matter how stupid or gullible that action is, all you
have to prove is that you are a good person – clean/white part
2. Other part  Objective part: ok so did your action tested against what
other people would do in your position
a. AR applies both to everybody.
BAD FAITH GOOD FAITH

1)Seller concealing a defect in what he was Fully disclosing of material facts.

selling.
2)Builder willfully failing to perform in full, Substantially performing without
though otherwise substantially performing. knowingly deviating from
3)Contractor openly abusing bargaining specifications.
power to coerce an increase in the K price.
Refraining from abuse of bargaining
4)Hiring a broker and then deliberately
preventing him from consummating the power.
deal.
Acting cooperatively.
5)Conscious lack of diligence in mitigating
the other party’s damages. Acting diligently.
6)Arbitrarily and capriciously exercising a
Acting with some reason.
power to terminate a K.
7)Adopting an overreaching interpretation Interpreting K language fairly.
of K language.
8)Harassing the other party for repeated
Accepting adequate assurances.
assurance of performance.

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D. 4 ways GOOD FAITH is used toward K:

i. Interpret imply terms in the K  See Jenna or Julia’s notes.

1. [Jenna’s notes ] EX: A hires B to work for him and then B goes next door
and compete with him-breach of good faith and read the term you can’t
compete against me as good faith into the K.
ii. To temper express terms.
1. Take express terms and say even if you can do this there are limits
(temper).
2. [Jenna’s notes  ] terms (use good faith to modify those terms to enforce
the k) Take express terms of the K and although its literally there they
have to be performed in good faith.
EX: me and mbm have a K to deliver strawberries every day today there is a
snow storm and I still do it. Carrying out the k in good faith may temper
that express term-its bad faith to carry out the K exactly and literally in
that way described by the facts
iii. To limit discretion
1. [Jenna’s notes ] EX: A says to B I will pay you 5K to consult B says they
will consult periodically when needed. Problem is that B’s promise is
illusory and not binding. Courts will take these Ks and say they are not
purely illusory bc the discretion is read in and exercised by good faith this
will save the K
EX: hire a movie director and its their discretion to pick a place for it but he
picks the North Pole. This will be a breach because it is not an exercise of
discretion within good faith because you can clearly not
iv. To limit output/requirements
1. OUTPUT K Where the seller agrees to sell and the buyer-buy to all the
goods they deal with.
a. Ex: Jeanne selling all the pigeons she gets her hands on and Julia
stoves. It’s a fluctuating market so this assures her she can sell all the
pigeons she can get her hands on. Why would Julia buy? It assures
Julia of a supply of pigeons-a source of supply.
2. Courts didn’t like these when first dealing with them in courts.
a. Mutual assent? A promise of JA to supply the pigeons-but is
theoretically promising nothing if she can’t put out any. Julia promises
to buy.
3. So, for courts, this was discretionary from outputer and was seen illusory.
4. Other problem was to analyze this K in terms of definite and certainty was
there being no quantity element. This is a missing material element so it
could be taken as unenforceable-void.

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5. From here, in order to a promise of exclusivity-to sell only to that person.

Though, if they don’t explicitly state it you could convince the court that it
could be implied through conduct.
6. What about the indefinite and certainty issue? We solved this with good
faith–making it definite and certain enough.
7. Breach this K if (not if pigeons just die and she doesn’t produce any) it’s
costing more than she was selling and she tells me to take a hike.
[Jenna’s notes ] JA catches a bunch of Pigeons and enters a K with Julia to
sale her all of her pigeons for Julia to cook on her stoves. She is supposed to
sell ALL of her pigeons to Julia. Why agree? Assures Julia a supply of
pigeons/source of supply. JA has agreed to sell all of the pigeons (output) to
the one buyer (Julia). Problem: no amount of pigeons promised-this is
illusory. Julia is bound to buy but JA doesn’t have to give any pigeons so
therefore there is no mutuality. There is no quantity so its not definite or
certain and the K is not enforcement. Problem is that these K’s kept
happening. Ja’s promise to sell exclusively was enough to satisfy the
K. EXCLUSIVITY IS NEEDED IN A OUTPUT K. IF IT IS NOT STATED COULD
CONVINCE THE COURT IT IS IMPLIED. With the indefinite problem you
would use good faith. Whatever JA produces is held within good faith. If JA
doesn’t produce any pigeons then shes not in breach of K. If she produces 0
she produces 0 within good faith.
8. § 2-306 Output, Requirements, and Exclusive Dealings (p. 42  how
much can be produced)
a. (1) A term which measures the quantity by the output of the seller of
requirements of the buyer means such actual output or requirements
as may occur in good faith, except that no quantity unreasonably
disproportionate to any stated estimate or in the absence of a stated
estimate to any normal or otherwise comparable prior output or
requirements may be tendered or demanded.
b. (2) A lawful agreement by either the seller or the buyer for exclusive
dealing in the kind of goods concerned imposes unless otherwise
agreed an obligation by the seller to use best efforts to supply the
goods and by the buyer to use best efforts to promote their sale.
9. REQUIREMENTS K  opposite of an output k;
a. How do we solve the quantity problem?
i. Again, by good faith.
EX: Wes selling wattage and Dakota’s blueberries.
E. Reading Good faith into employment Ks: EMPLOYMENT AT WILL
When there is no duration specified, employment-at will. The court does not
disfavor because they allow flexibility between the parties. There are some
exceptions.
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i. C/L: Employment is terminable at will. Doesn’t have a term of duration. Why

strong public policy for at will employment? Want the employer to have
discretion with their business. Still true at some statutory protections. Idea at
C/L is maximum flexibility.
ii. Employment relationship is a different type of K. Has a personal relationship
that is ambiguous.
iii. GENERAL RULE-no duration=terminable at will, provides maximum flexibility
and allows both parties to use their best judgment
1. AR-can terminate for no cause, good cause, bad cause
2. Employment Manual-can’t arbitrarily terminate
3. Express statement “won’t terminate unless good cause”
4. No public policy Exception in AR
5. Damages-can read in a duration to determine damages-“lost wages from
termination minus any wages actually earned or could’ve been earned” -
(duty to mitigate losses)
a. Damages from termination-day of trial
b. Recover under K law, so no punitive damages
iv. Exceptions:
1. Express duration
a. Hire b for 5 years have a binding K for 5 years
2. Express PR due to hire only for cause.
a. Creates a K obligation. It is okay because it is part of your K. The
court will struggle with the issue of how long. How long to measure
damages if there is not an express duration in the K.
b. “permanent employee” not an expressed duration
Problem: firing for cause was actually part of your K. Is this a K promise
that gets fit into your K, was it binding? Or what if the statement just
shows up in a policy booklet-is that part of your K promise? This is a big
struggle for the courts, they usually will not see stuff in the manual as
binding terms. The problem is that an employee manual is a unilateral
statement of what they intend to make the employers do that is not
legally binding. Not given to you before you are hired so is it really part
of the K. Question of Intent and Question of Fact. Usually a smart
employer will say “this is not legally binding” some courts have said even
though that is explicit the facts do not support the statement it is not
legally binding.

3. Implied PR due to extra consideration

a. Extra consideration means something over and above what is
normally required to do. Has to be something extra thing exchanged.

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4. Breach of Good faith?

a. Take an employment at will and convert that into employment to be
fired only for at cause. (NO-especially not in AR) Good faith does not
turn an at will employment into good cause.
b. Some courts have carved out some limited protections of good
faith. Someone gets fired for retaliation that people want to
encourage like a Union this may be bad faith and equal a breach.
Ex: Fire a salesman on commission and fire them a day before the sale
close the court might fine this as a breach against good faith even at will
relationship.
5. Public policy
Majority rule: [AR has adopted] MAJ R: if the at will employee is fired
that is protected by statute and public policy the employee will have a
cause of action. EX: try to make the employee commit perjury but
they refuse and you fire them then the employee has a cause of
action. P. 521
a. Some reject as too nebulous
b. But most states see as a very narrow exception and this is what AR
does. Not protected just for doing a nice thing-if fired for this than not
an exception.
c. Some say this wrongful action is in tort and get tort damages but AR
say no, this is clearly a K COA. IN AR it is not a tort claim it is K
cause of action.
d. Public policy has to be expressed in statute
6. Constitution/Statute
7. PE
a. if you can prove all of the facts of PE you have PE
v. In AR  we follow at-will employment. For good cause, bad cause, or no cause
at all. And we do follow some exceptions.
1. If can convince court that employee manual is part of K and expressly
states will make part of K.
2. But we won’t imply one in or use good faith to imply one in.
3. Do recognize the public policy exception.
a. Must fall within a well establish public policy within the state
constitution or statutes.
b. Does not include
DONAHUE V. FEDERAL EXPRESS CORP.: Limit on Implied Good Faith Requirement in At-
Will Employment Relationships
Theory: breach of K and we read good faith into the K and this good faith was
violated. Violation of public policy found in PA (some kind of consumer

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protection statute)  Count 1. Count 2 We get Marshall the tort (why he is a D

in the case. Another tort is defamation, and again why we have Marshall in as a
D.
Do we have a K? Mutual assent  to work there? Consideration? Promise for
money to work there and a promise to work for them. Is there a duration? No, so
doesn’t that make those promises illusory? Yes. This is our problem. This would
make it an at-will employment K and Donahue (P) would normally lose.
There are 4 issues:
1) was there good faith
a. Do we read it in? Yes. But why, it is an at-will employment k?
b. Bc every K in state (PA) reads it in to the extent it has already been
enforced and carried out. Does that mean good faith turns it into
something other than an at-will K? Court says no. p. 516
c. P. 517 specific language expressly states that “do not create
contractual rights by termination”
d. Here, GF does not work to turn the at-will employment into
something else.
2) do we imply in a duration
3) was there some error in carrying out the
4) was there some specific intent to harm
vi. Issue. Is there an implied covenant of good faith that applies to at-will
employment relationships?
vii. Held. No.
1. The law imposes a duty of good faith on both parties to a contract in the
performance and enforcement of the contract. If an at -will employment
relationship includes contract terms beyond the at-will employment, the
duty of good faith applies to those terms. However, the courts do not
recognize an implied duty of good faith to a termination of a pure at -will
employment relationship.
2. P claims that D violated the duty of good faith in its treatment of his
appeal under D’s policies and procedures. Those policies expressly state
that they do not create contractual rights regarding termination, so there
are no contractual terms to which the duty of good faith can apply.
3. P asserts that he was terminated as a whistle-blower, in violation of
public policy. However, there are no statutes or legal precedents that
prohibit private companies from firing employees for reporting
unscrupulous practices.
4. Finally, P claims that he provided sufficient additional consideration to
overcome the presumption that he is an at-will employee, the
consideration being superior job performance. Such an allegation is
insufficient to establish additional consideration.
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[Haley’s notes]
P-Donahue
D-Fed Ex & Robert Marshall (Donahue’s supervisor)
LT-Breach of Contract-implied good faith in employment-at-will k; tortious interference with
contract; statutory violations; defamation
PH-appeal from order granting demurrer & entering judgment in favor of Fed Ex
Facts-Basically, Marshall was doing all these bad things like not paying invoices and
directing customers to go to his friend’s body shop.
 Donahue complained
 Marshall accused Donahue of making racial remarks and derogatory marks about
Marshalll to other vendors; gave him a bunch of responsibilities and was basically
bullying him around
 Donahue appealed his termination through Fed Ex’s GFTP, but was upheld bc they said
Donahue violated their accepted conduct policy
o Appealed by saying Marshall was seeking retribution bc Donahue exposed the
vendor non-payment issue
o *Fed Ex breached the implied covenant of good faith and fair dealing in an at-
will employment contract
 count 3-intentional interference with contract
 demurrer granted to Fed Ex & Marshall, Donahue appealed
o SOR: err in granting prelim objections
o Somers-could recover for bad faith relating to terms
beyond the termination, but not necessarily for the
termination itself
o Baker-NARROW holding, does not apply to any
employer-employee relationship, including at-will
employment. May look to employers GF in performing a
comprehensive evaluation and review process (eval.
Process was a PART of Baker’s contract)
 Can’t as a matter of law get relief
 ***GFTP was NOT expressly incorporated into
Appellant’s employee contract. GFTP did
expressly state that it did not create contractual
obligations on Fed Ex. Otherwise this case
would be analogous to Baker and his claim
would be viable.***

27. WARRANTIES
A. What is a warranty? Some kind of promise about the quality of the product or
something you are selling. Basically, a promise that some fact is true.
i. Talking about goods here but there also warranties for other areas created for
sales out of the UCC like for homes.
[Julia’s notes: absent 3/16/17]
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ii. A promise that some fact is true. Like insurance. In the sale of goods, it’s
about the quality and such of the goods (UCC Art. II)
iii. Express and Implied may overlap. They can be modified or excluded by
seller if they do it properly
iv. Express UCC §2-313
1. May be created by any affirmation of fact or promise by seller
a. Ex: kills 99% of germs. Must kill 99%
2. Any description of the goods as basis of the bargain
a. Wood table. Must be wood
b. Doesn’t have to be by word; past dealings apply
3. Any sample or model as basis of the bargain
a. A mock up when actually goods aren’t on hand
4. No specific intention to make a warranty OR say that it is a warranty
a. An affirmation of merely the value or opinion is not a warranty. It’s
known as “puffing” your product & is ok
5. Puffing v. Warranty
a. How specific, how detailed, are actual numbers cited, promissory or
hedging language?
v. Misrepresentations that buyer relies to detriment = fraud
1. Ex: First class shape; 1 owner car = express warranty
2. Like a rock; Most dependable = puffing
vi. Implied UCC §2-314
1. Unless excluded or modified by 216, it’s implied that they are
“merchantable” IF the seller is a merchant of that kind
2. Merchantable—at least such as… ordinary purpose of that kind
a. Laundry list under 314
vii. Implied Fitness Warranty §2-315
1. Seller (doesn’t have to be merchant) has reason to know the particular
reason goods will be used
2. Wasn’t paying attention to random details…
3. Goods don’t have to be defective, but suitable for the activity
viii. Implied Warranty that Title rests with Seller § 2-311
1. Nobody is gonna come take it, no liens or anything

Bayliner Marine Corp (D) v. Crow (∏)

Tidewater was local dealer of Bayliner manufacturer
Originally sued Tidewater, Bayliner, and Brunswick

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All but Bayliner remained D, dismissed or dropped

Theories: Breach of Express and Implied warranties
Still breach of K
K: M/A√ Consid: promise to sell boat, promise to pay√ SoF?: Sale of goods
over $500. Sufficient writing? Yes. Don’t really argue this
Express warranty: Brochure & 2 prop matrixes
Prop matrixes were about a different boat
Brochure was puffing
Implied warranties: Sale of goods, and merchantit’s read in
1a) Merchantability—seller is a merchant of that kind, and show standard
of merchantability in the trade
P fails to establish standard of trade. Should have got expert
testimony
2a) Fit for ordinary purposes—as a boat, used 850 hrs
Broad, just a boat! So ∏ tries to show it was specifically used for
fishing.. Not good enough proof. Fails
ix. Defenses seller could use in dispute  they were disclaimed, i.e.
x. § 2-316 Exclusion or Modification of Warranties [pg. 54]
Applies is seller says made warranty but only for a year or that
didn’t at all – so in both this is some way reducing the warranty
1. Words or conduct relevant to the creation of an express warranty and
words or conduct tending to negate or limit warranty shall be construed
wherever reasonable as consistent with each other; but subject to the
provisions of this Article on parol or extrinsic evidence (Section 2 -202)
negation or limitation is inoperative to the extent that such construction
is unreasonable.
2. Subject to subsection (3), to exclude or modify the implied warranty of
merchantability or any part of it the language must mention
merchantability and in case of a writing must be conspicuous, to exclude
or modify ay implied warranty of fitness is sufficient if it states, for
example, that “There are no warranties which extend beyond the
description on the face hereof.”
[Merchantability should be hard to take away.]
[Fitness requires more—in writing.]
3. Notwithstanding subsection (2)
a. Unless the circumstances indicate otherwise, all implied warranties
are excluded by expressions like “as is,” “with all faults” or other
language which in common understanding calls the buyer’s attention

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to the exclusion of warranties and makes plain that there is no

implied warranty; and
b. When the buyer before entering into the k has examined the goods or
the sample or model as fully as he desired or has refused to examine
the goods there is no implied warranty with regard to defects which
an examination ought in the circumstances to have revealed to him;
and
c. An implied warranty can also be excluded or modified by course of
dealing or course of performance or usage of trade.
4. Remedies for breach of warranty can be limited in accordance with the
provisions of this Article on liquidation or limitation of damages and on
contractual modification of remedy.

AVOIDING ENFORCEMENT OF K

28. BEFORE THE FORMATION OF K

SOMETIMES OTHERWISE ENFORCEABLE BARGAINS ARE VOIDABLE
A. We are now looking to defects in the bargaining process of contracting to avoid
performance without breaching the K.
i. Remedy is the right to disaffirm, to rescind, to void, to say K is no good and can’t
enforce against me
ii. Also, give P the right to get what was conferred against them  RESTITUION
(benefit conferred, unjust enrichment)
iii. One party lacked ability to assent b/c of lack of capacity (age/mental infirmities)
iv. Procedural, process unfair to one party (duress, undue influence,
misrepresentation, fraud)
v. So, unfair shouldn’t enforce (unconscionability)

29. MINORITY OR “INFANCY DOCTRINE”

A. Traditionally K voidable by minor, but power to affirm upon reaching majority; R 14
i. Traditional rule (AR) allows a minor to disaffirm or avoid a K, even if there has
been full performance and the minor cannot return to the adult what was
received in the exchange.
1. Thus, if minor received goods that cannot be returned or the minor
received goods that have since lost value, cts have allowed disaffirmance
and required the minor to return only what the minor still possesses or
any identifiable proceeds.
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a. Different if the item being sold is a necessity

ii. [Very restrictive: no restitution unless minor misrepresented age or willfully
destroyed the property
iii. Justified on ground didn’t have judgment to protect themselves in market place
a. Today less justification given sophistication of teenagers and great
involvement in consumer marketplace
i. More minor understood and exploited party, less
sympathetic ct.
ii. Some Js: minor who misrepresents age can still disaffirm, but
may be liable for tort for fraud]
a. Minority: traditionally held that minors/infants lack the
mental capacity to enter into a K; in ARKANSAS, the age or
majority used to be 21 for males and 18 for females; however,
now, the majority is at 18 for BOTH men and women
i. In ARKANSAS, we still protect minors (persons under
18; persons under 18 can take legal action to remove
the disabilities, but they have to be 16 to have the
disabilities removed); there is a court split as to the
effect of minority
ii. There is a court split to the effect of minority:
1. TRADITIONAL VIEW:
a. Minors can avoid any K entered into
while they were a minor by returning in
specie (in whatever condition it
currently happens to be in); the minor
could freely rescind the K, return the
item in any condition, and recover his
full purchase price (restore in value)
b. This is ARKANSAS’S approach
B. Modern
i. Requires a disaffirming minor to pay “reasonable compensation for the use of,
depreciation, and willful or negligent damage to the article purchased, while in
his hands, at least when the minor is seeking return of payment
ii. Minor can still avoid the K, but the minor has to compensate the other party;
there are 2 APPROACHES to how the minor must compensate the other party:
1. BENEFIT RULE  minor will be refunded the purchase price – the value
of benefit received
the minor will be refunded the purchase price MINUS the benefit of what
he received under the K (fair retain value); or

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2. DEPRECIATION RULE  recovery of purchase price is subject to a

deduction for depreciation while in the minor’s possession
the recovery of the purchase price is subject to a deduction for
depreciation while in the minor’s possession
C. Exceptions
i. Necessaries (not put in our restatement is adopted)
1. Burden of proving is on adult???
2. Minors are only liable for the reasonable value
3. These are questions of fact  cars aren’t normally necessaries for minors
unless facts reveal otherwise, i.e. has to work and has to have car to get
there
4. AR: necessary for food, shelter, survival comfortably…
ii. Emancipation
1. AR 9-26-104
DODSON (P) v. SHRADER (D)
16-yr. old Dodson borrowed money from girlfriend’s grandmother to buy car
Runs it into the ground; w/in 9 mo takes in for service, can’t afford burnt valve repairs
Calls Shraders and wants money back
Parks car in parent’s front yard, gets hit by passing car
Originally worth $5000, now worth $500

Two rules:
Benefit rule
Focused on value minor got from K
Lease payments for similar vehicle

Use rule
Focus on depreciation
What can potentially be returned?

Holding: throws rules together—modified use rule

If minor hasn’t been overreached, no undue influence, K fair and reasonable, minor
actually paid, and took and used article,
Then minor must provide reasonable compensation for use, depreciation, and
willful or negligent damage
Doesn’t apply if fraud or unfair advantage over minor
Remand
Findings on gross negligence wrt valve damage
Review tortious counterclaim
Minor liable for reasonable value of “necessaries”; R 12 comment f
Parents responsible if minor can’t pay
Not true rescission b/c can’t take them back
Mere ignorance of minor’s age no defense to disaffirmance
Minor must disaffirm w/in reasonable time
Depends how fast will depreciate
Statutory limits:
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Still bound to checking account if under 18

If statute says age is irrelevant, cannot use minority to avoid
K.
Courts split on pre-injury exculpatory agreements
Courts split on effect of marriage and capacity to K

iii. Voidable  the party who has the power to avoid instead has the power to
“ratify”
1. With SOF (see sof handout from a while back)
2. If minor reaches majority (is an adult) can ratify and must be in writing.
In AR, if the minor keeps and uses goods, it’s ratification (avoid SOF)

iii. Exceptions:
1. Doctrine of Necessaries: recognized in ARKANSAS; CL has
always recognized an exception for necessaries: the K to a
certain extent will be good when you’re dealing with
necessaries, because we need to encourage adults to be
willing to sell stuff to minors so that minors can survive; BUT,
this enforcing the K for necessaries is really based on
restitutionary principles, and it will only make minor pay
reasonable value of the necessaries
a. Policy: don’t want people to deny a minor something
they really need
b. Not necessary unless it’s needed for minor’s
livelihood
i. I.e.: food, clothing, housing lease, K with
attorney
c. ONLY minor can avoid the K; adult cannot
d. Adult bears the burden of proving that it IS necessary
e. Remedy = reasonable value of the necessaries, not
necessarily what the minor paid; comparable to
restitution
2. Ratification: Can ratify the K once you become an adult; can
affirm a prior K because the K was only VOIDABLE
a. Does NOT require new consideration; however, it can
be ratified by a performance by the K even though it’s
not in writing (if the minor continues to make
installments after he becomes an adult…)
b. ARKANSAS: can ratify ONLY if it complies with the
SOF (but, conduct may show…i.e. continuing to pay
installments)
i. Taken out of SOF
1. Part performance
a. Payments, possession,
improvements
2. Promissory estoppel
3. Misrepresentation or Fraud: minor may be let out of the K, but
they then may force tort liability

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a. ARKANSAS does NOT apply this exception: if a

minor lies about their age, the minor may still
rescind…
4. Marriage: some jxns allow this to change the exception, but
ARKANSAS does NOT
5. Minority Removed: a minor may petition, have a hearing, and
have “disabilities” removed
iv. Effect? A minor’s K is VOIDABLE; minor is responsible for taking
action to get out of it!

Infant still entitled to void but courts are still changing and deciding to what extent/how much.

30. MENTAL INCAPCITY

A. Burden of proving lack of capacity is on the person seeking to get out of the K 
50/50 prove and is a question of fact
i. Like any other issue of fact – put on testimony, etc.
ii. Like minority, tested at the time of the K.
iii. Like minority, the incompetent must prove they are incompetent and can get out
of K.
iv. Only requires mental incompetence at the time of the K, not a
progressive/permanent/or long term mental illness/defect
SPARROW (P) V. DEMONICO (D)
Dispute over ownership of family home where P & D are sisters but D currently lives in
home and D and her husband are listed on the deed. The two come to an agreement before
trial in voluntary mediation and P sought an order to enforce this but the court denied and
D is claiming lack of mental capacity.
In terms of mediation settlement agreement was there mutual assent? P said she agreed
and it was even put in writing and signed it. D says she didn’t bc she had a “mental
breakdown” – didn’t stay until end of it, her lawyer signed it, she was too upset to stay.
Principal agent relationship – did the lawyer have this authority? Yes, lawyer was
authorized. So, facially it looks like we have MA.

Consideration? P was promising to drop the suit  to forbear and give up her cause of
action – and yes, this is valid consideration. D is promising to sell the property and give P a
part of the proceeds.
Is it in SOF? Maybe. It is a signed writing and a sell of property.
Looks like we have all the elements for a binding legal K. So can D get out of it?

Here adopt  BOTH TESTS  so here in mass., it is easier to pass either tests. State is more
generous.

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Here, flunking either test would allow D to succeed in voiding K BUT D failed to
show medical evidence – she only had her own testimony so she has to follow
through and pay up to her sister.
Why both tests? Up to date sciences have helped us better understand
mental illness could be either of those defects.
B. 2 TESTS

i. Cognitive  can your brain understand what you are doing

ii. Volitional  whether you can control your actions, more than understanding –
do they have the willpower?
1. More about your ability to control what we do.
iii. Restatement adopts both tests. § 15 Mental Illness or Defect (pg. 140)
1. A person incurs only voidable contractual duties by entering into a
transaction if by reason of mental illness or defect
a. He is unable to understand in a reasonable manner the nature and
consequences of the transaction, or
b. He is unable to act in a reasonable manner in relation to the
transaction and the other party has reason to know of his condition.
2. Where K is made on fair terms and the other party is without knowledge
of the mental illness or defect, the power of avoidance under Subsection
(1) terminates to the extent that the k has been so performed in whole or
in part or the circumstances have so changed that avoidance would be
unjust. In such a case a court may grant relief as justice requires.
iv. Restatement § 13 | Effect of guardianship of property (not in book)
1. A person has no capacity to incur contractual duties if his property is
under guardianship by reason of an adjudication of mental illness or
defect.
v. In meditation if it succeeds it enters into K and is binding but is not always. If it
fails, just have to make a good faith effort. Arbitration is different and is another
alternative to court but…
vi. AR adopts cognitive.
vii. If the maker of a deed has sufficient mental capacity to retain in her
memory the extent and condition of her property and comprehend how
and who she is disposing of it and upon what consideration, then she
possesses sufficient mental capacity to execute such instrument.
1. How much and what do you got
2. What are you doing with it and to who
a. Presumes all are sane and competent, so to get out of it you have the
burden of proving otherwise
b. Minute you are out of hospital you are considered competent again

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c. Incapacitated person who is appointed a guardian is no longer

presumed incompetent
d. But if you are adjudicated, still have legal rights except those
specifically limited by court or granted by the court to the guardian.
e. Can ratify if you regain mental capacity.

31. DURESS
This is about the process of negotiation…
A. Duress is when a party is being forced to do something by some unlawful threat so
courts are sympathetic to you because K must be voluntary (a product of the mutual
assent of both parties) and under duress there looks like MA but on closer
examination the party is really a mechanical instrument that that is involuntary
B. Also, called coercion
i. but NOT blackmail or extortion because those are criminal
C. is NOT a tort
D. Against one party’s will.
E. Physical compulsion or some kind of threat that makes the K no good.
i. Threat is a manifestation on the part of other party to get party against to lose
something.
1. Threats can be express or implied.
2. Threat must be improper.
a. Ex: I will only deliver cables to you if you pay $10.  May be duress if I
have always sold on credit before and now I want prior payment or if
our K was only for 5 and now I want 10.  Not a threat just to have
such a condition though if it is within our K.
3. Threat must be sufficiently grave.
a. C/L said of loss of life or limb, imprisonment, or mayhem
F. Economic duress
i. Aka business compulsion
ii. Any wrongful act can constitute duress.
1. Now even wrongful if someone threatens to do what they are entitled to
do and is legally permissible for them to do what they do if
iii. Threat to violate/breach K may be duress if violates good faith and fair dealing
iv. § 176 When a Threat is Improper
1. A threat is improper if

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a. What is threatened is a crime or a tort, or the threat itself would be a

crime or a tort if it resulted in obtaining property.
b. What is threatened is criminal prosecution.
c. What is threatened is the use of civil process and the threat is made in
bad faith, or
d. The threat is a breach of the duty of good faith and fair dealing under
a K with the recipient.
2. A threat is improper if the resulting exchange is not on fair terms, and
benefit the party making the threat,
a. The threatened act would harm the recipient and would not
significantly benefit the party making the threat,
b. The effectiveness of the threat in inducing the manifestation of assent
is significantly increased by prior unfair dealing by the party making
the threat, or
c. What is threatened is otherwise a use of power for illegitimate means.
v. If there is duress what is the effect?
1. Physical  void = no legal effect
a. § 174 When Duress by Physical Compulsions Prevents Formation
of a K
If conduct that appears to be a manifestation of assent by a party who
does not intend to engage in that conduct is physically compelled by
duress, the conduct is not effective as a manifestation of assent.
2. Voidable  if you are victim make sure you take steps to get rid of it or if
you wait too long you risk ratifying it (better not keep consideration you
got or wait too long)
a. § 175 When Duress by Threat Makes a K Voidable
i. If a party’s manifestation of assent is induced by an improper
threat by the other party that leaves the victim no
reasonable alternative, the K is voidable by the victim.
ii. If a party’s manifestation of assent is induced by one who is
not a party to the transaction, the K is voidable by the victim
unless the other party to the transaction in good faith and
without reason to know of the duress either gives value or
relies materially on the transaction.

TOTEM MARINE TUG & BARGE, INC. V. ALYESKA PIPELINE SERVICE CO.

 P-Totem Marine Tug & Barge, Inc. (appellants)

o Richard Stair (VP of Totem)
o Pacific Co. (loaned money for barge)
 D-Alyeska Pipeline Service Co.

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 LT-wrongful termination of contract, action to disaffirm contract

 PH-appeal from grant of summary judgment in favor of defendants
 (original amended complaint sought to rescind the 975k settlement and enforce
payment due based on original contract)

 Try to get rid of K #2 (rescind on grounds of duress) and recover balance of original K
 Was there a wrongful act or threat? They didn’t pay them the money when it was due. D
deliberately withheld payment owed under K. Bad faith. (p. 580)
Indicate there was no unreasonable alternative.
 How do we test if overcome will? Subject in totem’s position. And yes, was case here
they were going into debt and had no option.
Court adopted three elements:
Was there an improper threat
Lack of reasonable alternative
Causation (circumstances were the result of coercive acts of the
other party  top of p. 578 explains/elaborates)

 All material facts, so court remands for trial

Causation  threat must substantially contribute to

G. AR adopts duress
i. Economic: financial hardship had to be created by the duress-er
ii. Party voluntary accepted the terms of the opposing party, that the
circumstances permitted no other alternative, and that the circumstances
resulted from the opposing party
1. Must show more than reluctance to accept a K and fear of financial
embarrassment. Deprived of own free will.

32. UNDUE INFLUENCE

A. It is unfair persuasion, overpersuasion
B. Usually arises in a confidential relationship but not always
i. Meaning a fiduciary relationship where one relies on and trusts the other,
thinking they are looking out for your best interests
1. Usually a family- husband and wife, parent and child- or professional
relationship – doctor and patient, trustee and beneficiary, attorney and
client
ii. Kind of the middle between coercion and force…
iii. Usually takes place in privacy
iv. So usually may have … evidence

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v. Will often see this occurring after death in wills and trusts
vi. § 177 When Undue Influence Makes a K voidable
1. Undue Influence is unfair persuasion of a party who is under the
domination of the person exercising the persuasion or who by virtue of
the relation between them is justified in assuming that that person will
not act in a manner inconsistent with his welfare.
2. If a party’s manifestation of assent is induced by undue influence by the
other party, the k is voidable by the victim.
[Effect of undue influence (2): works same way as duress and is only
voidable by the susceptible party – remedy is rescission and
restitution conferred: so one claiming this must also give u p what they
got from it]
Rescission=voidable=parties left like K was never made*
3. If a party’s manifestation of assent is induced by one who is not a party to
the transaction, the K is voidable by the victim unless the other party to
the transaction in good faith and without reason to know of the undue
influence either gives value or relies materially on the transaction.

ODORIZZI (P) V. BLOOMFIELD SCHOOL DISTRICT (D)

Here, have 2 ks. First, his employment K. Second, his resignation.
P wants to rescind his written and signed resignation as a teacher claiming it
under the following legal theories because after being arrested for being gay
basically he says the principal and superintendent coerced him.
Remedy-wants to rescind resignation
PH-appeal from judgment dismissing plaintiff’s amended complaint on
demurrer
Legal theories:
i. Duress/menace
ii. Fraud
iii. Mistake
iv. Undue influence
1. All of this call into question the mutual assent in the K of the
written resignation.
2. But facially it looks like we have mutual assent.
3. What is the consideration? D said they wouldn’t pursue
suspension procedure
No duress here because California still follows that older narrow statutory
definition and there was no unlawful threat. Today, more likely to be able to
make out a claim for duress.
v. Over-persuasion factors:
1. Discussion of transaction at an unusual time
a. Was just arrested and didn’t sleep for 40 hours

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2. Consummation at unusual place

a. Occurred at his apartment/home.
3. Insistent demand business be finished at once
a. Said he needed to resign immediately
4. Extreme emphasis on untoward consequences of delay
a. Told him if he didn’t resign at once that they would fire him
and publicize the proceedings so he would likely never get a
job again.
5. Multiple persuaders by dominant party against servient
party
a. Principal and superintendent v. P
6. Absence of third-party advisors
a. Just Odorizzi
7. Statements no time to consult financial advisors or
attorneys
a. Told him there was no time to consult an attorney
b. Like seduction v. rape, manner is important w/ undue
influence
(shows he was put under high pressure)
Held: He was able to rescind transaction/make voidable because his consent
was a product of undue influence.

33. FRAUD
A. Overlaps with Tort law
i. Here, fraud means same thing as misrepresentation
ii. Arkansas Fraud Elements:
1. False representation of material fact
a. Has to be a substantial factor into entering into the K. Doesn’t have to
be the deciding factor but must be substantial.
b. Generally, has to relate to some past event that has already occurred
or to present circumstances as they present to you.
c. Exceptions:
i. Even if happening in the future if it is more than a prediction
and is specific and clear enough it make be an exception.
ii. Even though general rule is that opinions are not fraud,
people have been held if you can prove that they were lying
about the opinion. (this one seems complicated.)
[Material: substantial to reach decision, if not the sole reason

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Fact: for fraud, the party must have made a misstatement of fact, NOT
opinion; the fact also has to be a past event or present circumstance, not a
statement about the future like a prediction (unless you know a statement
about the future will not become true)
Opinions: Generally NOT opinions: belief or expression of judgment as to
quality, value, authenticity, or similar matters; NOT REASONABLE TO RELY
ON MY OPINION; jury may determine if statements are opinion or fact;
Opinions CAN be actionable, however, under Rstmt. 2d §169 IF:
(1) Recipient stands in such a relation of trust and confidence to the
person that the recipient is reasonable in relying on it, or
(2) Reasonably believes the person has special skill, judgment or
objectivity with respect to the subject matter, or
(3) Is for some other special reason particularly susceptible to a
misrepresentation of the type involved
(4) Misrepresenting the fact that you hold an opinion may be
actionable (misrepresenting your state of mind)
(5) When the opinion implies that there are embedded facts that the
party knows to be untrue

2. Know is false (or insufficient information)

a. This is the mental state requirement  Scienter
The party must have known that his statement was false. Clearly, if he
intentionally lies, he has committed fraud. But, a lesser mental state
(lesser scienter) can also be fraud. In ARKANSAS this is called
constructive fraud.
b. RECKLESS: when a person lacks a basis to believe that it’s true, and
they make the assertion anyway, this reckless mental state will work
for fraud
Don’t know it to be true but make the assertion anyway
c. NEGLIGENCE: ARKANSAS has repeatedly said that it won’t recognize
negligent fraud; however, it has a COA, called constructive fraud that
looks a lot like negligent misrepresentation
i. In ARKANSAS, constructive fraud (aka legal fraud):
1. The making of misrepresentations by one who, not knowing
whether they are true or not, asserts them to be true without
knowledge of their falsity and without moral guilt or evil intent.
2. Fraud innocently made.

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3. Intent to induce action

a. This is an intentional tort so must be on purpose.
b. Fraud = intentional tort
c. Party making the representation must INTEND for the other party to
rely on it by acting or refraining from acting
4. Justifiable reliance
a. The P has to rely and has to do so justifiably/reasonably. They have to
go out to their detriment in some way. Here, you must reasonably rely
on the lies told to you.
b. Must in fact rely, REASONABLY, on the representation
c. If the person could have discovered this info on his own, then they
have NOT reasonably relied
d. PER will NOT bar evidence to prove fraud, but the issue will shift to
whether the reliance on the oral promise was reasonable
5. Damage
a. Some kind of harm because of relying.
Ex: MBM knowingly lies to Marshall that she is selling him a 2015 boat for
$100k (it is rally 2012) and Marshall offers and pays $90k.
Marshall has 2 option: can rescind/undue K OR since it is a voidable K he
can affirm the K and sue for damages.
Rescind he gets his money back.
If he decides he actually wants to still keep the boat, he takes the
tort route.
The issue here is that K and torts measure damages want to
measure damages differently.
K put into position as if K was carried out  to put Marshall in
net-positive because we want people to K and we think it is fair to
put him in this better position. However, tort law thinks we should
just put him back in his original position.
1. K Damages is measured as the difference between the property
as represented (what you were promised) and what the actuality
was  we do this in AR
2. Tort law is just to recover what you lost. Difference between what
it’s worth and what you paid.
a. So usually for torts, the damages are worse off than K.
iii. So, if all these elements are met the P can either
1. Rescind the K (restitution damages)
OR
2. Affirm & sue in tort.
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iv. Punitive damages – usually not available for breach of K but are in torts.
1. AR allows you to get punitive damages through tort OR rescission. (so
remember AR is very liberal here about the kinds of damages you can get)
v. Elements overview
1. False representation of material fact
a. Nondisclosure IS enough for fraud if there is a duty on that person to
speak up.
b. So question becomes when do I have a duty to speak?
c. § 161 When Non-Disclosure is equivalent to an assertion
A person’s non-disclosure of a fact known to him is equivalent to an
assertion that fact does not exist in the following cases only:
a where he knows that disclosure of the fact is necessary to prevent
some previous assertion from being a misrepresentation or from
being fraudulent or material
b where he knows that disclosure of the fact would correct a mistake
of the other party as to a basic assumption on which that party is
making the K and if non-disclosure of the fact amounts to a failure
to act in good faith and in accordance with reasonable standards
of fair dealing.
a. Pg. 614: differences in intelligence of the parties, their
relationship, the manner in which the info was acquired
(whether by chance or effort), whether the fact that was
not disclosed was readily discoverable, whether the person
failing to make disclosure was the seller rather than the
buyer, the type of K (insurance or releases usually need full
disclosure), the importance of the fact not disclosed, and
whether active concealment occurred.
a. AR same 2 remedies exist for affirmative lies and for non.
c Where he knows that disclosure of the fact would correct a
mistake of the other party as to the contents or effect of a writing,
evidencing or embodying an agreement in whole or in part
d Where the other person is entitled to know the fact bc of a relation
of trust and confidence between them.
STECHSCHULTE (Ps: husband & wife home buyers) v. JENNINGS (Ds: home seller &
fiancé real estate agent)
D has put home into a revocable trust. (so that home can go any of his heirs
w/o going thru probate law process). So, D is just the trustee and we deal
with him like he is the owner of the property. Golson is his fiancé & realtor.
The real estate company is also a D (and a limited liability company LLC).

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Legal theories: breach of K, fraudulent inducement (tort), fraud by silence

(aka fraud by concealment; tort), negligent misrepresentation (tort – lesser
mental state & in AR called fraud by omission), violation of KCPA (statutory
cause of action).

Fraudulent inducement: 1 Court says a lot of evidence that there were

false representations to material fact. 2 yes plenty of evidence that knew
was false. 3intent – yes to sell the house. 4 reliance – yes bought the
house. 5 this element is at issue here.
As an integration clause is that any oral representations made
outside are cut off. It does not protect a seller from the buyer’s suit
based on representations and failure to disclose in the form itself.
This coa survives and is remanded for more facts.

Fraud by silence: 1 D had knowledge of material facts. 2D had duty to

speak. 3D failed to communicate. 4 reliance. 5 P sustained damage.
This coa is remanded.
Negligent misrepresentation (fraud by omission in AR): 1 person giving
false info failed to exercise reasonable care in communicating. 2 only
person who can sue for this in Kansas is those who we made the negligent
misrepresentation to and for. 3 damages suffered in transaction to the
person the info is intended to influence.
This coa survives summary judgment.

Breach of K: 1 yes a K. 2 yes consideration. 3 P’s performance or

willingness to perform. 4 D’s breach, the K was the buyer
acknowledgment and we can imply breach here. 5 damages to P caused by
breach.
There were at least enough fact issues here to survive summary
judgment.

Statutory cause of action also survives summary judgment.

Normally, real estate agents are liable for fraud by their sellers but here, the
problem is that Golson had the mental state- she had knowledge that he was
lying. So, she is potentially liable for fraud too. Now, fact issues  did she
know.

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34. UNCONSCIONABILITY
A. § 2-302 Unconscionable K or Clause
i. If court finds K or any clause to have been unconscionable at the time it was
made the ct may refuse to enforce the J, or it may enforce the remainder of the K
without the unconscionable clause, or it may so limit the application of any
unconscionable clause as to avoid any unconscionable result.
ii. When it is claimed or appears to the ct that the K or any clause thereof may be
unconscionable the parties shall be afforded a reasonable opportunity to
present evidence as to its commercial setting, purpose, and effect to aid the
court in making the determination.
B. § 208 Unconscionable K or Term
i. If a K or term thereof is unconscionable at the time the K is made a ct may refuse
to enforce the K, or may enforce the remainder of the K without the
unconscionable term, or may so limit the application of any unconscionable
term as to avoid any unconscionable result.
C. Courts are careful about using it
i. Generally, don’t’ apply to 2 business people but to poor or disadvantage
ii. As a defense
iii. Use when shock the conscious of the court
D. Scope
i. Although the U.C.C. applies only to the sale of goods, courts have applied the rule
of unconscionability to all contracts. AVAILABLE FOR ANY K. Courts are careful
only use it for cases that “shock the court.” Mostly involved in cases for poor
and disadvantaged. Usually it is raised as an defense—the poor person sued on
the K used as a shield it can be used as a weapon. The remedy is usually to
strike down the k and rescind to how the people were before.
E. Type of unconscionability
i. Courts have recognized both procedural and substantive unconscionability.
Procedural unconscionability (process-was there a pressure to hurry, does one
party not have an education—how the K occurred) arises when one party
inserts a contract term that the other does not agree with and does not notice.
This typically arises in adhesion contracts of insurance, consumer loans, and
residential leases. Substantive unconscionability arises when a contract term
itself is unconscionable/unfair-excessive price or it is sometimes messing with
the remedies. Two prong test-substantive and procedural. AR is the totality of
the circumstances-not mandated a showing on both.
ii. Court can void the whole k, only void the clause, or edit a clause. Different ways
of performing unconscionability.
F. ARKANSAS LAW

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i. In a state that requires substantial and procedural unconscionable prong than

you will not be able to hold the K unconscionable just because of an excessive
price but if the state is a totality of circumstances like AR you could dependent
on the facts.
ii. Unilateral mistake in AR: (1.) So great that enforcing the k would be
unconscionable (2.) Important substantial fact (3.) Mistake must have a
occurred not withstanding the exercise of reasonable care by the party that
made the mistake (4.) The other party cannot have made any changes to the
property (nothing has changed since the K was made)
iii.  AR is liberal on unconscionability and they did not look at it procedurally just
substantially. Two considerations of unconsionability 1. Gross inequality of
bargaining power 2. Whether the victim knew about the wrong situation. Look
at the totality of the circumstances.
iv.  When working a case for MBM look at both prongs procedurally and
substantial and work through both prongs.
G. Mandatory Arbitration and Unconscionability
i. Consumers do not like this because the other party that goes usually has
experience in arbitration. Parties can also not bring a class action suit therefore
they cannot usually pay a good attorney. No precedent in arbitration.
ii. Federal courts love arbitration though because it is designed to relieve case
load.
iii. If you stick a federal arbitration clause through consumer K can you strike down
the K through unconscionabiliity? Used to be successful but SC shut them down.
iv. In order to attack arbitration clauses you would have to probably do it through
legislature since courts favor arbitration.
v. Consumer protection
1. In AR the attorney general covers consumer protection 4-88-101
2. Consumer financial protection bureau covers consumer protection
federally.

Williams v. Walker-Thomas Furniture Co.

 P-people who had purchased furniture from Walker, to be paid for in installments
 LT- eplevin brought by Walker Thomas-property, affirmative defense by Williams is
unconscionability
 PH-P’s appealing, TC & AC said no power to declare contracts unconscionable. This
court remands to decide issue of unconscionability.
 Facts (sale of goods, UCC §2-302 applies)
o W-T retained title until items were fully paid for and retained the right to
repossess in case of default. Also, the K made it so if they ever bought any other
furniture, it also became subject to payment on all previous items
 Debt incurred each time something new was bought was secured by right
to repossess all items previously purchased

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o THORNE-bought Daveno, three tables, two lamps and when he defaulted on

monthly payments WT sought to replevy all items purchased since first trans.
o WILLIAMS-bought stereo set and defaulted on the monthly payments in 1962,
sought replevy on all items bought since 1962
Store sends sales reps. out to houses of welfare recipients right after welfare checks are
received every mo.
Sold welfare recipient an item more than two times value of welfare check when needs
check to pay for necessities for her and her kids
Purchase items from seller and make mo. payments, but cross collateral provision (“add-on
clause”) in K keeps a balance due on every item purchased until the balance on all items is
liquidated
Buyers defaulted and seller seeks repossession of all items purchased from them; buyers
appeal when trial ct. finds in favor of seller
DC hasn’t adopted UCC 2-302
Holding: reversed and remanded; trial ct. can determine whether unconscionable
Procedural: absence of meaningful choice for one party
All circumstances surrounding transaction
She’s on welfare $218 per mo., Seven kids to feed
Negated if gross inequality of bargaining power (one-sided bargain)
Walker-Thomas knew situation & she was almost done paying off and sold her new item
Important terms hidden or minimized
Hidden in long K
Reasonable opportunity to understand terms
Education of parties may be significant
Substantive: K terms unreasonably favorable to other party
Outcome of enforcing K term
Unable to pay her kids will sit on floor b/c going to take all her furniture
Fairness of terms considered in light of commercial background and needs of trade
Nobody wants used furniture; Walker Thomas has to protect itself by getting back before
depreciates
Dissent: believes policy decision not for court to decide
 Rationale
o “If a K be unreasonable and unconscionable, but not void for fraud, a court of
law will give to the party who sues for its breach damages, not according to its
letter, but only such as he is equitably entitled to”
o HOLDING-where the element of unconscionability is present at a time a K is
made, the contract should not be enforced.”
 Unconscionability includes an absence of meaningful choice on the part
of one of the parties together with contract terms which are
unreasonably favorable to the other party.
 Did each party-considering education/lack of education-have a
reasonable opportunity to understand the terms of the contract?
o When party w/ little bargaining power signs
commercially unreasonable K with little or no
knowledge of its terms, it is unlikely that there was
consent to its terms.

a. Unconscionability
i. Procedural and substantive elements
1. Minority, mental capacity, duress, undue influence, and
misrepresentation are only procedural
ii. Does it shock the conscience?
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1. Everyone must react the same, must think it is a “grossly unfair

bargain”
iii. Must be unconscionable at time K entered into
1. R 208:
a. Matter of law for judge to decide
b. May refuse to enforce whole K
c. May enforce w/o unconscionable term
d. May limit application to avoid unconscionable result
2. UCC 2-302
a. Matter of law for judge to decide
b. Opportunity to present evidence regarding
commercial setting, purpose, and effect
c. Same enforcement options as R 208
d. Some courts find unconscionability a defensive concept

H. Public Policy
i. K can be void for violating public policy or it can be illegal bc it violates criminal
law
ii. Defects in the substance itself. K’s that are illegal or against public policy. Will
call the K “illegal” but actually unenforceable due to public policy.
iii. At common law, courts occasionally refused to enforce contracts on grounds of
public policy, such as contracts that called for excessive interest rates (usury) or
restraint of trade. Many cases refer to this principle by calling the contract
unenforceable because of “illegality,” but the principle extends beyond matters
that are strictly illegal.
iv. Types of K cover a wide variety. K is against the criminal law. Ex: K to murder
someone, commit assault, arson, etc. Also picks up non-criminal things but picks
up gambling k’s, federal security law, etc. Void against public policy-cases for
divorce, selling body parts, babies, etc.
v. Person lies and says they have a license to cut hair and they cut our hair do I
have to pay them? It depends on the legislature. Did the legislature require a
permit to cut hair to protect the public policy or was it done another way.
1. AR we have a strong public policy any K that the legislature says is
illegal the K is void
vi. ·If both parties are equally at fault in entering in an illegal K the parties are “in
pari delicto” the court will not enforce/aid either party because the K is illegal.
vii. What if one of the parties is less at fault? Could possibly argue restitution. AR
case law: the city did not get a bid and already conferred 1000$ could get
restitution for the $1000—may or may not work. If one party is bad and the
other is not they may be able to get money on restitution but that depends on
the state it is very limited
viii. Is more broad than just “illegal” refers to statutes or laws of the state
ix. Illegal
1. Both parties knew it was illegal  no recovery.
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2. Differing mindsets more innocent can recover under restitution

a. One party’s conduct is illegal (usury, interest rate higher than state
cap)=other can get restitution
x. Arkansas  any kind of illegality renders the K void
xi. Court will not aid either party if K is void
1. Exception: sometimes will grant restitution if one is much more innocent
(she said something else) but obviously this possibility is limited
xii. Illegal Ks in AR:
1. Usury-excessive interest rates. Maximum interest rate is 17%. The whole
K will be void if the interest rate is higher than this.
2. Gambling notes, device, property the K is void
3. Any kind of illegal K.
I. Covenants not to compete (Trade)
i. Disfavored in AR
ii. Generally, court won’t uphold restraints. Cannot enter K to restrict trade bc
public policy likes competition and C/L & statutes view trade as good for the
public.
1. Sometimes if restraint of some trade is reasonable and is protecting some
interest they will uphold it
2. Ex: restraint to sale in a business (involves a good will component)
iii. Any kind of restrictive covenant to not compete with each other falls within this
area. These things were struck down in common law. Now the law will allow
reasonable restraints on competition if the effect is to enhance competition
rather than reduce it.
iv. Do we apply strict scrutiny or is it flexible?
1. Employer-employee strict scrutiny because they have unequal
bargaining power and it impacts the employees ability to make a living
(If a company has a good will component the court may be less scrutinized to
this covenant compared to others.)
a. Strict scrutiny requires you to look at the totality of the circumstance
and see if you can find a legitimate interest to protect.
b. Once you have a valid interest to protect, you look at the scope and it
has to be reasonable in terms of:
i. geography;
ii. time; and
iii. activity
c. If these are found to be reasonable it is valid. If Unreasonable  it is
INVALID. And violates public policy.

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2. Sale of business flexible, more likely to be upheld because bargaining

power is more equal
J. Blue Penciling
i. What about the blue pencil clause should a court be able to pencil in reasonable
specifics for a covenant if they do not agree with the covenant the problem with
this why would a person draft something in the covenant as reasonable if the
court is just going to change it. Blue pencil just applies to possible illegal
covenants.
ii. The restatement accepts blue penciling section 184
iii. Some courts will do this which is a way to modify the K and will enforce the
edited version of the K.
iv. Only applies to covenants
v. Since it is illegal, some courts will tailor it down to something that is NOT
against public policy.
1. Unlimited: may reword offending clause entirely
2. Severance: eliminate the grammatically severable provisions -emit
offending portion but not completely change words
3. None: no blue penciling, citing the preservation of the freedom to K
REMEMBER: VOID  CAN POTENTIALLY HAVE LEGAL EFFECT IF YOU DON ’ T
TAKE STEPS TO DISAFFIRM
VOIDABLE  NOK; IF THERE IS NO K , THERE IS NO COA FOR BREACH , BUT
COULD RECOVER UNDER RESTITUTION .
vi. In Arkansas: (couldn’t Blue Pencil until 2015 and but does now it is in statute)
1. if ancillary to an employment agreement it is enforceable as long as
employer has a protectable legitimate interest;
2. Also, covenant limited to time and scope that is not greater than
necessary to defend the protectable biz interest
3. A protectable biz interest includes a laundry list in statute.
4. Lack of specific geographic area does not make it overly broad  when
you are measuring the 3 things even if you don’t have a geographic
restriction the covenant can be upheld/still be valid
5. Reasonableness shall be determined…. Blah blah blah?
6. Statutory mandated presumption that 2 years is reasonable
a. Helps employer when drafting on front end
7. A worthy employer can get damages or an injunction
8. An immediate harm associated with breach of a covenant not to compete
agreement shall be considered irreparable to establish the
appropriateness of a preliminary injunction

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a. Presumed to establish it; you have help getting a preliminary

injunction.
9. Shall reform the covenant not to compete to the extent necessary to
protect the interest
a. Shall is new and shows that it is mandatory.
10. If an employee continues to work this is sufficient for a covenant not to
compete. (?)
11. ONLY applies to employment in AR. Not to solicit employees, etc. as
traditional C/L standards apply to those. Doesn’t apply to certain
professions under another AR code (midwives, etc.). Exempts any
medical profession.
12. When measuring time, geography, and activity if you do not have a
geographic restriction the covenant will still be valid.
a. Two years is a reasonable length of time.
13. In a private action the court will award the employer damages. The
immediate harm associated with the breach of the covenant not to
compete agreement shall be considered irreparable to establish the
appropriateness of a preliminary injunction (gives the employer more
leeway to get a prelim injunction.)
14. If the covenant is not reasonable the court shall (mandatory-radical
change in AR case law) reform (blue pencil) the covenant to make it
reasonable to enforce. If the employer drafts a new covenant and you
continue to work there this covenant will be okay and sufficient
consideration of a new K.
VALLEY MEDICAL SPECIALIST V. FARBER
LT: (Torts) 1) breach; 2) breach of fiduciary duty; 3) conversion; 4) intentional
interference with business relations
Covenant not to compete invalid because violates public policy.
Employer-employee  strict scrutiny because they have unequal bargaining
power and it impacts the employees ability to make a living
Sale of business flexible, more likely to be upheld because bargaining power is
more equal
 They apply strict construction.
Strict: you look at the totality of the circumstances
Legitimate interest must be here.
Once you have a valid interest to protect, you look at the scope and it has to be
reasonable in terms of 1) geography 5 miles radius; 2) time 3 years; and 3)
activity no medical practice at all.
They didn’t find any of these to be reasonable. Unreasonable.
Does this court have the ability to blue pencil? ( to modify the K)

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Severability clause: not necessarily for a court to blue pencil if a state statute lets
you do it anyways but it likely helps. Power comes from state c/l or statute and
not the K here.
Can’t blue pencil so they find it invalid.
Cause of action lost.

35. AVOIDING ENFORCEMENT AFTER K FORMATION

Before (chapter 7) all of those applied to things that happened BEFORE the K and now
we are talking about (chapter 8) things that happen AFTER the K. Like you notice a
mistake or there is a change in circumstances.
A. MISTAKE: as to a fact that you think is true at the time you entered into the K but
later turns out it is not.
§ 151 Mistake Defined: [It] is a belief that is not in accord with the facts.
i. Tested as to the time K is made.
Ex: I sell you a house that you think is in one school district but it is really in
another.
ii. This does not apply to facts that we think will exist in the future.
iii. What is the remedy?
Gives quite a lot of deference to courts
1. K is voidable.
2. You sue for restitution.
a. Remember if you get something you have to give back whatever you
conferred. Remember, it is an equitable remedy.
3. Reformation: equitable remedy just allowing the K to rewrite as intended
(ex: a mixed-up date)  applies to writings
4. Damages  not the usual remedy but the courts have done it.
iv. You can use as a sword or a shield. You can sue or you can use as a defense.
v. Parole Evidence Rule
1. Won’t bar evidence of mistake bc ….
2. Pg. 160 § 214 Evidence of Prior or Contemporaneous Agreements and
Negotiations
vi. Can be a unilateral or bilateral mistake.
vii. Modern approach: mistake of law is riddled with exceptions therefore treats as a
mistake of fact at the existence of the K.
viii. § 152 When Mistake of Both Parties(mutual mistake) Makes a K VOIDABLE
1. Where mistake of both parties at the time a K was made as to a basic
assumption on which the K was made has a material effect on the agreed
exchange of performances, the K is voidable by the adversely affected
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party unless he bears the risk of the mistake under the rule stated in §
154.
2. In determining whether the mistake has a material effect on the agreed
exchange of performances, account is taken of any relief by way of
reformation, restitution, or otherwise.
ix. § 154 When a Party Bears the Risk of a Mistake
1. A party bears the risk of a mistake when
a. The risk is allocated to him by agreement of the parties, or
b. He is aware, at the time the K is made, that he has only limited
knowledge with respect to the facts to which the mistake relates but
treats his limited knowledge as sufficient, or
c. The risk is allocated to him by the court on the ground that it is
reasonable in the circumstances to do so.
2. Mutual mistake bearing the risk:
a. Agreement: risk is allocated to him by agreement of the parties, could
be expressed or implied by CP, CD, UT, or an “as is” clause, though
some courts will reject an “as is” clause as boilerplate language.
b. Conscious ignorance :
c. Court:
x. § 153 When Mistake of one Party Makes a K VOIDABLE (p. 151)
1. Where a mistake of one party at the time a K was made as to a basic
assumption on which the K has a material effect on the agreed exchange
of performances that is adverse to him, the K is voidable by him if he does
not bear the risk of the mistake under the rule stated in § 154, and
a. The effect of the mistake is such that enforcement of the K would be
unconscionable, or
b. The other party had reason to know of the mistake of his fault caused
the mistake.
xi. For UNILATERAL mistakes, you must meet the same elements as mutual
mistake, PLUS EITHER:
1. Unconscionable
2. Knowledge/fault
LENAWEE COUNTY V. MESSERLY:

PCounty – Buyers--Pickels; D: Sellers-Messerly

Bloom to sellers Messerlys to Barnes to Buyers Pickles
Is in the statute of frauds bc is a sale of land and is satisfied by a signed writing.
Failure of consideration doesn’t work. Fraud? By omission doesn’t work here bc D
didn’t have a duty. Innocent failure to reveal—constructive fraud? Probably
couldn’t be established. Fraud just doesn’t work here. Warranty of habitability? Is

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one read into this K? If a new home-yes, and in AR we would assume yes. Probably a
breach of this warranty if one was read in (home wasn’t habitable) but likely at this
time it was waived as well from the “as is” clause. Took the risk to buy as is. So,
theoryMistake.

Mistake of fact was parties were mistaken as to income producing

property. Did this exist at the time of K?
*Be sure to distinguish when the mistake existed v. when was discovered*
A mistake (by definition) cannot be discovered until the K is executed. So,
date irrelevant of when mistake existed.
Mutual mistake.
Court rejects the C/L approach bc it was difficult to apply (AR doesn’t apply this
either). No longer was collateral v. essential but now goes with restatement § 152
(for mutual mistake).
Is there a mistake? Yes, both parties at the time the K was made (just bc we
discovered it later doesn’t mean it didn’t exist). Was it to a basic assumption to
which the K was made? Yes, that it was income producing. Does it have a material
effect on the exchange? Yes, one was giving money to get land. The general result
then means that the adversely affected party gets to rescind. BUT the problem is
they say rescission isn’t available to a party that bears the risk of the mistake.
When does a party bear the risk?
1 way is conscious ignorance. Another is if the risk is allocated to you by the
courts  here, “as is” clause. She mentioned another way….
Problem with using the “As is” clause is that it is usually to waive all things you can
see at the time and accept as is—from an opportunity to discover or agreed to from
examination before. But courts are split and some courts say this clause doesn’t
apply to hold those liable to hidden mistakes that they were unable to find out
above. Issue in this case is that we really have two innocent parties so court had to
decided who was the most innocent party.
So, Pickles P lost. Bottom line: there was a mutual mistake and P couldn’t rescind bc
“as is” clause means there are no grounds to voidance. D can get a deficiency
judgment against P.

xii. Sometimes the remedy will be to reform the K instead of rescission. Note 6.
1. Equitable remedy courts in ARKANSAS will require a clear and
convincing evidence of proof  somewhere between a reasonable doubt
and a preponderance. AR requires that higher standard to be met.
xiii. Often these claims will arise out of injury settlements.

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xiv. Unilateral mistake (review § 153)  courts are reluctant to grant this compared
to the other kind.
1. UNILATERAL HAS AN ADDITIONAL ELEMENT
a. Just a mistake from one party and is voidable if it meets all the
elements that the other requires but in addition you either have to
show that the other party had reason to know of the mistake
(palpable knowledge) (doesn’t mean actual knowledge- just that given
the reasons in front of them they should have known) or that
following through with the K would be unconscionable.
xv. Unilateral in AR:
1. To enforce mistake would have so great a consequence to be
unconscionable
2. Mistake was a material feature
3. Mistake occurred notwithstanding reasonable care by the party making
the mistake.
4. Party can get relief with rescission without serious prejudice to the other
party, except for loss of his bargain.
a. So, AR has a fairly high standard.

36. CHANGED CIRCUMSTANCES: IMPOSSIBILITY,

IMPRACTICABILITY, AND FRUSTRATION
A. Takes some event that occurs after the K is entered into.
B. IMPOSSIBILITY
i. Restatement puts this under the broader doctrine of impracticability and
frustration of purpose
C. Mineral Park Land Co. v. Howard  is key foundational case but unlike this case,
courts are generally reluctant to give relief just for increased costs
D. IMPRACTICABILITY § 261 Discharge by supervening impracticability
Where, after a K is made, a party’s performance is made impracticable without his
fault by the occurrence of an event the non-occurrence of which was a basic
assumption on which the K was made, his duty to render that performance is
discharged, unless the language or the circumstances indicate the contrary.
i. Elements:
1. An event
a. Usually seen as acts of God (this is actually a legal term in black’s law
dictionary) and indicate acts occurring by violence of nature
i. Storms

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b. Or also could be by the fault of a 3 rd party or the gov’t

2. That occurred after the K was formed
3. Without fault of the avoiding party
a. The avoiding party can’t cause and then use as a defense for
performance
b. No defense for acts of negligence
4. Nonoccurrence was a basic assumption
5. Performance is impracticable
a. Only under extreme types of circumstances
6. Unless the language or circumstances indicate the contrary
ii. § 262 Death or Incapacity of Person Necessary for Performance
If the existence of a particular person is necessary for the performance of a duty,
his death or such incapacity as makes performance impracticable is an event the
non-occurrence of which was a basic assumption on which the K was made.
iii. § 2-613 Casualty to Identified Goods
Where the K requires for its performance goods identified when the K is made,
and the goods suffer casualty without fault of either party before the risk of loss
passes to the buyer, or in a proper case under a “no arrival, no sale” term (§ 2-
324) then
A if the loss is total the K is avoided; and
B if the loss is partial or the goods have so deteriorated as no longer to
conform to the K the buyer may nevertheless demand inspection and at his
option either treat the K as avoided or accept the goods with due allowance
from the K price for the deterioration or the deficiency in quantity but without
further right against the seller.
iv. § 2-615 Excuse by Failure of Presupposed Conditions // note 4
v. Except so far as a seller may have assumed a greater obligation and subject to
the preceding section on substituted performance:
(a) delay in delivery or non-delivery in whole or in part by a seller who
complies with paragraphs b & c is not a breach of his duty under a K for
sale if performance as agreed has been mad impracticable by the
occurrence of a contingency the non-occurrence of which was a basic
assumption on which the K was made or by compliance in good faith with
any applicable foreign or domestic governmental regulation or order
whether or not it later proves to be invalid.
(b) Where the causes mentioned in paragraph a affect only a part of the
seller’s capacity to perform, he must allocate production and deliveries
among K as well as his own requirements for further manufacture. He
may so allocate in any manner which is fair and reasonable.

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(c) The seller must notify the buyer seasonably that there will be delay or
non-delivery and, when allocation is required under paragraph B of the
estimated quota thus made available for the buyer.
 4: *Increased cost alone does not excuse performance unless the rise in
cost is due to some unforeseen contingency which alters the essential
nature of the performance. Neither is the rise or a collapse in the market
in itself a justification, for that is exactly the type of business risk which
biz Ks made at fixed prices are intended to cover. But a severe shortage of
raw materials or of supplies due to a contingency such as war, embargo,
local crop failure, unforeseen shutdown of major sources of supply or the
like, which either causes a marked increase in cost or altogether prevents
the seller from securing supplies necessary to his performance, is within
the contemplation of this section.
E. FRUSTRATION OF PURPOSE § 264 Prevention by Gov’t Regulation of Order
i. If the performance of a duty is made impracticable by having to comply with a
domestic or foreign gov’t regulation or order, that regulation or order is an
event the non-occurrence of which was a basic assumption on which the K was
made.
ii. EX: paying for child-support after the death of the child
iii. § 265 Discharge by Supervening Frustration (elements)
Where, after a K is made, a party’s principal purpose is substantially
frustrated without his fault by the occurrence of an event the non -
occurrence of which was a basic assumption on which the K was made, his
remaining duties to render performance are discharged, unless the
language or the circumstances indicate the contrary.
F. Similar doctrines so why do we have more than one?
i. One applies when party needs to perform and other when party needs to pay.
(?)
G. Relief
i. Normally to avoid the K and defend performance
ii. § 272 Relief Including Restitution
1. In any case governed by the rules stated in this Chapter, either party may
have a claim for relief including restitution under the rules states in
§§240 and 377.
In any case governed by the rules state in this Chapter, if those rules
together with the rules stated in Chapter 16 will not avoid injustice, the
court may grant relief on such terms as justice requires including
protection of the parties reliance interests.
WADDY V. RIGGLEMAN

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LT: breach of K; against the banks?  no clear legal theory; against attorney? Breach of
fiduciary duty
wants specific performance – if can’t get wants damages but wants release of all the
liens
Riggleman (D) won at the trial level bc said it was impossible to perform.
Time of the essence  takes a breach that may not be an important material breach but
is designed to take a minor breach and turn it into a material breach. In this case they
tried to use a clause that is used against them to get out. So, saying because I can’t
perform on time I shouldn’t be held to this performance. Court says this is crazy and
doesn’t allow it.
Major defense is impossibility. Court looks at the restatement to decide which test to use.
Was there an event that occurred after the K was entered into?  They didn’t get the
releases. The failure to obtain the needed releases by the closing date but this isn’t the
normal event that courts use here.
Does this event render the performance impracticable?  We can’t close by the date bc
we don’t have clear title but that isn’t exactly what this element refers to. It is looking
for huge events that render the performance so different than what we K for and are
usually war, huge increases in costs, and can’t be performed w/ these unreasonable
obstacles. No, this element was not met.
Once this element fails you don’t have to talk about the rest (except on an exam). So, the
Riggleman’s have already lost.
Was the non-occurrence of this event a basic assumption?  Court doesn’t decide on this
one. Idea here is the non-occurrence to release a basic assumption – is the assumption
that the liens would be released that they never considered that they wouldn’t be? (this
scenario here has two double negatives)
Were the Riggleman’s at fault in some way in not getting the releases? Yes, they assumed
the risk through K-ing with their agent (attorney ours).
iii. Is a decision for judge not the jury.
iv. Not much AR case law on subject of impracticability.
v. Force majeure clause: means superior force
1. Can stick a clause in your K to get your client out if certain acts of God
occur
2. Can be used to protect your client

H. MODIFICATION
i. Always going to be subsequent evidence and we don’t worry about this kind of
evidence under the PER
ii. In a modification, you really have a 2nd K. Both parties have assented and you
MA and consideration.

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iii. @ C/L you will lose if you don’t give new consideration for the modification. So
would not be binding or enforceable.
iv. § 73 Performance of a legal duty
Performance of a legal duty owed to a promisor which is neither doubtful nor
the subject of honest dispute is not consideration; but a similar performance is
consideration if it differs from what was required by the duty in a way which
reflects more than a pretense of bargain.
v. Courts don’t like preexisting duty rule.
vi. Modern approach is that courts are finding ways around it. Let the modification
stand and police it with these other doctrines (duress, unconscionability, maybe
some kind of writing requirement-SOF)
vii. She discussed 3 kinds of options… (exceptions to preexisting duty? Idk check
JorJ’s notes…)
viii. § 89 Modification of Executory K
1. A promise modifying the duty under a K not fully performed on either side
is binding
a. If the modification is fair and equitable in view of circumstanc es not
anticipated by the parties when the K was made; or
b. To the extent provided by statute; or
c. To the extent that justice requires enforcement in view of material
change of position in reliance on the promise.
ix. Pg. 34 § 2-209 Modification, Rescission and Waiver
1. An agreement modifying a K within this article needs no consideration to
be binding…
ALASKA PACKERS’ ASSOCIATION V. DOMENICO
P group of sailors; DAPA

Federal question – admiralty suit (law of the seas)  why we are in Federal Court
Was in writing but probably didn’t have to be.
Courts didn’t believe the evidence established that the nets were defective.
Modified K – promise to pay $100 and you promise to still do 1,2,3
APA said K not valid bc arguing preexisting duty rule and that superintendent doesn’t
have authority.
What element are you arguing? Mutual assent.
Bottom of 759/top of 760- this court applied the preexisting duty rule. A naked pact
without consideration so K is not binding.
x. Does the modification have to be in writing?
1. It has to be in writing IF, the K as modified falls into the SOF.

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a. You can modify orally (also in AR) and doesn’t have to be in writing if
not as modified???

Alaska Packers’ Association v. Domenico

 P-libelants (Domenico)
 D-Alaska Packers/superintendent
 LT-breach of modified K
 Packers Defense-no mutual assent/not authorized to make the new contract, K was without
consideration, pre-existing duty rule
 Facts-libelants were promising to do the exact same thing as they had promised before
 Court does not decide the issue of mutual assent…decide the case on whether or not there
was sufficient consideration for modified K
o Already obligated to do 1/2/3…new modified K had same duty (pre-existing duty
rue)
 No exceptions found in this case; AK wins
 Today, may be considered duress.
 MODIFICATION
o Qs to ask:
 Was there separate consideration for the modification?
 Did the parties agree to the modification under legitimate circumstances?
o Preexisting duty rule; R 73
 Performance of legal duty neither doubtful nor subject to honest
dispute is not consideration
 Slightly different performance if reflects more than pretense of bargain
o Modification binding if: R 89
 Equitable b/c unFOS circumstances
 May apply even if impracticability defense wouldn’t work
 Provided by statute
 Justice requires due to material change of position in reliance on
promise
 Promise means accepting reformation
o UCC 2-209(1) dismisses pre-existing duty rule
 Modification must abide by SOF
 Attempt at modification may amount to waiver of limitation on
modifications or SOF
 Can retract waiver w/ reasonable notification that strict performance
required
 Unless unjust in view of material change of position
 Modification doesn’t need consideration to be binding
 Good faith bar to “extortion” of a modification “without legitimate
commercial reason”
o Alaska Packers’ Association v. Domenico (9th Cir.)
 Fisherman picked up in CA and taken to AK for summer season
 Promised $60 bucks per summer + 2 cents for every fish they catch
 About a mo. in they stop working and demand an additional $100 for the
summer

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 Claim given rotten nets

 Document signed by shipping commissioner in AK who claimed he
didn’t have authority to enter into K
 Lower ct: improbable that nets were bad
 Holding: no consideration, court adopts preexisting duty rule
 Notes: historical research showed that nets may actually have been rotten
 What about the K terms, “to do any other work whatsoever when
requested?”
 Either it’s unconscionable or it should be read in context
 On a ship, everyone depends on each other for survival; if the
ship is sinking and the captain orders you to do something,
you’re agreeing to this ahead of time
 Just read w/ “regular ship’s duty”
 Posner: not fair to allow a party to “use a threat of breach to get the K
modified in his favor” when nothing has occurred requiring a
modification

37. EXPRESS CONDITIONS & MATERIAL BREACH

A. Still looking at 3 things that excuse performance and one is material breach
B. Only material breach can excuse performance, not minor
i. Material breach has 2 effects but minor breach only has one effect
ii. If other party does not fully perform-a material breach, this has 2 effects on the
other party:
1. Discharges obligation to perform (performance excuse)
2. Can sue for breach to get expectation damages (cause of action for
damages)
iii. If happens the other way around, works the same for both parties.
iv. Minor breach effect:
1. Cause of action for damages
v. § 235 Effect of Performance as Discharge and of Non-performance as Breach
1. Full performance of a duty under a K discharges the duty.
2. When performance of a duty under a K is due any non-performance is a
breach.
vi. Can have material breach for a future performance.
C. Express Conditions
i. EX: A promises to B that she will sell him her law books and B says great I
promise to buy them if I can into law.  B’s promise has a condition attached to
it. Yes, we have a binding K and mutual assent and consideration (promise for
promise). Does it render it illusory if it has a string attached? No, this just
triggers the obligation before there is a duty to perform. It is a K but if he doesn’t
get into law school then he is excused from performance.

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ii. § 224 Condition Defined

A condition is an event, not certain to occur, which must occur, unless its non-
occurrence is excused, before performance under a K becomes due.
iii. § 225 Effects of the Non-occurrence of a condition
1. Performance of a duty subject to a condition cannot become due unless
the condition occurs or its non-occurrence is excused.
2. Unless it has been excused, the non-occurrence of a condition discharges
the duty when the condition can no longer occur.
3. Non-occurrence of a condition is not a breach by a party unless he is
under a duty that the condition occur.
iv. Just attaches a string to a party’s performance. Could be to just one party.
v. Why do we care if it is an express condition or constructive condition? It
depends how the court handles the issue.
1. Constructive condition  by court
a.
2. Express conditions can be made by words or conduct and are made by the
parties themselves.
a. Strict in implying express conditions
vi. Courts don’t like conditions.
vii. Afraid that conditions could lead to forfeiture.
EX: A rents apartment but only has to get deposit in by date and she is one
minute late. She loses apartment. This is a kind of forfeiture.
EX: Contractor bids on city construction product but K says that he is only
awarded it if he provides a proof of corporations good standing. He doesn’t have
one on hand and he gives one that is a year old. He forfeiture this and the city
can give it to someone else.
Ex: Lottery only awards money if you have the ticket. Can’t once have had ticket,
must have it then to show you won. This is a forfeiture.
viii. Courts don’t like conditions because they cause forfeitures, i.e., one party has
wasted their work, expenses. Courts have 5 methods by which they temper this
harsh effect:
ix. 5 methods are (and are unique to condiions):
1. Interpret not to be a condition
a. Just a garden variety promise
Ex: Ace is ensuring your property and by the terms of your insurance K
you have an obligation to maintain adequate sprinklers and you sign the
K. Ace has provided one million dollars in insurance. You don’t meet your
obligation for adequate sprinklers. Building burns down. You sue for the
million dollars. Ace says that there was a condition that I will provide
insurance IF you meet that condition. So, you would breach. But if this

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was just a promise then you would just get a cause of action for breach
and would pay half-$500,000.
EX: I promise to deliver goods on date and you promise back to pay but I
am five days late. So, was this a condition or just a breach of promise on
my part for which I am liable for damages? If it was a condition - then her
performance obligation never arises and forfeiture(>?). If it was just a
promise – she keeps goods and sues for breach for being late.
b. How do we know if there is a condition? This is a question of intent.
But we should also look at the K language.
c. If we want to ensure a condition then we should use specific, express,
clear language.
2. Waived
a. Def: Voluntary relinquishment of a known right
b. Example: A will rent to B if deposit is paid by May 1. B cannot make it
and A agrees to allow payment by May 2. A waived his right to insist
on the condition.
c. A court could also find that a party impliedly waived its right to in sist
on the condition through some behavior
3. Estoppel
a. Party(A) going to be prevented by their own act or words if the other
party(B) relies on their words or conduct that it is not necessary to fill
the condition. Thus, A is estopped from enforcing the condition on B.
b. NOTE that the same facts that tend to indicate waiver indicate
estoppel
c. In other words, my conduct hung the other party out to dry and it is
not fair to hold this against them.
4. Breach – their breach made this happen so you shouldn’t be held to this
a. Ex: I promise to sell Adams for land for 100k and he promise to buy it
if it gets rezoned. Zoning now you can’t use. Adams promises to use
best efforts to get it rezoned. He does nothing though and when I try
to sue he says ha that was subject to a condition that didn’t happen. I
say he breached a K promise by making no effort. Did his breach cause
the condition to fail to occur? Yes, so he can’t rely on it to get out of
the K. (To be fair.)
b. Ex: What if he doesn’t actually do nothing but by his conduct he
prevents the condition to be fulfilled. Say he bribes the committee
member to vote against. Then, he can’t use this condition as an excuse
if it fails to be performed.
c. ^ This is the doctrine of prevention. § 245 Effect of a Breach by Non-
Performance as Excusing the Non-Occurrence of a Condition

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Where a party’s breach by non-performance contributes materially to

the non-occurrence of a condition of one of his duties, the non-
occurrence is excused.
5. Excuse
a. § 229 Excuse of a Condition to Avoid Forfeiture
i. To the extent that the non-occurrence of a condition would
cause disproportionate forfeiture, a court may excuse the
non-occurrence of that condition unless its occurrence was a
material part of the agreed exchange.
ii. provides that a court can excuse the nonoccurrence of a
condition if enforcement will cause too great a forfeiture, as
long as the condition wasn’t a material part of the K
ENXCO DEVELOPMENT CORP. V. NORTHERN STATES POWER CO.
K for construction of a wind energy project. Promise to develop and promise to
pay. ON THE CONDITION that P(enXco) meet all development requirements and
the big one was getting the CSC(certificate) by the Long -Stop Date but they failed
to do this so, D(NSP) terminates the K.
 D sues and wants declaratory judgment that they are out of the K. Then, P sues
in return for declaratory judgment and also for damages if they are right.
Very clear language that no one was fighting as to whether there was a
condition precedent as to the Long-Stop Date and both parties agree that it
is a condition that P failed to meet but they are relying on the doctr ines of
impracticability and disproportionate forfeiture to excuse their
performance.
Impracticability:
Was there an (1) event that caused [there was inclement weather
delays, and then the hearing was held in the wrong county.] (2) occurred
after K was formed (3) w/o fault of avoiding party (4) nonoccurrence was
a basic assumption (5) performance impracticable
Disproportionate Forfeiture:
Did P lose stuff when K was terminated? No, they kept it and
nothing ends up in NSP’s hands.
No forfeiture.
D. Material Breach

i. Breach § 235 defines Breach: “any nonperformance” of a contractual duty at a

time “when performance of that duty is due”
1. Performance not due if for any reason nonperformance is “justified”
ii. Two types of Breach:
1. Material (and this has 2 effects: discharge of performance and COA for
breach)

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2. Minor
iii. If material there are two effects: (A to B, B’s effects)
1. Is discharged from his own performance
2. Cause of actions for damages against A
iv. If not material:
1. COA for damages
2. But NO discharge from performance unlike material
v. Any breach gets a COA for damages
EX: A breaches to B
vi. § 241 Circumstances Significant in Determining Whether a Failure is
Material
1. In determining whether a failure to render or to offer performance is
material, the following circumstances are significant:
a. The extent to which the injured party will be deprived of the benefit
which he reasonably expected;
i. Extent to which the non-breaching party was deprived. Look
at quantity and quality.
ii. How much did A do and how well did she do it
b. The extent to which the injured party can be adequately compensated
for the party of that benefit of which he will be deprived;
i. Is it fair if we give B a COA for damages and not excuse for
performance? Can B get money damages?
c. The extent to which the party failing to perform or to offer to perform
will suffer forfeiture;
i. Looks at the effect of declaring it to be a material breach on
A. Is this a fair price to pay or will she get a disproportionate
forfeiture?
ii. Ex: Zoning limitation on a biz rent. Tenant paid 10k to LL and
couldn’t make changes w/ LL consent. Tenant spent 132k to
repair a shed on property but didn’t get LL’s consent. LL was
trying to get rid of tenant and he said tenant material
breached and couldn’t rent property for 10 years. Court said
give us a break. If you allowed that to be a material breach,
then Tenant would forfeit the biz because of zoning
ordinance he could only have it that area so because
forfeiture was so unfair court said it was an immaterial
breach.
d. The likelihood that the party failing to perform or to offer to preform
will cure his failure, taking account of all the circumstances including
any reasonable assurances;

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i. Can the breacher fix it and in that case it is much more likely
to be an immaterial breach than a material one.
ii. Ex: A paints the building the wrong color but then promises
to make good and come back next week and repaint it
correctly.
e. The extent to which the behavior of the party failing to perform or to
offer to perform comports the standards of good faith and fair
dealing.
i. Did A breach willfully on purpose? Or was it something that
she negligently did or in ordinary care?
ii. A willful breach is much more likely to be material while the
other of in ordinary care is not.
vii. If you see total breach in restatement, it means the same thing as material
breach in Arkansas.
viii. If one takes longer, they must be done first.
ix. § 234 Order of Performances
1. if can be rendered @ the same time=simultaneously then due
simultaneously (conveyances of land, sales of goods)
a. §238 Effect on Other Party’s Duties of a Failure to Offer Performance
 in order to show breach, party (wanting to bring claim) must show
they have at least tendered performance
b. UCC § 2-507 has the same effect pg. 65
i. Tender of delivery is a condition to the buyer’s duty to
accept the goods, and unless otherwise agreed, to his duty to
pay for them. Tender entitles the seller to acceptance of the
goods and to payment according to the K.
ii. Where payment is due and demanded on the delivery to the
buyer of goods or document of title, his right as against the
seller to retain or dispose of them is conditional upon his
making the payment due.
c. UCC § 2-511 the other way around has same effect pg. 67
i. Unless otherwise agreed tender of payment is a condition to
the seller’s duty to tender and complete any delivery.
ii. Tender of payment is sufficient when made by any means or
in any manner current in the ordinary course of b usiness
unless the seller demands payment in legal tender and gives
any extension of time reasonably necessary to procure it.
iii. Subject to the provisions of this Act on the effect of any
instrument on an obligation, payment by check is conditional
and is defeated as between the parties by dishonor of the
check on due presentment.
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2. if not @ the same time, or one requiring longer period then must be
before one rendering shorter period
a. longer must go first and that puts risk on that party by rendering
services and not being paid yet. Why do we put this burden on them?
It is not feasible to do otherwise and this is a long-standing principle.
I.e. when we go get our car fixed we don’t pay them until they are
done. Seems to be common experience that worker does better work if
paid after they render their service.
SACKETT (P) V. SPINDLER (D)
Spindler says that you breached first so my breach and duty to perform is
excused.
Goods don’t count as shares so not in SOF but it is in an assigned writing.
To start with we have a signed writing.
Sackett’s P performance obligation  to pay 6k by 7/10, pay 20k by 7/14, and
59k by 8/15.
Spindler’s D performance obligation  to give all the shares due when he
receives the final payment.
Hospitalization and divorce do not excuse Sackett because this is not a personal
K and is foreseeable that such may come up so no excuse for impracticability.
P met first payment, short $200 on second, third was late and then check
bounced.
He also paid 3, 944.26 as an advance for working capital.
In total, he paid 29, 744. 26.
He is in breach.
1 to what extent of his performance did he perform: he did about a 1/3 of
what was supposed to (material)
2extent that D can be compensated in damages for Ps lack of performance:
can make D whole w/ damages (immaterial)
3extent to which performed or prepared to: about 1/3 (material)
4how bad will it be on P D doesn’t have to perform: pretty hard, if P is
found then D is excused and it causes P a forfeiture to lose newspaper
(immaterial) [looking at forfeiture on party failing to perform- what would
result on Sackett]
5willful, negligent or innocent behavior: somewhere b/t willful and
negligent (material)
6greater or less uncertainty that party will perform: uncertain (material)
 Court found Sackett (P) materially breached.
But who breached first? Spindler did not breach because his performance
obligation never arose bc he didn’t have to perform because it was not due
until he got the final payment BUT there can be anticipatory repudiation 
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can breach by inferring from conduct/circumstances that party was not

intending to breach. Court says there wouldn’t be anticipatory repudiation
bc he was just notifying Sackett of his own breach would render his excused
to perform. And even if there was Anti. Repudiation it was nullified bc P
didn’t rely on this and D retracted his Anti. Repudiation.
 D | Spindler not in breach but P | Sackett still is.
D’s performance obligation is excused because there was material breach
and he has a COA for damages for breach.
Calculating his damages for breach: If K was performed, D would have had
85k and we subtract from that what he has already gotten 29, 744. 26 and
then subtract what he sold the stock for 22k.
85k – 29, 744. 26 – 22k = 34, 574. 74. This places his in the exact
position he would have been in if no breach.
x. If you want to make sure party performs exactly on time and want it to be a
material breach if they don’t, then put in a “Time of Essence” Clause.
1. Have to be careful putting it in though because could affect your own
performance.
2. Boilerplate language so may work but may not.
3. Can make timing a condition but the promise is that you are conditioning
the performance of both parties.
xi. Acceleration clauses: …
E. Anticipatory Repudiation
A and B enter into a K to rent a condo at Beach for June 2017. But in April, A lets B
know that for some reason she can’t rent bc it won’t be ready.
i. § 253 Effect of a Repudiation as a Breach and on Other Party’s Duties
1. Where an obligor repudiates a duty before he has co mmitted a breach by
non-performance and before he has received all of the agreed exchange
for it, his repudiation alone gives rise to a claim for damages for total
breach.
2. Where performances are to be exchange under an exchange of promises,
one party’s repudiation of a duty to render performance discharges the
other party’s remaining duties to render performance.
ii. If B is wrong and A isn’t anticipatory repudiating, then B could be in breach.
iii. What constitutes an anticipatory repudiation? § 250
A repudiation is
1. A statement by the obligor to the oblige indicating that the obligor will
commit a breach that would of itself give the oblige a claim for damages
for total breach under § 243, or
2. A voluntary affirmative act which renders the obligor unable or
apparently unable to perform without such a breach.
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iv. Must be a total/material breach.

v. UCC § 2-610 Anticipatory Repudiation
1. When either party repudiates the K with respect to a performance not yet
due the loss of which will substantially impair the value of the K t o the
other, the aggrieved party may
a. For a commercially reasonable time await performance by the
repudiating party; or
b. Resort to any remedy for breach (2-703 or 2-711), even though he has
notified the repudiating party that he would await the latter’s
performance and has urged retraction; and
c. In either case suspend his own performance or proceed in accordance
with the provisions of this Article on the seller’s right to identify goods
to the K notwithstanding breach or to salvage unfinished goods (2 -
704).
vi. Can be retracted both at common law and the UCC. We permit retraction unless
the aggrieved party has since the repudiation cancelled or materially changed is
position or otherwise indicated that he considers the repudiation final.
vii. § 2-609 Right to Adequate Assurance of Performance (1 says they won’t
perform, you can…)
1. A K for sale imposes an obligation on each party that the other’s
expectation of receiving due performance will not be impaired. When
reasonable grounds for insecurity arise with respect to the performance
of either party the other may in writing demand adequate assurance of
due performance and until he receives such assurance may if
commercially reasonable suspend any performance for which he has not
already received the agreed return.
2. Between merchants the reasonableness of grounds for insecurity and the
adequacy of any assurance offered shall be determined according to
commercial standards.
3. Acceptance of any improper delivery or payment does not prejudice the
aggrieved party’s right to demand adequate assurance of future
performance.
4. After receipt of a justified demand failure to provide within a reasonable
time not exceeding thirty days such assurance of due performance as is
adequate under the circumstances of the particular case is a repu diation
of the K.

38. END LIFE OF THE K

A. REMEDIES
i. § 344 Purposes of Remedies (interests)
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1. Judicial remedies under the rules stated here serve to protect one or more
of the following interests:
a. His expectation interests which is his interests in having the benef it of
his bargain by being put in as good a position as he would have been
in if the K had been performed.
b. His reliance interests which is his interest in being reimbursed for loss
caused by reliance on the K by being put in as good a position as he
would have been in had the K not been made, or
c. His restitution interest which is his interest in having restored to him
any benefit that he has conferred on the other party.
B. Types of Damages
Can use any method you want to try to influence the court to get the damages you
want but these methods below may help you.
i. Nominal: small, fixed amounts without regard to the amount lost
ii. Actual: to compensate (Compensatory)
1. General (Direct): always foreseeable and recoverable and flow from
breach.
2. Consequential/Special: only recoverable if the breacher knew about
the circumstances. These do not automatically flow from the breach.
3. Incidental:
iii. Punitive (Exemplary): to punish or deter defendant
C. Expectation Damages
i. Money and enough to put them in position as no breach had occurred
ii. Seeks to give the promisee the value of the expectancy which the promise
created.
iii. In calculating the profit, you would have made the amounts you would have
spent or conferred  actually include all 3 interests. Which is why they are the
best.
1. You would never see the court give expectation damages and reliance or
restitution damages. This would be double recovery.
iv. § 347 gives us formula
1. General Measure =
[what should have got – what did get]
+ [any other loss like incidental or consequential]
– [anything party saves as a result of breach – any other loss she avoids
i.e. something can salvage/sell]
D. Application: How to measure damages in Specific Types of K
(see written notes for practice problem answers)
i. Land K
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1. Loss is measured in terms of the difference b/t the K price and the FMV
2. To prove FMV, you normally have to get expert testimony from appraisers
who consider the value of comparable property in surrounding area. Price
of an eventual sale is also good evidence but not the list price becaus e
sellers usually inflate the list price.
3. SELLER’S measure for buyer’s breach:
K price – FMV (K > FMV to recover)
4. BUYER’S measure for seller’s breach:
FMV – K price (FMV > K to recover)
ii. Employment K
1. EmployEE breach: the normal measure of damages is the difference b/t
the K price and the replacement price. Even if replacement is a more
skilled employee, the breaching employee pays difference in cost.
2. EmployER breach: the full salary for time out of job and the difference b/t
K price of lost job and salary for new job until the time specified in
original employment K.
3. Remember we said we can fire at-will employees at any time but we also
talked about some exceptions to that. (like if employee fails under public
policy/statute)
a. AR measures only to the day of trial
iii. Construction K
1. Nominal measure for damages is the cost of completion (Arkansas)
2. Diminution of Value is used if one of the three criteria applies or else the
method is costs of completion-it is the difference in value of the K as it
was supposed to be carried out and what the P actually got
a. Substantial performance of K
b. Party acted in good faith
c. Completion costs measure would result in economic waste
3. If landowner breaches though will get what would have made on it and
what he was out of pocket.

39. RESTRICTIONS ON THE RECOVERY OF EXPECTATION

DAMAGES
A. Foreseeable
B. Foreseeability: the non-breacher can only recover those damages that are
foreseeable at the time the parties entered into the K. Only requires that the
breacher knew or had reason to know of the special circumstances.
i. § 351

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1. Damages are not recoverable for damages that can’t be seen at the time
of the K
2. Measured at the time of the K (NOT the time of breach?)
ii. Tacit Agreement Test: in order to recover for special damages, P must not only
show that breacher knew about the damages, but also that he at least tacitly
(assumed consciously the liability) agreed to assume responsibility for them.
1. Has been rejected by restatement and almost every state BUT it is still
adopted and used in Arkansas  this makes it harder for the P to
recover special damages in AR.
a. How does the P prove tacit agreement?
i. Expressly  hard to do bc if written it would be part of the K.
ii. Impliedlyonly one Arkansas case where this has worked
(breacher was told that he would be held liable for lost
profits at time K was entered into, he remained silent and
still entered into the K).
C. Certain
i. Certainty: Damages are not recoverable for loss beyond an amount that the
evidence permits to be established with reasonable certainty
ii. This element must be proven with a higher quality of evidence than others
iii. How high is this standard?
1. Higher than preponderance
2. Absolute certainty is not required
3. Proved with reasonable certainty
4. Courts are concerned with the fact that the P has been damaged; this is
more important than how much the P has been damaged
5. Standard may be relaxed for a willful breach
a. If the D breaches on purpose, this standard will be relaxed
iv. One of the major impacts of this rule is on lost profits because often its difficult
to prove these with reasonable certainty.
v. If the damages are too speculative and uncertain, its not fair to stick the party
with the damages
vi. If you can’t more with reasonable certainty (this is the burden needed to be met)
then the result is that you can’t recover
D. Caused by Breach
i. Causation: Damages that are not caused by the breach are not recoverable.
ii. Courts don’t tend to talk about this element much because the idea is consumed
in the foreseeability element.

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1. However, when it is discussed, it is generally in terms of whether the

breach was a “substantial factor” (does NOT have to be the ONLY cause of
the breach) in causing the damages. (just like in tort law)

HADLEY v. BAXENDALE:
Damages have to be foreseeable; leading landmark case on this issue.
LT: Breach.
P are the millers (Hadley) and D is Baxendale (the transporter/shipping company)
Crank shaft breaks so they shut down the mill. Promise was to transport from D and P
promised to pay.
(Breach framework) Do we have a binding K  is there mutual assent? Yes,
this assumes party agents were authorized to bind them. Consideration? Yes,
promise for promise. (don’t say promise to say to pay for transportation. The
shipping is the actual performance not what gets into the K).
SOF? No, because does not fit into one of the traditional categories (“my legs”)
and is not in writing.
Breach? Yes, Baxendale did and now the mill is shut down.
Damages P gets expectation damages for the breach of K. (receive what
would have kept if no breach)
Hadley wants to recover the loss profits from when the mill is shutdown so we are
trying to decide if can recover all expectation damages.
Which factor is at issue here? Foreseeability.
Baxendale D says these damages (loss profits) weren’t foreseeable
but Hadley P says they were.
Rule: General damages (direct) should always be recoverable.
BUT special damages (consequential) should only be recovered if it was made a
reasonably natural and consequence of breach or it was communicated to party.
They need to know the special circumstances so they can have the ability to
alter the K when entering into it.
Issue: Is the lower courts grant of loss in profits correct?
Held: No, if the special circumstances were not known by all parties at K formation
then there is no liability. Only damages that are foreseeable may be recovered. Loss of
profits cannot reasonably be considered such a consequence of the breach that could
be fairly and reasonably contemplated by both parties when they made the K – neither
flowed naturally from the breach nor were special circumstance that would have made
it a reasonable and natural consequence of the breach.
P says that B knew the mill was stopped (communication through servant) but
court says they find don’t find B knew. Many different reasons why people
think court found this (they didn’t believe P, didn’t communicate enough,

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maybe servant didn’t tell the right guy for agency laws at the time). Court
concludes B did not know of the extra damages at the time of the K.
What about other factors? Were the damages caused by the breach? Yes. Assuming it
was foreseeable, are the damages provable with reasonable certainty (more than
preponderance)? Yes, because it is easier to establish lost profits for a business which
is already in operation (the mill could use its past records of profits).
iii. § 351 Foreseeability (again)
1. damages not recoverable for loss unless the party in breach had reason to
foresee these damages. Tested at the time K is formed (and by person who
breached).
2. Consequential/special damages include any loss resulting from
general/direct damages (those that flow naturally from breach) of which
the seller at the time of contracting had reason to know
a. Breacher must know at the time of the K that the damages are
foreseeable (this is the party that really matters) they must know or
have reason to know

E. MITIGATION
Also referred to as minimization, doctrine of avoidable consequences, doctrine of
reducing damages
i. Mitigation: P can’t recover for injurious consequences that she could have
reasonably avoided
1. D need not compensate P to the extent that P’s own actions contributed to
their injury.
2. Damages that could have been avoided are not recoverable.
ii. Damages P could have reasonably avoided cannot be recovered as this would be
unfair to the breacher
iii. This is figured into the restatement calculation for damages (cost avoided and
loss avoided)
iv. All that is required is a reasonable effort on behalf of the non-breaching party.
1. Reasonableness is a question of fact; an objective standard (by what a
reasonable person would do in the same position)
2. Do not have to spend more $ to mitigate
3. Do not have to commit a legal wrong
4. Do not have to do something humiliating in order to meet mitigation
standards
v. Two-edged sword:
1. If you try to mitigate and are unsuccessful, this might actually result in an
increase in damages.

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vi. If you are fired, you must try to find other work.
vii. IF mitigation was possible and there was another job the party did not take it,
you will subtract what they could have made from their recovery.
viii. In Arkansas: the employer has the burden of proving mitigation is possible.
ix. When you take steps to mitigate, you can add those costs to the damages.

F. Categories of Damages that are not generally recoverable in

Breach of K
i. Attorney’s Fees
1. At C/L, attorney’s fees were not recoverable because 1) they were not
foreseeable, 2) it was feared that allowing people to recover attorney’s
fees would unlevel the playing field ,and 3) it would prevent people from
exercising their legal rights.
2. But the C/L rule was heavily criticized-if you don’t allow someone to
recover them then they are not going to be completely whole.
3. Modern law has come to recognize exceptions for this recovery:
a. You can K for recovery ahead of time, but remember that you have
also waived your right as well.
b. Federal statutes decided that allowance of recovery was a good thing
because it would allow and encourage people to bring those types of
suits that protect individual rights.
i. Arkansas: A state statute permits recovery of attorney’s fees
in K actions.
1. AR civil procedure rules says you can recover a variety of costs –
filing gees, service of process, fee for a subpoena, fees if you have
to publish something like a warning order or something to do w/
land like foreclosure, somethings the court requires to be
appointed like recorder.
a.  CANNOT recover recorder fees for depositions, or
interpreter or anything you acquire but the court doesn’t
require.
ii. Attorney’s fees will be awarded to the prevailing party-the burden is on
prevailing party to ask for recovery (means it could be D, and could even get
partial if win partially). May be awarded even if attorney was pro bono.
iii. You may also recover the cost of the suit-i.e., filing fees, fees for service of
process, fees for subpoenas, any publications, expert witnesses, etc.
1. This does not include recovery for your own expert witness and reporter
fees.
2. Of course, these additional costs are at the discretion of the court.

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iv. Interest? A fee/compensation paid for the use of the money in a law suit being
rewarded for money of the P should have already had in her pocket.
1. Payments since the breach (pre-judgment interest)
2. Post-judgment interest (not a problem in AR or most states) and court
comes in and says P should have this money and there is usually an
assessment entitled by statute.(AR 16-65-114)
a. AR rate is rate provided by the K or 10% whichever is higher but not
higher than the usury rate required by law
b. Usury interest: Need a certain $ amount in your pocket  AR you will
get interest on it if it is a liquidated amount (reduced to a certain
dollar amount) if unliquidated (meaning uncertain in dollar amount)
then, courts in AR will NOT award pre-judgment interest.
i. If you get pre-judgment interest in AR you are getting 6%.
v. Mental Distress general rule is not recoverable for K
1. When you talk about pain and suffering  pain to body and suffering to
mind.
2. Prof. Brill includes embarrassment, disgrace, anxiety, worry, hu miliation,
and anger in his definition of pain and suffering.
3. § 353 Loss Due to Emotional Disturbance
a. No recovery
i. Bc not likely foreseeable and we want K damages to be stable
and these are too variably and give too much discretion to
the jury and in K we think of the damages as on an economic
and not emotional basis
4. NO recovery UNLESS:
a. The breach caused bodily harm, OR
b. The breach is of a kind that would cause mental distress.
i. Funeral arrangements, infant is injured during childbirth to
sue doc… weird stuff.
vi. Punitive Damages generally no recovery for punitive
1. In the 1 st restatement, not recoverable for breach of K even if breach was
done intentionally
2. § 355 Punitive damages not recoverable unless:
a. breach of K is also a tort that would be recoverable
3. Breach is not a moral wrong therefore is not something that should be
PUNISHED
a. K is a voluntary undertaking and assumption of an obligation.
4. It is good for society to breach  “efficient breach”

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a. Parties should have the option to breach (where they can just accept
the damages, pay them and move on) bc may sometimes be a good
thing
I.e., if I’m not making money, it makes sense for me to break my lease.
5. Punitive damages violate our goal of expectation damages–the P would
actually be better off.
6. Creates uncertainty and instability in assessing K damages.
7. In AR  agrees w/ restatement (1 st ) that it a K cause of action and can’t
get them UNLESS you can also prove it as a tort allowing punitive
damages.
a. Exception (in AR & a lot of other states): when insurance companies
fail to settle a claim in bad faith can get punitive damages.
(recognizes bad faith failure to settle an insurance claim)

40. ARTICLE 2 (UCC) EXPECTATION DAMAGES

A. BUYER & SELLER’S REMEDIES UNDER THE UCC
B. BUYER (where seller breaches):
§ 2-711 buyer’s remedies in general; buyer’s security interest in rejected goods
Ex: Ezra is selling 1000 puppies to Katie for $200 each so $200,000 total. She wants
the puppies to resell.
i. Seller breaches by…
1. Doesn’t deliver goods (puppies)
2. Repudiates–breach in advance–statement or conduct that he won’t
perform BEFORE the delivery
3. Delivers the goods but delivers the wrong goods [Seller delivers goods
that fail to conform to k in some way] (likely breach of express/implied
warranty relating to quality)
(golden retrievers and not Dalmatians)
4. Revokes acceptance later bc the goods were not all correct [Seller fails to
make proper tender of good] (failing to deliver on time, delivering too few
or many, or not at all)
ii. Buyer doesn’t have goods bc either no delivery, rightfully rejects or revokes
acceptancecan recover any part of price that has been paid and also cover or
market damages. Or specific performance to deliver goods.
1. Might also get consequential and incidental damages.

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iii. Cover damages. § 2-712 (didn’t like traditional rule of measuring seller’s
breach of k price-market price difference):
This is the normal recovery for what it takes her to get replacement goods.
COVER PRICE
– K PRICE
+INCIDENTAL
+ CONSEQUENTIAL
– EXPENSES SAVED
1. 2-712 to recover damages: covering purchase must be made “in good faith
and without unreasonable delay.”
2. Buyer doesn’t need to purchase identical goods but commercially
reasonable substitutes  if gets superior or significantly different then
purchase won’t qualify as a cover.
3. (3) says cover is elective and failure won’t bar buyer from other remedies
a. but buyer’s failure to cover will preclude recovery of consequential
damages if she fails to act reasonably (bc principle of mitigation &
foreseeability still apply)
iv. Market Damages § 2-713 if elected not to purchases substitute goods-cover.
Measure based on difference b/t market price at the time when buyer
learned of breach and the k price
1. Relevant market is the place for tender & that depends on where the sel ler
completes delivery obligations
MARKET PRICE
– K PRICE
+INCIDENTAL
+ CONSEQUENTIAL
– EXPENSES SAVED
2. Shipment K: seller tenders by placing goods in hands of a carrier
3. Destination Ks: tender takes place when goods are delivered to a
designated point (often buyer’s place of biz)
4. Typical commercial ks have delivery term of seller’s obligations and id the
relevant market price for measuring damages.
a. Buyer always free to choose b/t cover and damages for non -delivery
but market value rule applies only when and to the extent the buyer
has not covered.
b. Seller commits anticipatory repudiation & buyer fails or doesn’t cover.
When should the market measure of damages be determined? 3
interpretations:
i. date when the buyer learns of the repudiation;

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ii. date when the buyer learns of the repudiation plus a

commercially reasonable time after;
iii. date when actual performance by the seller is due under
the K.
v. Specific Performance § 2-716 is the most common form of equitable remedy
that is a judicial decree compelling the breaching party to render the
performance required by the K.
+INCIDENTAL
+ CONSEQUENTIAL
– EXPENSES SAVED
1. C/L imposes restrictions but UCC seeks to liberalize specific performance.
2. 2-716: SP may be decreed in buyer’s favor where goods are unique or in
other proper circumstances.
a. If goods are readily available  likely no SP
b. Where substitute goods or K are not available, courts more willing to
grant SP.
vi. Incidental and Consequential Damages Incidental consist of out-of-pocket
expenses incurred by the buyer to deal with the seller’s breach.
vii. Consequential damages are any loss resulting from general or particular
requirements and needs of which the seller at time of K had reason to know and
which could not be prevented otherwise. Also, injury to person or property prox
caused from any breach of warranty.
1. Distinguishes b/t economic and commercial loss: like lost profits and
damage to person/property
2. Lost profits must meet foreseeability (seller at time of K-ing had reason to
know) & mitigation principle (could not reasonably be prevented by cover
or otherwise)
a. Code rejects “tacit agreement” of foreseeability test.
3. Injury to person/property are NOT subject to foreseeability.
4. Damages must be proven by the buyer w/ reasonable certainty but not
mathematical precision.
viii. Damages for Accepted Goods § 2-714 buyer may recover those damages
resulting from “the ordinary course of events from seller’s breach.”
VALUE AS WARRANTED
– VALUE AS ACCEPTED
+INCIDENTAL
+ CONSEQUENTIAL
1. If damages are caused by breach of warranty the measure is the
“difference at the time and place of acceptance between the value of the
goods accepted and the value they would have had if they had been as
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warranted, unless special circumstances show proximate damages of a

different amount.”
a. But if buyer retains the goods (despite seller’s nonconformity or
tender) buyer must give notice to seller in a reasonable time period in
order to preserve the right to get damages.

C. SELLER (where buyer breaches):

i. Seller’s remedies depend partly on whether buyer accepted goods or not.
o If NO buyer acceptance seller can recover resale damages, market
damages, or lost profit.
o If YES buyer accepted (or are not reasonably subject to resale)
seller may recover the K price.
ii. Resale Damages § 2-706 is equivalent to buyer’s cover. Seller can resell goods
after buyer’s breach & recover difference b/t the resale price & k price.
K PRICE
– RESALE PRICE
+INCIDENTAL
- EXPENSES SAVED
1. Seller must meet 3 steps:
a. 1 identify the goods being resold as the same ones under K
b. 2 give the buyer proper notice of resale
i. if public sale seller must giver buyer reasonable notice of
time and place of the resale except when goods are
perishable or otherwise quickly to decline in value.
ii. if private sale seller must give buyer reasonable
notification of his intention to resell
c. 3 seller’s resale must be in good faith and in a commercially
reasonable manner.
i. If seller acts in a sham resale to a friendly purchaser or an
affiliated party, court should not allow the seller to recover
damages.
ii. Fact that a better price could have been obtained DOES NOT
make a sale unreasonable.
iii. Market Damages § 2-708(1)  issues w/ this one
K PRICE
– MARKET PRICE
+INCIDENTAL
- EXPENSES SAVED

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iv. Lost Profits § 2-708(2) is an alternative to the market price measure and
authorizes courts to award lost profits to sellers if the market measure is
“inadequate to put the seller in as good a position as performance would have
done.”
LOST PROFITS
+ INCIDENTAL
+ COSTS INCURRED
- PAYMENTS OR PROCEEDS OF RESALE
1. 3 situations where should apply:
a. 1 Lost volume seller  If B breaches and S makes a resale of same
item, S can get lost profits IF can prove it had the capacity to make
both sales and both would have been profitable.
i. Burden of proving status as a lost volume seller is on the
seller
ii. “Due Credit” issue
b. 2 S assembling during breach  might not be commercially
reasonable for seller to continue & try to resell on the open market so
awarding lost profits based on k price minus the cost of production
may be only way to compensate.
c. 3 Jobbler (a middle person who purchases goods for resale)  IF buyer
from a jobbler breaches before the jobbler has gotten goods, courts
may award lost profits as the best measure of seller’s harm.
i. Applies if the market value measure is inadequate to put
seller in as good a position as full performance buy the
buyer.
v. Seller’s Action for the Price § 2-709  can recover price of the goods in 3
situations:
+INCIDENTAL
- EXPENSES SAVED
1. 1  IF buyer accepted goods then seller can recover price
2. 2 IF goods are damaged after the risk of loss has passed to buyer seller
can recover the price.
3. 3 IF seller is unable to resell the goods w/ reasonable effort can recover
the price and essentially force the goods onto the buyer.
a. Although this section doesn’t use term “specific performance” it
appears it makes it available.
vi. Incidental and Consequential Damages all remedial sections above also allow
seller to recover incidental damages (that include a variety of out-of-pocket
expenses incurred by seller to deal w/ buyer’s breach like cost of storage or
transportation of goods).

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1. There is NO reference to consequential damages as available for recovery

by sellers!!

41. ALTERNATIVES TO THE NORMAL REMEDY

A. When we can’t prove expectation damages or maybe there is no K (or it is
unenforceable bc of SOF violation, impracticability, etc. then maybe these are
appropriate, or promissory estoppel, or just good old garden variety restitution)

B. RELIANCE  how much A is out | “out of pocket expenditures”

C. RESTITUION  how much B is up

D. SPECIFIC PERFORMANCE  carry out the promise

i. Reliance  if you can’t prove expectation damages, this is your fall back when
running into one of the barriers for recovery (foreseeability, uncertainty, etc.)
1. Expectation damages is the best recovery bc other damages–like this one
(reliance)–are built in. Reliance alone isn’t as good.
2. Goal instead of putting him in net positive like expectation, we
want to help him recover what he was out.
3. Measure  by the detriment suffered by the non-breaching party
a. Caused by the breach–harder to understand bc the reliance occurred
before the breach but are still caused by the breach even tho
happened beforehand.
b. Must be foreseeable–probably easier to prove bc you have already
spent them before trial
c. Reasonably certainty– any kind of credit card statements, etc. are
easy to prove
d. Mitigation Duty
i. Reliance damages include restitution damages.
1. Reliance damages are reduced by the amount the non-
breaching party would have lost on the K.
ii. Restitution  is the benefit that A recovered on B recoverable?
1. Always available to the non-breacher
2. Option to non-breacher when there is nothing else
3. Also, may choose this remedy when:
a. A losing K (if expectation damages were 0 and reliance were also
reduced  choose this one bc the restitution damages are not
reduced)
i. Even if a losing K it is more fair to at least make the breacher
give the non-breacher his money back.

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b. When K Is voidable
c. When K is unenforceable under law
i. § 374 Restitution in favor party in breach
1. B is the material breacher. B has conferred on A $2M, with
expectation damages of $1M.
2. ARKANSAS allows the breacher to recover in restitution.
Conferred benefit less any expectation damages.
3. B cannot sue A for his expectation damages bc he has no COA.
4. B cannot sue A for reliance damages bc he has no COA–when he
breaches, A is excused from performance.
iii. Specific Performance  making the breaching party carry out his promise
1. Injunction, Court order.
a. Looks like it might be the best remedy but really isn’t and is not an
ordinary remedy. Problems:
i. Jurisdictional turf battle–court of equity v. court of law
ii. Judgment of this kind is not within power of the court
iii. Reeks of involuntary servitude which we obviously don’t like
(13 th amendment)
iv. May require a long-term supervision of the court
1. Difference in enforcement mechanisms:
a. In money damages, you have damages to recover if the D does
not pay.
b. In SP, court may fine the D for failure to perform and throw
them in prison.
i. SP is seen as extraordinary and ONLY available when the
remedy at law is NOT available.
2. § 359 Effect of Adequacy of Damages
a. SP or an injunction will be ordered if damages would be adequate to
protect the expectation interest of the injured party.
b. Courts will only grant SP if fair to award it.
i. P won’t get if has unclean hands or guilty of laches (equitable
equivalent of SOL–you took too long to bring COA)
c. In order to get SP, K must have even greater certainty than normal –
must be VERY clear and SPECIFIC as to what B was supposed to do.
3. Remedy: court order to tell B what to do (SP) or what B cannot do
(injunction)
4. Traditional uses of SP
a. Land  available for both the buyer & seller

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i. i.e. buyer wants the particular parcel of land. i.e. we don’t

want seller to sit on land forever
b. Unique Goods  i.e. heirlooms, unique paintings, mother’s ring, etc.
c. Other proper circumstances  UCC case: Sears was making sheets and
had it listed in its catalogs. The price of cotton increased, and the
cotton farmers breached the K by wanting to sell their sheets
elsewhere. The court orders SP for the farmers.
E. Agreed Remedies  Liquidated Damages: a fixed or determinable sum of money
that has been specified in advance as to a sum of money.
i. Replace other K remedies (instead of actual, …, and …) does replace damage
remedy
ii. Can the parties stick in their K what the remedy will be if the K is breached?
1. Courts don’t typically like this–may enforce an arbitration clause
2. Historically, pple would put in huge liquidated damages (in terrorem
clauses) in the K to keep the other party from breaching.
3. If LD too big, it results in punishing the breached party and violates the
traditional goals of K damages  put the non-breaching party in the
position he would be in if K had been fulfilled.
iii. § 356: a term fixing unreasonably large liquidated damages is unenforceable on
grounds of public policy.
F. ARKANSAS: A liquidated damage clause will be upheld IF:
i. Parties contemplated the damages would flow–foreseeable
ii. Damages would be difficult to determine–not certain.
1. i.e. non-compete covenants (difficult to prove how much the employer was
harmed), construction Ks (hard to measure how bad a delay would hurt)
iii. Stipulated sum has to bear some reasonable proportion to the damages the
parties contemplated might flow from the breach.
1. Usually the determinative factor.
2. Test the liquidated damage clause @ time K was entered into.
3. Some states test it at the time of breach  NOT AR.
G. If liquidated damage clause is struck down, this means that A is relegated to the
traditional remedies.
i. A can still ask for SP even if there is a liquidated damage clause.
ii. Too high liquidated damages clause are struck out for public policy but those are
too low aren’t struck down
H. Typical uses:
i. Construction K (hard to measure how bad a delay would hurt someone, so
agreeing on it in advance helps)

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ii. Forfeiture of escrow money in a real estate agreement (this is common)

iii. Covenants not to compete
iv. Consumer Ks (gym K, phone K, a buy-out clause if a coach gets fired, even things
like late fees on installment payments.)

42. RIGHTS AND DUTIES OF THIRD PARTIES

A. Parties cannot K to adversely affect (destroy–take away) the rights of a third party
(bc not a party to the original K), but you may be able to create rights in third
parties.
B. Rights of 3rd parties as K beneficiaries
i. Problem w/ TPB is the lack of privity of K.
1. C/L would not allow third parties to enforce rights created under a K bc
only those in privity to a K could sue for enforcement.
2. Modern courts will now allow third parties to sue, but there is still the
presumption against 3 rd parties.
a. The presumption is that everyone if just K-ing for themselves.
*Remember: You can K for the consideration–performance to be conducted by a
3rd party.
ii. Restatement (first) allowed the creation of 3rd parties, and categorized into 3
groups:
1. DONEE beneficiaries
a. Third party would be given the benefits of performance as a gift
b. MAY SUE to enforce the K
2. CREDITOR
a. Third party would be given the benefit of performance in fulfillment of
an obligation
b. MAY SUE to enforce
3. INCIDENTAL
a. Third party whose benefit was not intended–anybody else that
benefits from a K that others make
b. Incidentals MAY NOT sue to enforce
iii. Restatement (second) continues to allow performance to be given to a third
party, but it categorizes beneficiaries in only 2 groups § 302:
1. INTENDED beneficiaries
a. These are 3 rd parties such as donees and creditors.
2. INCIDENTAL beneficiaries
a. Again, the third party whose benefit was not intended–anybody else
that benefits from a K that other makes.

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3. How do you tell? Intent is determined by looking at the totality of the

circumstances
a. Look at the facts and circumstances to show the intent of the parties.
b. Look at the terms of the K.
c. Look at where the performance is flowing.
4. NOTE: there must be a legally binding K before the third-party beneficiary
may sue to enforce the K. § 309
Ex: life insurance policy, a lot of employer–employee stuff (pension plans),
bank–pension case example, (garbage public service K) generally harder
to prove that public is an intended beneficiary and are usually regarded
as incidental.
5. Misc.  if no K then nothing for 3 rd has nothing to enforce, C’s rights don’t
rise higher than originals when performance discharged
6. AR …
C. Rights and Duties of TP
ASSIGNMENT
i. C/L, an assignment of K rights was not recognized. Nut the law has gradually
evolved and now recognize
ii. An assignment of a right is a manifestation of the assignor’s intention to transfer
it by virtue of which the assignor’s right to performance by the obligor is
extinguished in whole or in part and the assignee acquires the right to such
performance. § 317
1. A is obligor, B is assignor, and C is assignee.
iii. What is the effect? B can no longer enforce the K right, and C is now the proper
P.
iv. Assignment does not have to be in writing. SOF of jx may require certain
assignments to be in writing though.
v. Is an assignment a K? An assignment is NOT a k, although it may very well be a
part of the K.
vi. An assignment does not have to be for consideration.
vii. An assignment does not require consent of the obligor.
viii. Exceptions to the right to assign:
1. If the assignment would materially change the duty of the obligor, or
materially increase the burden or risk imposed on him by his conduct, or
materially reduce its value to him.
2. If the assignment is forbidden by statute or inoperative on grounds of
public policy.
a. You cannot assign salaries of public officials, gov’t pensions,
unmatured alimony claims, etc.

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3. If the assignment is validly precluded by K.

a. Courts are split on this kind of clause–there is the battle b/t K
(freedom of K) and property (alienability of property rights)
b. Majority approach–endorses the notion of freedom of K–the clause is
valid and precludes assignment.
ix. Defenses against an assignee (rst § 336)
1. C may only enforce to the extent that A had a duty to B.
2. “C steps into the shoes of B.”
x. Full performance of a duty under a K discharges the duty (rst § 235).
1. Once A knows that contractual rights have been assigned to C, A must pay
C and not B.
 DELEGATION
i. An obligor can properly delegate the performance of his duty to another unless
the delegation is contrary to public policy or the terms of his promise.
1. A (delegator/obligor), B (oblige), and C (delegated party)
ii. What is the effect? You cannot get rid of your obligation to perform by just
delegating it to another party–A still remains liable for the job, unless A can
convince B and C to enter into a new K.
iii. If a (delegator/obligor) and C (delegated party) enter into a K to delegate the
obligation, most courts will allow B (obligee) to sue C (delegated party) on the
basis of third party beneficiary–C is now liable for the K, and A is a surety/
iv. Exceptions to the Right to Delegate
1. Contrary to public policy
a. We don’t like contacting away obligations
b. Board of directors cannot give away their duty to make decisions for a
corporation.
2. Terms of his promise
a. There is a K clause that says, “I will not delegate”
b. These clauses are generally enforceable by the courts.
c. Even if there is no term in the K preventing delegation, B (obligee)
still has an argument that the duty is not delegable bc B has a
substantial interest in having A (delegator/obligor) perform.
i. K for personal services such as body guard, doctor, paint
portrait.
ii. B has hired A and relies on A individually to pe rform the
duty.
iii. Just bc it is a service K does not make it a personal service K.
 HOW DO YOU TELL IF THERE IS AN ASSIGNMENT OR
DELEGATION?

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i. The language “an assignment of the K” or “all of my rights under the K” mans a
complete assignment of rights and delegation of duties.
ii. See examples in TA notes.

iii. Rights are assigned. Duties are delegated.

Something about champtery and not being able to seel law suits.

a. Ask:
i. What was done? Assignment, delegation, or both?
ii. Was it valid under terms of K? Under law?

b. Herzog v. Irace (ME)

i. Dr. Herzog sues Jones’ attorney, Irace, for breaching assignment of
settlement proceeds to Dr.
1. Attorneys had notice of assignment
ii. Dr. performed shoulder surgery for Jones, who requested that “payment
be made directly from settlement of a claim currently pending for an
unrelated [motorcycle] accident”
1. Can assign $ from a claim, but cannot assign the claim itself
2. Settlement for $20K
iii. Jones instructed attorneys he is revoking assignment and to issue him a
check for $10,027; said he will send a check to Dr. directly
1. Sends check, but it bounces
iv. Holding: assignment was valid and enforceable; Jones couldn’t revoke
1. Two things for effective assignment:
a. Assignor has to actually own right
b. Owner has to make manifestation to make present
transfer
i. Present transfer: transfer something that may or
may not happen in the future, but the transfer of
the right occurs at this moment
2. Once assigned, unlawful to pay assigned $ to assignor; R 317(1)
a. Jones had no right to the settlement $
3. Claim proceeds aren’t future right b/c existed at time of
assignment; R 321(2)
4. Ct. still sees as a legitimate assignment despite the discretionary
aspect of the word “request”
a. Words “from the settlement” suggests that he will pay
Dr. from the $ he gets v. assigning all of the $ he gets to
the Dr.
b. Better to “direct” or “declare,” but there was no
indication that Jones wanted to retain control
c. But there are no magic words to create an effective
assignment
5. Attorneys had ethical obligations to Jones and they are not
allowed to place a lien on a client’s file for payment to a 3d party

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a. But they didn’t place the lien, their client did, which
is allowed
b. No rule of PRE that says they don’t have to honor an
assignment
c. Partial Assignment; R 326
i. Jones was allowed to assign a part of the settlement proceeds to Dr.
d. Can assign K rights even in face of K language expressly providing
otherwise; R 322; UCC 2-210(2)
i. R 322(2) first interprets “no assignment” clauses in Ks to mean “no
delegation of duties” unless language is strong enough to show that it
meant the rights could not be assigned.

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