CONTRACTS II OUTLINE

Corey Bass

§1 Intent to Contract

I. What Intent is Necessary to = “A Meeting of the Minds”

A. General Meaning of Intent to K—a meeting of the minds that evolves into offer and
acceptance, measured by express intentions of the parties, not hidden subjective intentions.
o Intent (show intent issue, rule of law, and argue yes/no on exam question about intent)
o Look for mutual assent to exchange
Two contradictory pulls:
B. Subjective v. Objective Intent
1. Subjective—What a party means in his own mind regardless of conduct (inward intent)
2. Objective—What a reasonable, dispassionate 3rd party would regard as intent
(outward intent)
 Objective test really isn’t absolute but has high statistical probability 3rd parties
would see intent
3. Rule is usually objective intent
i. §17(1)—bargained for exchange w/ mutual assent
ii. §19(1)—manifestation of assent can be written/ spoken words, other acts, failure
to act
iii. §19(2)—conduct is not assent unless it is intentional or the other party will rely
on the conduct to mean assent
iv. §19(3)—conduct can provide assent even though there is not in fact assent
v. §21—intentions that a promise be legally binding are not essential to the
formation of the contract, but manifestation of intention that a promise shall not
affect legal relations may prevent contract formation
4. Hypo—Stone walks into a restaurant and raises his index finger; waiter brings over
ham/cheese on rye; does Stone show intent? Can argue yes or no; Consider: prior history
of coming in and doing that for a sandwich
5. If ∆ is joking about K and ∏ knows it, then no K because reasonable person wouldn’t
have thought there was a K (TACIT KNOWLEDGE = “Should’ve Known” Knowledge)
6. If you know of/should’ve known (tacitly knew) that the other party didn’t intend to K
there’s no K
C. Case Application—Determining What the Parties Meant
1. Homan v. Earle—Marriage broken case—widower is in relationship w/ woman and
exhibits all behavior that seems to say that he intends to marry her. She relies on this
and sues when he takes another. Result: Yes, she could have seen his acts as intent to
K and hold him to damages for things promised to her in the engagement
a. shows that actions can be used to determine intent
b. look at conduct or acts sometimes not only explicit words
c. TOTALITY of conduct not just spoken words
d. can’t say one thing and do another and expect to negate the doing

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 2. Embry Case—the employee relied on the ambiguous words of his employer that the K
was renewed and a RPP would have as well so the court found
a. point is to be clear in what you are saying; don’t give someone the opportunity to
make what you said into his decision
b. even though subjective intent of employee was not to rehire employee, the
objective standard got him b/c employee asked a clear question
c. Intent is a very fruitful exam question area
d. Sue your boss you may never have another argument should be kept in mind
3. Tolmie Case—UPS case where employee accepts a higher position for advancement but
gives up his right to dismissal only for good cause; after assurance by his super that the
right would follow him, the employee is dismissed
a. court finds that no RPP would have seen that a new K was formed and Tolmie
gave up his rights; judgment for UPS b/c the response that Tolmie got was
ambiguous
b. distinguished from Embry—Tolmie relied on vague assurance from UPS; not
only be clear in what you say, but be clear in what assurances you get
4. Hypo: Drunk farmer sells his place for $50k
a. X and Y are drinking together and X says I will sell you my place for $50k. Y
says sure and X gets his wife to get some paper and Y gives up $5k for deposit.
X says “Wait a minute, I was only kidding. I can’t sell you my place for that.”
Y sues for performance. What result? Argue Y and N.
i. Yes—Y gets farm: A RPP would see intent within the conduct of X and
his wife. The conduct would trump any subjective intent on part of X.
If wife really does sign the K then that only supports Y’s position.
(Objective)
ii. No—X was only kidding. His drinking got the best of him and there was
no “meeting of the minds” to bargain. What about X’s drunkenness?
See Farnsworth (incapacity) also Rest. §15 (Subjective)
b. Trick is to be persuasive w/ jury and argue all facts that tend to show what you
want, whether a RPP would have found or not
c. If the offer had been for $50 instead of $50k then the facts would lead toward X
b/c no RPP would expect to pay that for a farm and this would be considered
“frolic and banter”
d. Remember—this is an intent question and not a consideration question.
e. in actual case X was only joking to expose Y’s tendency to boast about his
money and expose him as a liar; court rules for Y (Objective)

II. Mutual Ambiguity (Restatement §20)

A. Mutual mistake as to material terms of the contract can negate the formation of the K.
1. §20—applies when parties have different understandings of their expression of
agreement; don’t apply when a party’s misunderstanding is unreasonable or when parole
evidence is admissible to establish necessary facts to clear up misunderstanding
i. (1)—there is no manifestation of mutual assent to an exchange if the parties
attach materially different meanings to their manifestations, and (a) neither party
has reason to know of the meaning attached to the other

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 2. Party that is assuming unreasonable definition of a material term has burden of proving
why their assumed meaning is correct; when a definition is part of common trade usage,
gov’t regulations, dictionary meanings, that definition is preferred
3. Stone’s simplification: party w/ the most to lose should contract to get what they want
B. Case Application—What to do about ambiguity (What does fifty-six twenty mean? $56.20 or
$5,620)
1. Konic Case—Is there a meeting of the minds in this situation where a quote for the price
was confused as the lower amount? Surge protector case; the court used the decision in
Raffles to determine how to work out the misunderstanding and see if a K was ever
created. In Raffles the court trashed the whole K blc they said that latent ambiguity
prevented meeting of the minds (Rest. §20(1))
a. court in Konic does the same thing, trash the K
 So little mutual understanding/assent that there’s no K
b. who has the greater incentive for accuracy, B or S? Argue Y and N and try to
save the K; the S should be accurate in selling his own product and the B should
know what he’s paying for; he who has the most to lose should have the burden
of bearing the loss or protecting himself; each knows the most about his own
wants, needs, and desires; B is in the best position here to avoid poor planning
(UCC 2-322)
c. GR—subjective hidden intent doesn’t control, but sometimes it’s taken into
account as in this case and Peerless/Raffles
d. which approach to case leads to the best alternative; put burden on people to look
after their own economic self-interests: Subjective—B looked out for his own
interests b/c he did some pricing $50-$200; but took the risk of using just the
information he researched instead of going elsewhere; better for S to disclose up
front the clear cost b/c he has low information costs on the price, but B has
greater incentive to look after his own interests

III. Interpretation (Restatement §§201-204)

A. Naturally follows from ambiguity b/c court has to interpret terms if they are not clear and court
wants to save the K.
1. Frigaliment Importing Co (“The Chicken Case”)—This is a burden of proof case, the
two parties each understood “chicken” to be a different thing, the P thought “young and
tender” and D thought “any old chicken.” This isn’t a mutual ambiguity case
(Peerless/Konic) b/c court follows the economic analysis, i.e. P has the burden of proof
b/c he has more incentive to be clear; use 4-part test below to clear up ambiguity instead
of blowing up the K, and put the burden on the one who has the most to lose
a. When one wants narrower meaning to a term, they have the burden of proof
a. Test for Evidence of Intent to K (From §202/§203) [How to determine intent]
i. Clear K terms may be present – if they are there follow them, they may
establish the relevant intent.
ii. General meaning of words – this case, any old chicken will work
iii. Special meaning of words—IF the parties assign special meaning to a
term, then that meaning will prevail over the meaning used in the rest of
the world.

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 iv. Industry custom or trade usage. (P not held to trade custom here b/c
was new to industry)
b. Trade Usage Argument
i. Argue Y—S is new to trade so can’t be held to trade usage;
ii. Argue N—if S wants benefit of sale, has to carry the costs of risks of not
knowing trade usage (grow the “hell” up); to be consistent w/ objective
intent, if S says he’s an expert as a chx. dealer then hold to usage, unless
S can prove that he’s not an expert
iii. US Naval Case—The U.S. Naval Institute published the hardback
bestseller, “The Hunt for Red October” in October of 1984. It granted a
license to D to publish the paperback version, and the K stipulation that
it could not be published sooner than October of 1985. Relying on
common industry practice, D began filling orders and shipping books in
preparation for the official October 1985 publication. Although P says
it’s ignorant of trade usage must follow the should have known test
(compare to Hawkins case); trade usage held regardless of knowledge,
book case follows a different direction than chx. Case
iv. If a party is engaged in a trade, it’s presumed to have knowledge of trade
usages in that trade, or presumed to have known the usage
v. Trade usage is one of inquiries needed to plan around on exam and in
practice
B. Two lines of cases found in issues of interpretation
1. Mutual ambiguity = No K
a. Throw up your hands and go home (Raffles and Konic)
2. Lower cost provider clears up ambiguity or suffers the consequences
a. Creates incentives for future situations of ambiguity
b. Lower transactions are a better option so that economy can succeed w/ more
transactions
C. Restatement §201 (Whose Meaning Prevails)
1. If attached, the language of that attachment prevails
2. If different meanings are attached, one party’s meaning will prevail if:
a. That party did not know of any other meaning attached by the other party and the
other party knew of the meaning attached by the first party. (One party knows of
the other’s attached meaning)
b. That party had no reason to know of any different meaning attached by the other
party and the other party had reason to know the meaning attached by the first
party.
D. Restatement §202 (Step by Step analysis) (On EXAM: do not assume a meaning, cite law and
argue which should be the proper interpretation)
1. Words and conduct should be interpreted in light of the circumstances
2. Writing should be interpreted as a whole
3. Unless a different meaning is attached:
a. General meaning prevails (Kind of like general vs. special damages realm)
b. Technical terms are given their technical meaning when used in a transaction in
their technical field
4. Any course of performance accepted without objection

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 5. Any course of performance, course of dealing, or usage of trade.
E. Restatement §203 (Weight of Evidence in Interpretation)
1. An interpretation which gives reasonable, lawful, and effective meaning to all terms is
preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect
2. Express terms are given greater weight than course of performance, course of dealing,
and usage of trade. Order is: Express terms  Course of perf.  Course of dealing 
Usage of trade.
3. Specific terms are given greater weight than anything that is ambiguous.
4. Boilerplate language is not nearly as good as negotiated terms.
5. Application Hypo: A goes into B’s office worrying about renewal of employment K. B
is looking at papers. A asked for 10 % raise and 6-mos. extension. B is looking down at
board of directors’ report. B says yes to 6-mos., but what secretly meant was a reaction
to board of directors’ report that addressed a 6-mos. term. Next day B fires A (like
Embry case). What word focusing on that might be ambiguous? YES Does A have K?
a. Yes: Use test #2 under 203 to say that Yes means Yes (i.e. Yes is not ambiguous)
and any RPP would have thought the same thing as Alice.
b. NO: She “should have known” that he didn’t mean yes b/c his full attn. was not
w/ her and a special meaning was attached to his answer in the affirmative.
c. Practice App’n: What should she do – sue or walk away?
1. Think about how this will affect her opportunities for future employment,
she has other options as she could re-negot. again or go elsewhere. Think
about mitigation, she may have to try something rather than sit on the
couch and eat pringles. (§350)
2. She’s also got proof problems b/c this is a he said, she said case. Also
whistle blowers don’t usually get a second chance to blow.
d. Role of lawyer
1. More than suing and legal analysis; remember clients are people; think
a/b their needs/feelings
2. Legal analysis—finding out if A had K
3. Advise client
4. Never too late to plan (prior to lawsuit might opt for ex post planning)
5. Sue as a last resort
F. Restatement §204 (Gap-filling by the Court)
1. When all elements of a contract are met (especially intent) except a provision here and
there, the court can fill in the missing parts.
2. When too many terms are omitted, the probability is low that a contract is intended.
3. Courts do gap filling w/ terms w/ respect to:
a. When (i.e. sale of a car)
b. Warranties? Possibility of Recission?
c. Payment method? Delivery?
d. What about damaged products?
4. DANGER – court may fill so many gaps that they effectively rewrite the K and interfere
w/ private property rights and the transfer thereof (Whose K is it anyway?)
5. Look ex-ante at parties preference in making the deal. Easy to argue the facts b/c of
high or low statistical probability.

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 6. Hypo: Pipes burst and call plumber to come and fix, plumber sends bill for $250, Buyer
objects b/c no agreement on price b-4 hand.
a. No free lunch for the buyer the court will fill in price using mkt. price (find by
using testimony of those in field and rely on trier of fact).
7. Action Ads Case—P had an employee K w/ D that had a term stating that 60 days after
P’s hiring, D would provide a medical insurance program. P was injured on the job after
60 days, but no insurance was provided.
a. Court refuses to supply the terms b/c there are just too many to supply. K was
undefinite and ambiguous and b/c P had the most incentive to secure his rights
he should’ve checked into the plan.
b. P didn’t provide any proof of what the coverage would have been “Devil in the
Details” -- Wants court to find a “standard” insurance K.
c. What if faced w/ UCC 2-204(3)? Allows for gap-fillers if intent to K is there;
minor terms can be supplied by court
8. Oglebay Case—Some courts are reluctant to engage in gap filling and some go
overboard, how does a planning lawyer help the court. In Ogleby the K called for a
price to be set by a trade journal, the journal stops publication so is the K destroyed?
NO, go to mkt. price to determine what is right. Gap-fillers are about substance, not
form – Courts fill in price gap despite trade journal index (FORM) no longer being
there, since the index’s “SUBSTANCE” can still be calculated [FORM vs.
SUBSTANCE ARGUMENT]
a. court gap-fills by supplying a “reasonable price”
i. distinguished from Action Ads b/c court engages in gap-filling
b. course of conduct/ dealing case
c. How do you determine price?
i. experts (people who formerly worked for trade journal
ii. can take care of this w/out the court; court doesn’t know any
more than the experts
iii. court will say it’s reasonable when it has a key in facts for the
terms

IV. Interpretation and the “Agreement to Agree”

A. What is an “Agreement to Agree”?
1. 1st stage = K or Prelim. Negotiations OR
2. 2nd stage = Memorial to a K entered into or has the K itself come into existence.
o Agreeing to agree doesn’t reach the “stage 1” level of intent to K
B. Deli Case—Lease K had a renewal term that stated that T may renew lease for additional
period of five years at annual rental to be agreed upon. L wanted rent significantly higher than
what T had the rent appraised for.
1. Only an “agreement to agree” – parties are in a lease situation and sign a lease that
leaves open future deals but does so in ambiguous terms that do not disclose any of the
relevant details needed to come to culmination.
2. Would a clause calling for “reasonable rental” based on mkt. be more specific? Yes,
gives court more law not just facts where can use §204 and supply a term if you are
wanting to use the first stage of talking to make a K.
3. How do you avoid uncertainty?

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 a. Percent of sales as basis for rent? Sure
b. Rent tied to price index for mkt.? Sure (§205 Good Faith Requirement)
c. Avg. rental of prev. 3 commercial renters + inflation. Sure
d. Avg./ square foot of commercial rental in the community. Sure
e. Arbitration clause? Sure.
f. Non-binding mediation? Sure
g. All the above could save transaction costs of litigation and determining the
proper price and is more economically sound. Give the court a key (§204), i.e.
guidelines for it to follow
C. Pennzoil v. Texaco – Was there ever a K? This is a first stage v. 2d stage problem
1. B/c P signed a memo of agreement w/ Getty does that = K or §26 Preliminary
negotiations. So which was it – argue Y for P and No for D.
2. Argue Y – The memo of agreement was a valid K that Texaco interfered with.
a. Press release was using words of definiteness
b. “Done deal”
c. Agreement on most of key terms.
d. Restatement §27 says written memorials have evidence of intent to K
3. Argue N – there was no K so D couldn’t have interfered w/ anything.
a. Only a memo of agreement, not a K
b. This was a BIG K, it would have went on for 100’s of pages.
c. Indemnification agreement
d. Trade practice – in mergers there would have been extensive negotiation, (court
doesn't even touch this).
e. Getty board had other alternatives.
1) Approve or alter
2) Decline or pass to shareholders
3) Let it expire by own terms
4) All above could imply that the “Deal wasn’t done”
4. Court finds a K and holds D liable for interfering. See last semester for the required
elements for a Memo to be a K.
5. Preliminary agreements normally aren’t binding Ks, as they were found to be in this
case
D. Application through Hypos: Do parties intend to be bound by 1st writing or only when formal
agreement is executed (finalized, memorialized, 2nd stage etc.) Hinges on intent.
1. 2 CEOs work out terms on a napkin at the dinner table and then consult attys. to work
out details, one party gets cold feet. K or not? Where?
2. Law student looks at Apt, and says I like it, I’ll take it, but B-4 he can sign lease Apt
rents to 2d offeror for more money. K? When? Where?
3. “I accept offer, please sign and return for my records” K? When? Where?
4. “I accept terms, please sign one copy and return new K w/ acknowledgment of different
terms” Court fills no gaps here.

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§ 2 The Offer

I. Offers Basically (OR=offeror; ee=offeree)

A. Basic Elements of an Offer
1. Intent (§26 Preliminary Negotiations & §24 Offer Defined)
2. Certainty of terms (§33 Certainty) – NO gross ambiguity.
a. Quantity must be specified. Courts typically cite indefiniteness or
incompleteness of the terms to avoid finding an offer.
b. When a series of writings is involved, courts construe intent from viewing the set
of documents as a whole.
3. Communication--offer has to be properly communicated
4. Example: If X offers to Y and Z overhears is Z eligible for acceptance. NO b/c there is
no communication to Z and intent is to offer to Y not Z. Always analyze on exam
using three basic elements.
B. Restatement §52—The OR is the master of his offer
C. Restatement § 24 (Definition of an offer)
1. An offer is 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.
D. Nebraska Seed (Invitation to Bid Case)
2. Harsh’s offer was not forceful enough b/c he had no clear positive stmt to make an offer.
He said “I want….” – Want ≠ offer.
3. Would “ I will not sell for less than 2.25” work as an offer? – No, is only a prelim
Negotiation, only way for there to be an offer is if Harsh would have said “I offer to sell
you …”
4. Language is general and such as may be used in an ad, and isn’t an offer by which he
may be bound
E. More Cases
1. Moulton v. Kershaw (An Offer that is Uncertain in Terms)
a. D, a salt dealer, sent a letter to P, who was also a salt dealer, that stated D was
authorized to offer full car-load lots of 80-95 bbls at 85 cents/ bbl. P responded
in telegraph that he wanted 2,000 barrels of the salt as offered. D declined to
ship.
b. Argue Y: D offered a certain amount of salt at a certain price. 2,000 barrels was
not an excessive amount to order from D’s course of performance.
c. Argue N: No Certainty: No key language to = offer + no maximum number of
barrels required to buy is given, could this be a needs K? can’t assume b/c D
didn’t mention that
d. Restatement §33—Certainty Application; Intent and certainty often blend
together; Rule: To constitute intent, words of offer must be used
a. Restatement §33 says the terms of offer must be REASONABLY certain to
constitute valid offer
 Terms are reasonably certain if they provide a basis for remedy in event of
breach

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 2. Keller v. Ybarru
a. Offer was “so many grapes as (plaintiff) should wish to take” was a proper limit
on the amount to = a K.
b. Rules for specific terms help to lower trans. costs.
c. Even though terms may be certain for risk , intent might not be there b/c words
of offer are absent; Remember 2-306—don’t forget the disproportionality clause
d. Generally, the offeror is master of his offer
3. Fairmount Glass Work (Construing the Writings as a Whole)
a. P sent a telegram to D that asked the lowest price D had on ten car loads of
mason jars packed one dozen to a case. D responded by quoting a price for one-
dozen boxes of pints, quarts, and half gallons per gross. When D requested
shipment of several gross of a variety of jars, D said it couldn’t fill the order.
b. Prelude to “battle of the forms” – Each company wants to use their own form K.
c. Buying all you want as offeree isn’t an offer because ∆ may not be able to even
ship that large of a quantity
c. Case stands as the rule that correspondence should be taken as a whole when
determining intent to offer.
d. Aim of court is to arrive at the intention of the parties.
e. The offer of one party here incorporated the terms of the other so when the other
acknowledged it that served as an offer that could be accepted.
f. Troublesome b/c we don’t want the ee to structure the offer.
g. Only K if you can take the correspondence as a whole and see that intent and
certain terms were available by either offeror/offeree (Incorporation by
Reference Doctrine)
o Incorporate key terms by referencing actions and words of both parties

II. Advertisements as Offers

A. General Rule (See Restatement §46)
1. General rule is that ads are an invitation for negotiation (§26). Some states allow for
words such as “first come, first served” or “while they last” to construe offers, but they
must be clear in the ad. Other states find offers in ads when the ad is definite. Be able to
argue yes/no on EXAM (firm, clear, intent offer v. preliminary negotiation)
2. Due to the intent aspect, and no apparent offeree (also a risk allocation question since the
offeror would be exposed to infinite exposure if ad attracts infinite number of people)
B. Case Application
1. Lefkowitz Case (Are Ads Offers?)
a. D advertised in the newspaper fur coats, mink scarves, and a black lapin sole for
$1.00 claiming they were worth much more. The ad state “first come, first
served.” D refused to sell the merchandise to P, the first person at the store, b/c
of house rules that only a woman could complete the sale.
b. Go thru the three elements
1) GR is ads aren’t offers, they’re invitations to make an offer or bid, or
seen as unilateral that can be revoked at-will
2) no communication to specific ee
3) uncertain terms

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 c. Binding ads as Ks benefits the consumers and competitors from bait and switch
games/ads
 Market regulation of incentives may cut down on bait and switch ads anyway
though
2. Izadi v. Machido Ford (Size Counts Case)
a. An advertisement by D in the newspaper claimed that customers could get a
$3,000 minimum trade-in allowance for any car and could get that price
deducted from certain vehicles advertised. P put the cash balance down along
with a trade-in for a Ranger pick-up, but was denied the sale due to the small,
fine print of the ad that said the trade-in was only good for Eddie Bauer Aerostar
or Turbo T-Bird.
c. Courts generally hold that you should read all your K.
d. But courts do frown on “bait and switch”
e. Court sees clear intent, communication, and clear terms in big print so as to
constitute offer
 Small print contradicts big, so big prints prevails (§26) to protect the innocent
party
e. Always have to read ad as a whole – Here Izadi ignored the small print and the
court found that the dealership was being deceptive and found for P treating the
ad as an offer.
g. Cf. w/ “chicken case” – General meaning prevents proper interpretation then go
to special (narrow) meaning – Common knowledge is that the price of cars is
merely an invitation to bargain.
h. Could’ve used “rain check” to help protect consumers more efficiently
C. On exam, argue Y and N.
1. Use facts to argue that ads are offers
a. The print is not there
b. Quantity and worth arguments such as in Lefkovitz
2. Use facts to argue that ads are not offers.
a. Read ads as a whole
b. Only an offer to bargain
c. Not explicit enough to be an offer, consumer will want to be able to bargain.

III. Death of Offers

A. When does an offer terminate? (Five basic situations)
1. Revocation—OR kills his own offer by withdrawing b-4 acceptance (§ 42 and §43)
2. Rejection – ee rejects the offer and that kills it, even if ee comes back later to accept
on same terms the offer is still dead. (Restatement §38)
3. Counter Offer – ee makes a new offer and thereby kills the old one when he offers new
terms. Labels switch and the ee becomes the OR. (Restatement §39)
4. Death or Incapacity of OR – No A is possible (Restatement §48)
5. Lapse of Time – offer may establish the period during which it is open. (R §41/ UCC 1-205)

IV. Revocation (Restatement §43)

A. General Rule
 Revocation must be clear manifestation of unwillingness to enter into the proposed bargain

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 Restatement §43 – offeree’s power of acceptance is terminated when offeror takes definite
action inconsistent with intention to enter into proposed K and the offeree acquires reliable
info to that effect
1. Two part test:
a. OR takes definite action inconsistent with an intention to enter into the proposed K AND
b. Ee acquires reliable information to that effect
2. Examples
a. Revocation by Direct Communication- offers made by publication may be terminated
through comparable means (an offer in the New York Times should be revoked in the
New York Times, not Reader’s Digest)
b. Revocation by Indirect Communication- if information of revocation is received by a
reliable source that the offeror no longer wants to extend his offer.
c. Effective when received by the offeree. Where revocation is by publication, it is
effective when published.
d. Offers not supported by consideration or detrimental reliance can be revoked at the will
of the offeror unless:
1) Option K (R. §37)- this is a distinct contract which the ee gives
consideration for a promise by the OR not to revoke an outstanding offer
2) Firm Offers under UCC 2-205- an offer by a merchant to buy or sell goods that
is in a signed writing and by its terms states that it will be held open is not
revocable for lack of consideration.
3) Detrimental Reliance- where the OR could reasonably expect the ee
would rely to her detriment on the offer.
4) Part Performance- previously, a unilateral offer was revocable until performance
was complete. This has been eroded considerable by the following:
a) Implied contracts are given a reasonable time to complete performance in
which time the offer is irrevocable
b) Divisibility- when the consideration by both parties can be divided into
obvious segments
c) Offeree compensated for partial performance completed according to
damage suffered by reliance on the offer (avoiding unjust enrichment)
d) Part performance defined- preparing to perform is not part performance,
or if the performance is tendered by the offeree but refused by the offeror,
the withholding of tender is part performance.
5) Offer indifferent as to Manner of Acceptance- a bilateral contract is indifferent
as to manner of acceptance, so beginning of performance is acceptance and
revocation is impossible
6) With “grey shirting” in football, the offeror (coach) can make the promise but
revoke it at any time before acceptance (or give offer to others like in Dickinson v.
Dodds) < NO K AT THIS STAGE

3. Dickenson v. Dodds
a. A type of indirect revocation case. D is selling his farm and makes an offer to P,
keeping the offer open until X time. P hears that D has sold b-4 the time has expired
and comes around wanting to accept. P’s acceptance is no good if he has received
communication that D has already sold thereby revoking his offer to P.

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 b. Issue: Whether the offer was revoked when Dickinson learned that there was
a another offer
c. Argue YES for revocation
1) Here, revoked when P (offeree) heard of sale of unique property from a third
party
2) Offer is revoked on offeree LEARNING of the sale
3) consider intent b/c no meeting of the minds (§24)
d. Argue NO revocation here
1) Revocation was not totally clear to P
2) P received the revocation from a 3rd party.
3) B should be held to his worth
4) Could be argued that person’s word is their bond or “deceptive trade practice” by
Dodd, so Dickinson should’ve had the property
e. Analyze on Consideration grounds.
1) D’s promise was for P’s promise to buy the farm, there was no consideration
given by P for D to keep his offer open until the time
2) This is called a nudum pactum – naked pact – not clothed in consideration so
therefore not an offer.

V. Rejection (Restatement §38)

A. General Rule
1. §38(1)--An ee’s power of acceptance is terminated by his rejection of the offer,
UNLESS the ee has manifested a contrary intention. (Intent is the key word here)
2. §38(2)--Allows offeree to reject and manifest contrary intention by “taking it under
advisement.”
a. Policy is that OR can then cease plans or preparation in anticipation of an
acceptance.
b. Ee can afterwards re-open negotiations w/o the fear that his action will be
construed as an acceptance of the original offer (which is now dead).
B. Example: A makes an offer to B and adds: “This offer will remain open for a week.” B rejects
the offer the following day, but later in the week purports to accept it. – There is no K unless the
offer was itself a K. B’s purported acceptance is itself a new offer.

VI. Counter Offers (Restatement §39)

A. General Rule
1. An offer made by the ee that contains the same subject matter as the original offer but
differs in its terms. It is a rejection of the original offer and a new offer. Watch out for
inquiries.
a. Test is whether a reasonable person would believe that the original offer had
been rejected or that the ee was seeking further negotiations.
b. Effective when received by the OR
c. Revival of Offer occurs when the OR restates the offer and creates a new power
of acceptance
a. Must be more than inquiry, opinion, or stating a question (§39)
b. Communications suggesting the offer be modified or that inquire whether
different terms might be acceptable may not terminate the power of acceptance

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 c. A offers B to sell him land for $5000, stating that the offer will remain open for
30 days. B replies “won’t you take less?” A answers, “No.” Acceptance
thereafter by B within 30 day period is effective. B’s inquiry wasn’t a
counteroffer and A’s original offer stands
d. Indicates interest by the party but on a different set of terms, thereby killing the
first offer and making a new one, that is why the parties switch titles.
2. Example: A offers B to sell him a parcel of land for $5k, stating the offer to remain open
for 30 days. B replies “I’ll give you $4.8k for it, A declines and B replies w/in the 30
days accepting for $5k. NO CONTRACT, why, b/c when B countered, it killed A’s
original offer (if A’s original was a K, then that is different). A’s reply to the counter-
offer could have manifested an intention to renew his original offer resulting in proper
acceptance by B.
B. Counter-Offer Must Have all Elements of Offer
C. Other Counter-Offer Rules
1. Restatement §59--Communications intending to be acceptances but adding new terms
are deemed rejections and counter-offers rather than acceptance.
a. Example: A makes an offer to B, and B in terms accepts but adds, “This
acceptance is not effective unless prompt acknowledgement is made of receipt of
this letter.” --There is no K, but a counter-offer
2. Restatement §61—An acceptance which requests a change or addition to the terms of
the offer is not invalidated unless the acceptance is made to depend on an assent to the
changed or added terms
a. Example: A offers to sell B 100 tons of steel for x price. B replies, “Accept, but
hope that if you can arrange to deliver the steel in wkly installments of 25 tons,
you will” – There is a K, but A is not obligated to deliver in installments.

VII. Death of OR (Restatement §48)

A. General Rule
1. Termination by death or insanity of parties does not have to be communicated to the
other party but will automatically terminate the offer
a. Incapacity also qualifies (coma etc.)
2. Only refers to offers – argue Y and N to see if K still stands after acceptance.

VIII. Lapse of Time (Restatement §41/ UCC 1-205)

A. General Rule
1. Where the offer does not specify a time period for its existence, the rule is that the offer
expires at the end of a “reasonable time.”
2. What is reasonable depends on:
a. the nature of the proposed K
b. the communications of parties as to goals/purposes
c. prior course of dealing
d. usages of trade
1) Direct negotiations- when contact is face to face, by phone, or by email, a
reasonable time doesn’t extend beyond the contact

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 2) Speculative transactions- very short time is expected when the price of
the item is volatile (stocks, commodities, options, futures); when the
price is stable, there is a longer window (consumer goods, land sales)
3. Test is what time period would be thought satisfactory to the OR by a reasonable person
in the position of the Ee, but the OR may extend the period by indicating that the time
taken was acceptable to him.
a. Look to the time the offer is received by the ee. If the offer is delayed in
transmission or the OR should suspect it was delayed, the offer terminates at the
time it would have expired had there been no delay. When a party uses time to
take advantage of price fluctuations, there may be a lack of good faith that
permits the OR to refuse the transaction (UCC 1-205, 2-103)
4. Example: While A and B are engaged in conversation, A makes B an offer to which B
then makes no reply, but on meeting A again a few hours later B states that he accepts
the offer. –There is no K unless the offer or the circumstances indicate that the offer is
intended to continue beyond the immediate conversation.

§2.1 Sub-Contractors, Option Ks, Auctions As They Relate to Offers

I. Option K
A. Restatement §37—The power of acceptance under an option K is not terminated by
rejection of the ee, unless the requirements are met for the discharge of K duty
B. When is a §87 Option K invalidated.
1. Not w/ a counter offer – under option K, the counter offer is only a preliminary
negotiation.
2. Does not constitute a new offer b/c the option to accept is always out there.
3. A unilateral option to ripen into K would only become a K upon ee’s
acceptance.
4. The court will not glibly wipe out a K, need a good reason.
C. Humble Oil and Refining Co.
1. Humble entered into an option K w/ Westside in which Humble would purchase
land outside of San Antonio, TX for $35,000. Humble had the option by giving
notice any time prior to 9:00 p.m. on 6/4/63 or w/in 10 days following the notice
the sum of $1750 as earnest money + $50 as consideration paid at the time of the
execution of the K left H a balance of $33,200 yet to be paid.
2. Westside Argues: H rejected the option agreement through written letters. H’s
letter of 5/2 was a conditional acceptance which amounted in law to a rejection
of the option K. (§59/§39)
3. I: Whether or not the letter of May 2, 1963 constitutes a rejection of the option K
by Humble (H gets specific performance)
5. A: The mere fact that the parties may choose to negotiate before accepting an
option does not mean that the option K is repudiated. The option, considered as
an independent completed agreement, gave the optionee the right to purchase the
property within the time specified
6. If original offer is an irrevocable offer created in offeree a binding option, rule that
counter-offer terminates the power of acceptance doesn’t apply (binding option is such a
K)

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  Optionee has FIRM OFFER that isn’t revocable (2-205 & 2-207)

II. Auctions and Offers (2-328 Sale by Auction)

A. Generally bid=offer and hammer=acceptance
B. Auction w/o a reserve – Auction = offer, Highest (lowest) bid (fall of hammer) =
acceptance; no right to reject
C. Auction w/ a reserve – Bid = offer, auctioneer may accept or reject based on reserve
price; can reject all bids if that is his wish
D. Minimum opening bid says nothing of whether one will accept or not accept other bids.
E. Silence as to a reserve status – Usually construed as a w/ reserve auction b/c bids are
generally offers. Helps seller to get all he wants out of item that is on block.
F. Well v. Schoeneweis (The Hammer Rule)
1. D was to have an option to allow the highest bidder to purchase his farm w/ a
10% down payment on the day of the sale of the farm, then quarterly payments
for ten years under a K for deed. D also decided to allow purchaser the option of
taking a landlord’s share of the crops and pay the 1979 taxes due in 1980 or to
leave the landlord’s share of the crops with the D requiring them to pay the
taxes. P tendered the down payment but there was a dispute over the meaning of
“quarterly payments.” P and D were unable to negotiate these payments.
2. I: Whether P revoked the option K by giving conditions on the quarterly
payments.
3. D contends: Language in the sale bills makes the written K a precondition to the
acceptance of the bid. The K was too indefinite to be susceptible of SP. P
abandoned the K. SOF applies.
G. Specialty Mainenance v. Rosen Systems (Auction w/ Reserve Case)
2. P says w/out reserve b/c in ad it said w/out minimum which means w/out reserve
(highest bidder gets it)
4. Court agrees w/ jury but says it could go the other way
5. See PROBLEMS ON PAGE 468
H. Exam Hypo—What language would be explicit enough to get it out or in the realm of w/
reserve after rules are given? Rule is that auctions are w/reserve unless goods are in
explicit terms w/out reserve.

III. Sub-Contractors and Keeping the Offer Open

A. A sub will put a bid into a gen’l K’or who then uses that bid for his submission to the
client. Gen’l relies on sub’s figure to figure his bid.
B. Should the Sub be required to fulfill his bid (i.e. was his bid an offer, and better yet was
the reliance of the Gen’l the acceptance, Is there a K?)?
C. Drennan v. Star Paving (Modern View) (Calif. view of Reliance (§90) v. Bargain and
Exchange)
1. Case could have used mistake law but will be analyzed w/ offer law. Issue: Did
Star Paving revoke offer? Did reliance make the offer irrevocable? This is not a
question of acceptance b/c if O is revoked then you can’t get to A.
2. What happened is that D is a Sub and P is a Gen’l. P submits a bid for a job
using figures it got from D, then D doesn’t want to perform b/c it made a mistake
in figuring the cost.

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 3. Traynor (CA Chief Justice) elevates the problem to option K status. Traynor
ignores §54
3. §54(2) gives requirement for notification (especially useful in this case because of all
the subcontracts placing bids to general contractor)
 Sub still gets bound in this case though even without proper notification
4. Says that this is a unilateral K (promise for an act) and there has been part
performance resulting in an acceptance (following rules for unil or option K.)
5. The part perf. comes in by Star (D) submitting bid, that would have to make P’s
request an offer. The rub is that what has been considered as part perf. is not
what is the heart of the K (paving the parking lot) but only preliminary matters
(submission of bid) to get to the point actual performance.
6. Naked promises don’t make an option – there was no C here. Traynor finds
justifiable reliance, what about Gen’l’s option not to accept the sub’s bid?
7. Argue Reliance—P had to use the sub’s bid to come up w/ his bid for paving
8. Argue No Reliance—No option K here b/c don’t get something for nothing; P
has no cost
D. James Baird Co. v. Gimbel Bros (Traditional Common Law Rule)
1. Much like Drennan: Sub discovers mistake in submitted bid and tries to revoke
his submitted bid, P sues for the cost to cover the difference in unperformed bid
and actual work.
2. Difference is that Justice Hand found a bilateral K b/c the sub makes a promise
(Bid from Sub) for a promise (Acceptance from Gen). It is kind of like the sub
becomes the OR so the power of acceptance is in the Gen’l. The power of
acceptance that was in the Gen’l was terminated by the Sub’s revocation.
3. Why didn’t Hand find §90 reliance like Traynor?
a. Economic efficiency and a free ride by the Gen’l K’or if he really didn’t
want the bid, the street has to go both ways.
b. Also, §90 relies only historically to a few gratuitous areas where there is
no bargain and exchange – only applies to charitable gifts.
c. Intent: No intent to be bound – the notice of mistake and the revocation
goes b-4 the notice of acceptance.
1) Sub says “prompt acceptance after awarding of K to Gen’l K’”
OR
2) “If successful in being awarded the K” means future and not
certain
d. Express terms trump implied terms (doesn’t like using implied, unlike in
Drennan case)
E. . Planning application for getting around this mess.
1. K around the problem of this accept or non-accept and risk of court using one
method of interpretation or another.
2. If lawyer for Gen’l what do you do?
a. Put an option (for C) in to handle the situation to either give you an
assurance or allowing an option.
b. Expressly limit K to a non-option, bid means bid, if you put it in you
got to go by it.

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 c. Condition precedent in language of K (If such and such happens, then
bound by K)
1. Listing subcontractor in general contractors bid isn’t an implied acceptance unless the
agreement says otherwise
 Makes an implied promise overrule the express writing requirement of SoF
2. Novation – substituting K1 for a new K2
F. Summary of Two Cases
1. Traynor: Drennan = Unilateral K = Implied terms = equity and estoppel
2. Hand: Gimbel = Bilateral K = Express promises = offerer is master of his offer

Traynor Pro Cons Hand Pros Cons

UNILATERAL Uncertainty; BILATERAL Said to be rigid
Flexibility of K Reduces law to Provides certainty in and inflexible
process; don’t case by case fact the law over
have to use issues vagueness of §§87/90
formal or option
K; incentive for
gen’l to rely
May be faster In conflict w/ Hand is consistent w/ Certainty
process; lower way K’ing Dickenson v. Dodds;
transactions parties function; either have K or not
costs negotiations in
practice continue
Incentive to Allows generals Incentive to make
avoid bid to have it both other side bound
mistakes ways before going forward
w/ offer

H. Exam Time
1. Stone may want a statute to clean up whether subs and gen’ls may rely on
submitted bids. Either require or don’t require reliance.
a. I would probably not require reliance, b/c this is a bilateral K the promise
is for a promise and speaking of inequity the Gen’l still retains the right
to withdraw so both are even, this seems better suited to the market, if the
sub keeps w/d bids he will get a bad name.
2. Plumber wants to bid on several jobs but is concerned about the general relying
on his bid and holding him to it.
a. Thinks the other Gen’ls may not want an option K
b. Doesn’t think that Gen’l may agree to use the bid until approved.
c. Advise this person and tell him what he needs to do.
d. Solution: Try to get around the reliance thing by forming contract to be
one that is only accepted if the Gen’l is awarded the big one.

IV. The UCC and the K’or Problem

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 A. Campbell v. Va. Metal Ind. – Gen relies on sub’s oral bid for doors in his K w/
Company. Sub fails to provide doors and Gen sues. Sub claims protection by 2-201
of the UCC that a K for goods of more than $500 has to be in writing.
1. P argues that the doors are unique and specific so therefore they should be
awarded spec. perf. N.C. Fed court agrees that the promise made by Va. was
binding.
2. This is a problem as this is a Fed court changing state law; writing generally
required by UCC 2-201, but case is an exception b/c of specially manufactured
goods (2-201(3)(1)(a)); This is Drennan approach
3. Only two times when Spec. Perf should be awarded
a. No adequate remedy at law for P
b. Irreparable harm to P if equity is not applied
B. Montgomery Ind. v. Thomas – K1 = original bid by sub, K2 = $32500 increase by sub
demanded and agreed to by P, K3 = K w/ school client.
1. Gen’l refuses to pay $32.5k over what was original bid, Court analyzes first bid
like Traynor finding it irrevocable after relied upon by D. Court also says that K2
was done by economic duress. (No justifiable reliance under §87-§90)
2. Argue for the Sub – He made a mistake and the Gen’l agreed to it and then won’t
pay, who is duressing who here? According to facts Gen’l had notice of mistake
b-4 K so he could have checked it out if he had wanted to.
3. Call it bilateral or unilateral, sub performed fully when he held up his end of the
bargain (consider implied/quantum meruit contract)
D. Need to use planning to get around the problems of reliance.

§3.1 Acceptance by Communication

I. The Mailbox Rule (Restatement §63)

A. Rules when an offer can no longer be revoked.
1. In absence of intent to the contrary, offer is effective upon receipt and acceptance is
effective w/ dispatch from offeree (sent or postmarked).
2. BUT counter-offers, rejections, and revocations are effective only upon receipt
(§24/§42)
3. Applies to other methods of delivery – email, fax, telegram etc
3. Under §63, unless offer provides otherwise:
o Offer, revocation, rejection, etc. are only effective when received
o In place because of business custom and business people seem to like it because it
closes the deal quicker
B. Hypo: A offers B property for $50
1. 10th the letter delineating the offer arrives at B.
2. 11th – B sends the letter to accept but arrives at A’s place on the 13th.
3. BUT – Back on the 12th = B telephones A and says “I Reject!!”
4. The rule is that on the 11th B accepted by mailing his acceptance.
C. Epstein’s “Simple rules for a Complex world”
1. If you send it off you had better damn well mean it.
2. Allows us to have a simple date of acceptance and efficient allocation of risk.

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 3. Planning benefits: Mailbox rule applies unless parties intend otherwise, can always put
in letter that acceptance is not effective on sending
a. MBR is more efficient b/c it closes the deal sooner and allows us to begin
planning on the K.
b. If we hold offeror bound on the mailing of acceptance, he may change his
position in ignorance of the acceptance; though he waits a reasonable time
before acting, he still may remain unaware that he’s bound by K because the
letter is delayed, lost, or destroyed
c. Allows parties to allocate the risks of acceptance and offers. The one time that
one has to accept even though the acceptance letter got lost in the mail is not
enough to cancel out the 99 times that the deal is closed and trans. costs are
lowered
d. Unlike acceptance, rejection is effective only when it’s received
o Restatement abandons the mailbox rule and provides that a K exists only if
the offeror receives the acceptance before he receives the rejection
D. Improper Mediums of Communication
1. If offer describes a preferred means of acceptance that must be followed.
2. Authorized means of communication – failure to use may be failure to conform to a
certain (and essential) term and result in a non-acceptance.
3. If words in offer are “may use” then an alternative form is authorized
1. Messages Delivered by an Agent of the Sender – there’s no K until the acceptance is
received by the offeror
2. Communication sent by an improper medium of transmission is nevertheless effective
on dispatch if it’s received no later than the time transmission by a proper medium
would’ve been received
3. Offer may be invited by medium that is reasonable to the
circumstances. §60/§63/§67
4. If you send letter from a carrier pigeon and it gets shot down, then it’s not effective even
though sent though proper medium of communication (assuming offer allowed it)
because it wasn’t received in time specified by the offer (different than delayed mail)
E. Crossing Communications (Restatement §68)—a written revocation, rejection, or acceptance is
received when it comes into the possession of the person addressed, or of some person
authorized by him to receive for him, or when it is deposited in some place which he has
authorized as the place for this or similar communications to be deposited for him.
F. Ways Around the MBR
1. OR—specify in essential terms that K is effective on receipt of acceptance
2. Ee—counter-offer/ negotiation
3. Remember—MBR is a default rule
G. See UCC §2-206
F. Case Application—Bishop v. Eaton See also 2-206(2) (A promise to guaranty a loan)
(Exception to the general rule notice of an act)
1. Actual Notice—party to whom giving notice truly receives information
2. Constructive Notice—party may not receive notice but law recognizes that he does
(notice by moment of dispatch); economic efficiency approach
3. §54 Nature of acceptance – Eaton (D) promises to act as surety for a loan provided by P
4. Is similar to a re-insurance company, an allocation of risk device to spread out the risks.

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 5. Eaton offers by mail, Bishop accepts by mail (which D never receives), Acceptance by
Bishop?
a. Yes, b/c of the mailbox rule
6. Was this a unilateral or bilateral K? – Unilateral K b/c act called for was to act as the
surety on a loan.
7. Case hinges on the mailing of the notice for acceptance, and b/c it never reached D was
that sufficient notice to make him liable to P.
8. Reason is, offeror is entitled to reasonable notice of acceptance of his offer, 2-206(2)
and §54(2) require notice to offeror unless offeror has reason to know of the
performance
9. Here, D would have no way to know of performance w/o notification b/c he lived in
Canada and P and X lived in Mass.
10. What notice is sufficient? – Reasonable manner of notice – usually same method of
notification employed by offeror (mailbox rule) and makes no difference if lost.
a. Moment of dispatch suffices. (R §63(a))
11. Judgment for P b/c of mailbox rule – argue for court: D was in the better position to
avoid harm (could have K’d around the mailbox rule by saying that I will only K if I
receive actual notice of acceptance”).

§3.2 Acceptance By Part Performance

I. Unilateral K v. Bilateral K
A. Unilateral K = Acceptance by return act (consider part performance, preparation, etc.)
B. Bilateral K = Acceptance by return promise (usually a promise to act)
C. Petterson v. Pattenberg (When does acceptance occur?)
1. P offers (tenders – which means promises) payment to the holder of his loan, which
holder (D) had previously agreed to cut the total due for early payment. P tenders
money at D’s house by saying “I’ve come to pay your money”
2. D says “Too late, I’ve already sold the loan.”
3. Was P’s tender an acceptance of D’s offer to accept less than full value? P tried to
accept – He started the process by tendering the cash – but court said that acceptance
was not valid b/c offer was revoked (more importantly acceptance was not what was
required by D’s offer).
4. Why was acceptance not effective?
a. B/c offeror asked not for a promise of money but an act of actually paying
money so a promise of payment is ineffective.
b. OFFER FOR A UNILATERAL K CAN ONLY BE ACCEPTED BY THE ACT
REQUESTED NOT A PROMISE TO DO IT. §50(1)(3) §58
5. Dissent: P showed up to pay and that was the act required by Rest. §50(2) that says
tender is enough for acceptance by part performance. §45 (Option K Created by Part
Performance)
6. Problem is how much is enough to amount to an acceptance – showing up is mere
preparation to perform and D wants the $ not talk of $. Also, creating more transactions
costs b/c offeror has made K w/ a third party
7. D made a business judgment call where he wanted an act for a promise. Can debtor
avoid the result, yes could have accepted outright or counter offered w/ a bilateral K.

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 8. Same two way street as before, both can back out until the crunch time of money
meeting skin.
D. Brooklyn Bridge Hypo
1. Unilateral K of A saying to B “I’ll give you $100 if you walk across bridge” is a
promise for an act.
2. If A wanted to make a bilateral K then he could have termed it differently such as “..if
you promise to walk across the bridge” if B accepts and doesn’t walk then we have
breach.
3. In Unil K even if A stops B from performing then A is not bound b/c A is the master of
his offer (under common law via Patterson case).
1. Unilateral Ks only have 1 stage—the creation and performance of K (unlike bilateral
which has 2 stages)
2. When the K is unilateral and to build a house (for example) and A stops B halfway
through building the house, B gets the value of services rendered under quantum
meruit/quasi-K because if not A would be unjustly enriched
4. Seem hard on B? If a case where B has unjustly enriched A, B can get that back and
also B always has the right to not do it and won’t change his position.
F. Brackenberry v. Hodgkin (A Reliance/ Estoppel Concept)
1. Old lady asked for an Act – full perf. of lifetime care.
2. Couldn’t argument be made that unjust enrichment went to daughter not mom
b/c daughter received whole deal for part performance
3. Both sides – mom would only allow part perf. and trial court found that Mom
was “at fault” (a tort concept).
5. Mom should have been master of her offer and been able to revoke at any time
before full performance had been completed.
a. How much Part performance is enough? Here the court finds that the there was
full acceptance by part perf. (50(2)) or (§45)
1) Under c/l part perf would not have been enough the performer would
have been entitled to a quantum meruit recovery (R. §30(1))
2) Point is that it could go either way and be able to argue both points for
the best result.
F. §47 – in a series of Ks you can revoke at any time and not be bound by the subsequent Ks
G. Conclusions
1. Pattberg theory is the common law acceptance by part performance, and Sunshine and
Brackenbury represents the change to §90 reliance.
2. K is the world of voluntary agreement, reliance doctrine forces an agreement by the
court.
a. Takes wealth instead of creating it
b. Doesn’t work b/c it offers party the chance of K by hope that doesn’t always
come through and raises a false sense of security in contrast to C/L rule
1. Part performance may constitute acceptance, but courts are split
2. Basic rule is acceptance for unilateral K must be full performance of the act defined
3. Offer for unilateral K may also be treated under §50(2) as an option K or acceptance
through part performance (offeror no longer free to revoke)
H. Sunshine v. Manos (Part Performance Test of Definite & Substantial Nature)
1. Same problem as above – How much part perf is enough to = acceptance.

21
 2. Court said test for part perf of a definite and substantial nature is enough
3. Point is that stmt is uncertain and impossible to know how much is enough, this
leads to the slippery slope of equity and a case-by-case determination of facts.
5. Court seems to go to a §50(2)/§45/§87/§90 reliance stand, P has gotten a loan
that didn’t conform to the agreement so therefore has breached the agreement
even if they had expended time and money, so are only able to recover expenses,
when is winning losing.
6. Court uses an “I tried” rule to let P have the recovery.
7. D could have avoided liability by letting the K die by its own terms on account
of P’s nonconformance to the terms (§49).
8. Notes on 501-505--§45 and §50(2)—requirement that performance has begun,
preparation is not enough; fallback position is §87(2) reliance doctrine
a. Three problems: (1)Line b/t beginning and preparing to perform is slippery;
(2)Line is often arbitrary and does not reflect a significant increase in economic
commitment by the offeree; (3)Retention of the line increases the complexity of
the Restatement’s internal structure
 Distinction between preparing to perform and performance turns on factors such as:
1) Extent which offeror’s conduct is clearly referable to offer
2) Definite/substantial character of conduct
3) Extent to which it’s of actual/prospective benefit to offeror
4) Terms of communication, prior course of dealing, and usages of trade
 Is it an attempt to create a unilateral or bilateral K (GOOD EXAM QUESTION AREA)
I. Hypo: Gen. Motors wanted to close plant that made Caprice’s and move operations to TX to
make a better selling model. Officials in MI sued for breach of K. GM promised to provide
employment if tax abatements were granted.
1. Is there a K? Court says no, but holds under estoppel; Trial court judge issued
injunction against GM
2. Where is the acceptance by the city? the city’s act of excluding GM each year from
collection of taxes; court said city relied on GM’s promise each year. Analysis: GM
was losing money, so wanted to go to better economic place
3. Did GM promise to keep the plant open? apply Patterson and Brackenbury cases
J. Davis v. Jacoby (Court drops unilateral for bilateral K)
1. Uncle writes to niece asking her and husband to come to Cali and take care of him and
his wife (consider that an offer), there was an attempted bi-lateral K acceptance by
promise on part of niece and husband (consider that attempted acceptance). Niece
PREPARES to go to Cali but the uncle commits suicide and niece goes out anyway in
an attempt to accept. Uncle does not follow through on promise to leave money to
niece.
2. D’s argue that it was a unilateral K only accepted by full performance and the offer was
revoked under §48, death of offeror or revoked under letter of 4/15/31. P’s obviously
argue a bilateral K and say that they accepted by promise, in lieu of the court finding a
bilateral K, there was part perf. by their prep to move and then the move itself.
3. Was it unilateral or bilateral?
a. Cal. S.C. finds a bilateral b/c the PRESUMPTION is for a bilateral K, should
make part perf. doctrine irrelevant b/c can be accepted by promise.

22
 b. Court says that a bilateral K would protect a reasonable expectation of the
parties, Certainly
2) For deceased – he wants the certainty of promise for aid by the offerees –
He has to rely on their promise.
4. Was the court engaging in subjective mind reading?
a. Y: What did old man want? For the p’s to actually move out there and care for
him, not a promise to do so
 It can be argued that the presumption should be neither unilateral or bilateral but to be indifferent
as to which the K is and focus only on intent/words of parties
o Allows people to make Ks as they will
o Under §32, offeree chooses whether its unilateral or bilateral if not specified by either
choosing to perform or promises as acceptance
 Give question on exam that has either part performance or beginning to perform, then argue both
sides
o Beyond §45 and 42 you should also be able to argue §87(2) and 90 reliance and argue both
ways
II. Acceptance and the Battle of the Forms
A. Empire Machinery v. Litton (Acceptance Via Home Office)
1. At trial court: Finds a bilateral K view and says that D never consummated the
agreement so no recovery for P’s. Court of appeal reverses and says Unilateral K and
that D’s accepted by part performance of the K and allowed P to waive a portion of D’s
own form by said performance.
2. How did P waive the relevant section that required acceptance only by the home office?
a. B/c we got a new offer by the buyer
b. S lost control of its form
4. OR is the master of his own offer and consistent w/ form sends the check
5. Litton (D) by performance accepts the offer of Empire (that made by sending the check).
6. Ee becomes the seller and the buyer becomes the offeror using the seller’s sales
form.
7. Empire wants an act of doing or a promise of doing R. §32 allowing the offeree to
choose their acceptance (and did so by cashing the check and other things).
8. Waiver b/c is efficient that acceptance has taken place by part perf.
9. Consider 2-206, §62
10. Lessons
a. Just b/c you draw up the form doesn’t mean you’ll retain control
b. When use language of paragraph 6 court looks at substance of the matter over
form

III. Rewards and the Law of Offer and Acceptance See §58, §60
A. Rewards are an offer for a return act (unilateral K)
1. The offeror is still the master of his offer
2. May state a time limit for acceptance Newman v. Schiff
B. Who may recover?
1. Only those who are aware of the outstanding offer.
2. Well-known exception for offers of rewards by governmental bodies. (One who is
ignorant may collect from gov’t).

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 C. Time may lapse on reward
1. Gen rule is that offer will lapse after a “reasonable time” (§41)
D. Offer of reward may be revoked (§46)
1. By method in which it was given if given to public at large, then has to be revoked by
providing to public at large those who do not see revocation cannot assert acceptance.
Acceptance of reward by performance (§51)
E. Part of acts performed before learning of reward
1. Present law holds that one who has partially performed the called for act may accept and
receive the reward by completing the act.
F. Actions taken pursuant to a legal duty. (§73)
1. Police, fire and rescue are not entitled to a reward if they were under a legal duty to
perform the act before they undertook the desired performance.
G. Actions not motivated by reward
1. Can usually recover
H. Actions different from requested acceptance
1. Can usually recover
I. Apportionment of rewards
1. Should equal contributors to an act get the reward?
J. Reliance
1. Should the court allow a person who has undertaken that performance requested by the
rewarding party the remedy of expenses even if no completion?
2. Cf. w/ the Sunshine case and the “I tried” rule of that decision.
3. I say NO.

§3.3 Acceptance by Silence

Review: Three types of K
1. Express K
2. Implied in fact—acts and conduct
3. Implied in law—unjust enrichment

I. Restatement §69--Acceptance by Silence or Exercise of Dominion

A. GR—Mere silence doesn’t constitute acceptance EXCEPT
1. Prior course of dealing
2. Conduct of party that could be reasonably construed as acceptance
3. Usage of trade
B. An Ee who does any act inconsistent w/ the OR’s ownership of offered property is bound in
accordance w/ the offered terms unless they are manifestly unreasonable. But if the act is
wrongful as against the OR it is an acceptance only if ratifies by him. Determined by an
Objective standard.
B. 3 part test to whether a party accepts by silence or not:
1) Silence
2) Duty created by some basis
3) Breach of that duty
II. Hobbs v. Whip
A. Silence can amount to acceptance

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 1. Parties in Hobbs don’t enter into an express K (eel skins were shipped to D w/o his
request, he kept them for awhile and then destroyed them).
B. Mere silence CANNOT amount to acceptance is the general rule
1. Certain things however may amount to a form of acceptance (look at statistical
probabilities of whether the party would normally accept by silence
a. Conduct expressing intent to accept (if D had used the eel skins).
b. Prior course of dealings – b/c P had shipped to D w/o request 4 or 5 times before.
c. Usage of trade.
C. Court finds course of dealing and assumes acceptance
1. Argue that there is not a K
a. Can’t assume anything and these previous K’s were independent of each other.
2. How did court find K?
a. Used objective K to say that previous K’s are not exclusive events
b. Does court assume too much and come close to reliance?
3. Argue for the court
a. Efficient use of info (previous dealings)
b. past is status quo and w/o info to reject we use past effectively
c. More efficient to pursue the good track record of success.
D. Any other possible legal vehicle for P?
1. Maybe a bailor/bailee relationship responsibility theory
2. Doesn’t call for finding a questionable K.
3. Tort, conversion wrongfully holding material.

III. Why Have the “No Acceptance by silence rule”?

A. Protect parties and people’s freedom from a forced K situation
B. Offeree always should have the power of acceptance.
C. Three possible scenarios for acceptance by silence.
1. Silence outright when a reasonable person would have responded.
2. Prior dealing.
3. Retention w/o rejection for unreasonable amount of time.

IV. Ransom v. Penn Mutual

A. Case centers on the method that an Ins company uses for the acceptance of an offer to insure.
1. O + A = K, O + P (premium) = K, or O + C = K: Which is it for the insurance company
to agree to cover someone.
2. P offers to pay for coverage, company has to accept based on health exam.
B. Terms of a Insurance K
1. Company has to OK applicants health
2. Requests P to seek a physical exam (in this case a second exam).
3. Life insurance says there was no K b/c b-4 P could get 2nd exam he was hit and killed by
a truck.
4. Court, though, finds a K created by the mere payment of the first premium although the
K clearly stated that no coverage effective until acceptance by home office.
C. Court sees P’s payment as an offer and until home office acts to terminate there is acceptance
by silence.
1. Is this a good result?

25
 2. What about risk to insurance company in agreeing to cover someone w/o knowing their
health status.
3. Whose K is it anyway?
D. Court uses an unconscionability and reasonable expectation analysis.
1. Maybe unconscionable in that D took the $ and was able to draw interest while P is
waiting for coverage, benefit to D but not to P if D doesn’t accept a risk of loss.
3. P should have read his K, a reasonable person should have known that K said NO
COVERAGE, subject to approval. (no guarantee of coverage either).
4. Court gives us the O + P = K, the acceptance should come from the Ins company not the
P, his premium was only consideration NOT acceptance.
5. Arguing for the court, D could have gotten a binder on the gap period, we can’t make a
lining insuring high-risk applicants and paying out b-4 approval.
a. Insurance company seeks to avoid trans. costs
6. Result is that policyholders get to cover costs externalized by the Ins company.
E. Ambiguity must be resolved against the person who made the form contract

IV. Felton v. Finley (Attorney Sues for Fees)—See §69(1)(a)

A. Offeree says “I don’t accept the benefit of your (offeror’s ) services”, but lawyer still sues and
wants his fees for work performed on behalf of some of the parties to a will dispute.
1. Court holds that acceptance of the benefits give rise to an implied K.
2. After rehearing, however the court holds not implied K.
B. What happens if D gets benefits w/o paying fees?
1. He gets a windfall of both. (Would be like Ransom—unconscionable)
C. Argue for holding on rehearing (no basis for implied in fact K)
1. Atty had no reasonable expectation to collect his fees.
a. He only K’d w/ two brothers not the D.
b. D was an incidental beneficiary who received only b/c he was in the will.
2. However, D explicitly said that he didn’t want services but court allows D to recover.
3. However, D had no opportunity to reject.
4. Does atty want coerced compliance from D?
a. Maybe as D didn’t even want to K
b. There were other options available to both parties
 Knockout Rule (Form Ks) – conflicting terms cancel each other and offeree’s form is treated only
as acceptance of K, then, includes those non-conflicting terms and any other terms supplied by
UCC including terms incorporated by course of dealing, usage of trade, and other “gap fillers”
(preferred approach by courts)
 PERFECT TENDER RULE (2-601) - legal right for a buyer of goods to insist upon "perfect
tender" by the seller. In a contract for the sale of goods, if the goods fail to conform exactly to the
description in the contract (whether as to quality, quantity or manner of delivery) the buyer may
reject the goods (GOOD EXAM QUESTION)

VI. Acceptance of Mis-shipped Goods

A. Use of goods = Acceptance by silence (§69 Acceptance by silence or exercise of dominion).
B. One particular U.S. statute considers unsolicited goods sent through the mail as gifts.
1. Why? – Fear of K overload on people who get things and don’t want to be held liable.
2. Does Statute predetermine intent?

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 a. Whose K is it anyway?
b. May take away from the freedom of independent K.
3. In an attempt to stop abuse by the seller of goods we open door to abuse by the receiver.
4. Presents a federalism issue as well – Congress wipes out state law of K by substituting
federal law.
5. Benefit goes to consumer in the short run, but in the long run, cost is that all such goods
may be higher.
6. Review USCA §3009—Mailing of Unordered Merchandise on page 556

§ 4 Mirror Image Rule

I. Restatement §§ 58/59
A. General Rule—Acceptance must comply with the requirements of the offer as to the promise to
be made or the performance to be rendered (Acceptance must mirror the offer)
1. A purported acceptance that varies the form of the offer, even trivially means that there
is no acceptance, but a counter offer or rejection.

II. U.C.C. and the Mirror Image Rule (2-207)

A. UCC 2-207 tries to provide a relaxation of the C/L mirror image rule but ends up screwing it
up royally.
1. Subsection (1) provides that the offeror’s form controls and then
2. Subsection (2) tries to give a little to the offeree by allowing any uncontested terms to
amount to a counter offer and is not accepted unless is express and material to the
acceptance and therefore does not give the offeree as much as the offeror.
3. Subsection (3) then provides for offer acceptance by conduct and leaves the courts in a
mess.
4. See Comments on pp. 30-31

III. U.C.C. 2-207(2)

A. Additional terms are construed as additions to a K (part of K) unless:
1. Express limitation of acceptance to terms of the offer
2. Material alteration of K
3. Objection of terms completely
B. Roto Lith (Relaxing of MI Rule)
1. Acknowledgement was sent for order and states that all warranties except replacement
are waived by acceptance of acknowledgement.
2. Issue: Whether all warranties were excluded by D’s acknowledgement.
3. Holding: A response which states a condition materially altering the obligation solely to
the disadvantage of the OR is an “acceptance expressly conditional on assent to the
additional terms.”
4. Roto-lith should have offered that the warranty objection was a material alteration of the
K.

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§ 5 Precontractual Liability
I. Kearns v. Andree (Using Reliance/Estoppel as a Gap Filler in Precontract Liability)
A. Court’s rule here is equity for recovery when the K is unenforceable, seller can recover for
expenses made in expectation of fulfillment of K
1. Is essentially justifiable reliance, but here for precontractural liability, parties had not
consummated K relationship yet.
2. P assumed a K and then relied on his own assumption
B. Stones rules of life and contract
1. Don’t assume anything.
2. Never say never
3. You can’t always say always
4. Use thinking and planning rather than emotion and begging.
C. Who should bear the risks?
1. The party who failed to plan and utilize the writing and the statute of frauds.

II. Hoffman v. Red Owl Stores (Recovery for Expenses Only)

A. Hoffman’s ultimate goal was a franchise
2. He was supposed to do many things for the store b-4 he would get said franchise, BUT
he didn’t follow through.
B. This is not a FRAUD case
1. Think back to Club Med case and the almost fraud situation there.
2. So, Hoffman needs a legal vehicle to recover under.
C. What is his K?
1. He had no offer so he could not purport an acceptance and therefore no K here.
2. This is only PRELIM. NEGOT.
3. Not a K b/c there was not set terms to seal the deal.
4. Argue Yes:
a. Not a pure breach of K under § 17 so has to argue §90 reliance.
b. Unequal bargaining plane b/w parties, big ol’ mean store v. babe in the Ohio
woods Hoffman.
5. Argue N to liability for Red Owl on bad faith argument b/c there are “costs to being
poor” and shouldn’t punish D for his superior bargaining skills while rewarding P for his
ignorance.
D. Restatement 1st §90—Three Elements
1. Was the promise one which the promisor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the promise?
2. Did the promise induce such action or forbearance?
3. Can injustice be avoided only by enforcement of the promise?
E. What could Hoffman have done?
1. Gotten a lawyer to seek out a true K that lists his rights and obligations, getting rid of
all uncertainty of terms and prelim negotiation garbage.
F. Other Notes
1. Court in Hoffman used a disciplined mind by not awarding expectancy damages only
restitution

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 a. When is winning losing, Hoffman expended all his resources thinking he could
recover his lost profits but only won what he had spent.
2. Why didn’t court grant specific performance?
a. Court won’t force an agreement b/w two unwilling parties (where animosity
exists) comparable to a “shotgun business wedding.”
G. Hoffman Rule: One may in some circumstances come under a duty to bargain in good faith,
breach of which duty may result in liability for damages, at least to the extent of
compensating the detrimental reliance of the injured party.

III. Wheeler v. White (Note Case—Reliance Damages Only)

A. Where the promise has failed to bind the promisor to a legally sufficient K, but where the
promise has acted in reliance upon a promise to his detriment, the promise is to be allowed to
recover no more than reliance damages measured by the detriment sustained.

IV. Consolidated Grain & Barge (Unenforceable Negotiation Clause)

A. P sued D for lost profits due to failure to negotiate profits it was to receive. A clause had been
included to negotiate in good faith.
B. Negotiation clause is unenforceable because it is neither a basis for determining the existence of
a breach nor for giving an appropriate remedy.
C. Any remedy suggested by P would require the court to determine the substance of the
agreement.

§ 6 Mistake, Misrepresentation, Impossibility and Frustration

Replevin—an action for the repossession of personal property wrongfully taken or detained by D,
whereby P gives security for and holds the property until the court decides who owns it

I. The “Big 8” Common Law Policemen to the Bargaining Process

A. Cause parties to be excused from an otherwise valid K
1. Fraud
2. Misrepresentation
3. Duress
4. Illegality
5. Incapacity (Inadequacy)
6. Undue Influence
7. Impossibility
a. Impracticability
b. Frustration
8. Mistake

II. Mistake
A. Restatement §152—Mutual Mistake (Bilateral Mistake) General Requirements
1. Basic assumption – when both parties entering into a K are mistaken about facts relating
to the agreement, the K may be voidable by the adversely affected party if:
a. The mistake concerns a basic assumption on which the K is made.

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 b. The mistake has a material effect on the agreed-upon exchange.
1) Party must show that he cannot fairly be required to carry out the K.
2) Courts more likely to find this situation if circumstances advantage other
party while disadvantaging one.
c. The party seeking avoidance did not assume the risk of mistake.
2. Also, if the thing K’d for is not the thing received the K is void (subject matter
one thought he was getting doesn’t exist – case of mistaken identity).
a. Sherwood v. Walker – pregnant cow case; seller gets rescission as both
parties were unaware that price agreed upon for a barren cow was
actually for a breedable and pregnant cow. Mistake as to quality of
subject matter may be grounds for rescission.
B. A mistake is a mistaken belief as to an existing fact, NOT an erroneous belief about what will
happen in the future
1. These kinds of mistakes are handled by impracticability, impossibility and frustration of
purpose.
 Need to connect mistake to something else, such as mistake caused by…breach warranty, positive
fraud, misrepresentation, implied warranty, etc.
 You can use contracting after the fact by providing rain checks or something of that nature
 You can also solve the problem ex ante by adding specific clause stating what happens in event of
impossibility of performance
C. Two kinds of mistakes
1. Unilateral – one party is mistaken; we usually say tough break and offer no relief to a
unilaterally mistaken party (Restatement § 153/ UCC 2-615)
2. Bilateral – May excuse performance b/c there has been no meeting of the minds. (§ 152)
D. Restatement § 154—Allocation of Risks
1. Entering K is all about taking risks and dealing w/ imperfect information so courts don’t
like to look at situation ex post and decide that party should be able to rescind.
a. Result is that few courts grant relief for mistake when parties are responsible for
their own info gathering.
2. Ways in which the risk of loss will be allocated to a party, thereby removing possibility
of recovery from him
a. Agreement of the parties – freedom of K, you can always agree to accept the risk
of loss. (See Lenawee Cty. Board of Health)
b. Awareness of limited knowledge – if risk taker has only ltd knowledge with
respect to the facts to which the mistake relates but treats his ltd knowledge as
sufficient. (conscious ignorance) (See Wood v. Boynton)
1) Wood v. Boynton where P sold a rock for $1, both seller and
buyer believing it to be topaz, was actually an uncut diamond worth
$700. Court denied rescission to seller reasoning that it was a case of
“mere adequacy of price.” Consideration rule could help here; dispute is
over the amount of consideration
c. By the court – allocation of risks to party by the court but only if it is reasonable
in the circumstances.
3. Market conditions – usually a mistake about market conditions will always result in the
risk being allocated to the one who should know, usually the seller. This info is readily
available.

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E. Release forms
1. A party may agree to release another party from all claims arising out of a certain
transaction.
2. Courts are more willing to grant rescission on fact patterns which involve a
personal injury claim release as opposed to those which are in a commercial
setting.
F. Examples of situations in which we grant relief for mistake
1. Express warranty situations – where seller gave an express warranty for the product he
was selling and it turns out he and the buyer were mistaken as to the product’s quality or
characteristic (See Smith v. Zimbalist—where a document was signed that B got a
Stradivarius and instead the violin was a fake)
2. Overt fraud – later
3. Mistake caused by Innocent misrepresentation – Summit Timber Co. v. US – If both
parties to a K which contains a misrepresentation can, absent unusual circumstances, be
described as having a mutual “state of mind that is not in accord w/ the facts” 1)Material
misrepresentation occurred and 2)P reasonably relied on mistaken misrepresentation
4. Implied warranty for a particular purpose – Hinson v. Jefferson – party who bought
land which seller knew was to be used for a particular purpose but couldn’t be used for
that was entitled to rescission of K on grounds that both parties were mistaken to a fact
“which was of the essence of the agreement.”
G. When plaintiff’s mistake resulted from failing to examine public records, defendant was under
no duty to advise of factual error whether unknown or suspected
H. Unilateral mistake
1. General rule is not to grant relief for a unilateral mistake
a. Exception is: Honest clerical error
b. Does not include an error of judgment on the price quote
c. Also, consider the CL rule that principals are responsible for the actions of their
agents
d. Most often comes up in construction / sub-contractor bid situations.
1) Courts are skeptical b/c owner is responsible for his own bid.
2) GE case—puts burden of mistake on the bidder b/c is in an equal
position of discovery
e. We don’t reward someone for their negligence in estimating.
2. Baptist Church case – relief for unilateral mistake because of honest clerical mistake
a. Judgment is view that some courts take for all mistakes b/c bidder is in charge of
his offer and bid.
3. Three-part test for rescission due to clerical error
a. Mistaken party has to return the innocent party to status quo
b. One party knows or has reason to know of the other party’s clerical error
c. Rescission is to prevent an unconscionable taking advantage of the other party
1. Normally want to restructure the K rather than totally rescind it
2. It would be huge cost to hold him liable for the simple mistake
3. Could be argued it was negligence and an error in judgment so no relief
4. Adjustment costs of restricting the K would be a lot less than total rescission or
litigation costs (more efficient and expands economic pie)

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III. Misrepresentation
A. R. § 163—Misrepresentation to the character or essential terms of a proposed contract induces
conduct that appears to be a manifestation of assent by one who neither knows or has
reasonable opportunity to know of the character or essential terms of the proposed contract.
1. Deceit- breach of fiduciary duty or otherwise to disclose
2. Negligent Misrepresentation- failing to use reasonable care in obtaining or
communicating information
3. Innocent Misrepresentation-
B. R § 162—Must be Fraudulent and Material
1. Fraudulent- promise maker intends his assertion to induce another party to manifest his
assent and the maker either:
a. Knows or believes that the assertion is not in accord with the facts,
b. Does not have the confidence that he states or implies in the truth of his
assertion, OR
c. Knows that he does not have the basis that he states or implies for the assertion.
2. Material- if it would be likely to induce a reasonable person to manifest his assent, or if
the maker knows that it would be likely to induce the recipient to do so.
C. R § 161—Non-disclosure can be actual misrepresentation where:
1. He knows that disclosure is necessary to prevent some previous assertion from being a
misrepresentation or from being fraudulent and material
2. He knows that a disclosure of the fact would correct the mistake of the other party, and
good faith and fair dealing require him to disclose
3. The other person is entitled to know the fact because of a special relationship or
fiduciary duty.
D. Laidlaw v. Organ (The Duty to Disclose and a Little a/b Fraud)
1. The buyer knew the facts and did not disclose them to the seller who suffered a loss as a
result. Only one party was mistaken as to facts, seller so this is unilateral mistake and
generally make the mistaken party bear the loss.
2. B/c buyer did not disclose what he knew we may have a case for fraud here; 2 kinds.
a. Fraud in the inducement – one party fraudulently encourages another to enter
into a K w/ him.
b. Fraud in execution – self explanatory READ IN SUPPLEMENTS
3. This case concerns fraud in the inducement but does mere failure to disclose a fact
constitute active fraud?
a. Not unless party has a duty to disclose (in this case was for trial court to figure
on remand).
b. General rule: Party has no duty to disclose, each party should look out for his
own self-interest, especially when info is readily available.
c. Silence as active fraud: One party cannot do or say anything to impose
misinformation on another party
1) Active failure to respond to a direct Q is active fraud of not disclosing
full information
d. What is imposing “misinformation”?
1) Shouldn’t buyer have “property rights” to the information that he has?
2) If we require him to disclose then that is coercion of his rights for the
benefit of others who haven’t expended the effort to get the info.

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 E. Analysis of Duty to Disclose
1. Begin ex ante, neither party has information
2. Who has incentive and is in best position
3. Three-part test
a. Equally difficult to discover, no duty to disclose is required—high information
costs to both (tobacco case)
b. If S can more efficiently discover, he has responsibility to disclose
c. If B can more efficiently discover, he has responsibility to disclose
4. Both parties can have duty to look out for own economic self-interest—will be rare for
court to say parties don’t have equal access to information
F. Upton Case (Calling of the Wrong Fire Dept. Case)
1. No free lunches
2. Powell refuses to pay for fire service b/c he mistakenly thought he was in the same
district at the time he called.
3. Powell believes he’s received a gratuitous service
4. Ct. says Powell was seeking services, not a gift
5. Real question is what was the intent of the parties?
6. Can argue mutual mistake—Powell who mistakenly sought a gratuitous service, called
police dept. and police dept. mistakenly called the wrong fire dept.
7. Also can argue that there was an implied K

IV. Impossibility
A. Basic rule is that a contract is excused for impossibility when the contract cannot be completed,
not when the defendant cannot complete the contract.
B. When alleging impossibility, the party relying on impossibility must establish:
1. The unexpected occurrence of an intervening act
2. The occurrence was of such a character that its non-occurrence was a basic assumption
of the agreement of the parties
3. Occurrence made performance impracticable
C. All three must be satisfied to qualify for the defense. Foreseeability of the occurrence is only a
factor. The risk must be one that, although foreseeable, should not be guarded against.
D. There are 3 areas where impossibility is a factor:
1. Ks for personal service but death or illness intervenes
2. Ks where legislation makes performance illegal
3. Ks where exact subject matter essential to performance is destroyed without fault of
either party
E. § 261- where, after a contract is made (if before, it’s mistake law area), a party’s
performance is made impracticable, without his fault, by the occurrence of an event. The event
must be one that was not foreseeable by the parties and could not be planned for. It is measured
by an objective standard. Presumption is not to excuse unless one of the following three:
1. Contract for personal services, but death intervenes
2. Contract where intervening legislation makes performance illegal (I would imagine a K
for liquor and then gov’t outlaws, buyer would be excused).
3. Subsequent destruction of the subject matter of the K as long as promisor was not at
fault and it is truly impossible to fulfill terms of K.

33
 1) Distinguish b/w repairs (where excuse is possible b/c there is nothing left to
repair) and new building (where excuse is not b/c builder can start all over).
2) A K for unique services is one that will be declared impossible but one for
services that may be delegated is not.
3. Measured by objective standard: nobody could perform according to the terms
of the K.
D. Taylor v. Caldwell – case in which D rented out his concert hall to P and it soon burnt down, P
sues for damages and court finds that b/c the subject matter of the K was gone it was impossible
to perform.
1. Was the court wrong?
a. P could have sought damages b/c there were probably other venues in which the
D could have paid for the fee.
b. Hall owner took risk that his hall would still be there when it came time to have
the concert.
c. Really though, D was ready, willing and able to perform but for the impossibility
of doing so as result of the fire.
E. Assuming the risk
1. Who assumes the risks of nonperformance due to unforeseen hardship; how do we
allocate the loss?
2. Ex ante up front efficiency analysis
a. Who has the best position to prepare for and avoid the loss
b. In the house builder example – builder is in almost complete control of the risks
b/c owner is not in control yet
d. Don’t let people out of Ks for foreseeable risk because you have the chance to
plan around them ex ante

F. NIPSCO case – Posner econ analysis case

Notes: True impossibility could be tornado strikes plant, or strike shuts plant down
1. Is NOT a victim case but one where those have to accept the risks of their bargains.
2. NIPSCO claims that it is impossible to perform b/c of ruling PSC who makes them find
a cheaper power source when NIPSCO is locked into a K w/ coal company.
3. Posner does not allow N to get out of K just b/c they made a bad judgment decision,
should have known that PSC could change things up on them
4. Simple rules for allocating risks
a. The black and white rules of K- the terms always rule.
b. Who was in a better position to allocate risks?
1) N b/c they deal w/ PSC all the time and change was foreseeable.
2) N assumes the risks.
5. The use of unforeseeable and foreseeable language
a. Is non-economic and vague
b. Just another way of saying that lower cost fact finder should avoid the loss
1. Force Majeure – 3rd party force intervenes and makes performance impossible
2. Proper question in impossibility case is whether promisor couldn’t have performed but
whether his non-performance should be excused because parties, had they thought about
the matter, would’ve wanted to assign the risk of that contingency making performance
impossible to promisor or promisee; if to latter, then promisee excused

34
 3. If something happens (though rare) that makes performance for which a payee is paying
worthless to him, it may be excuse for him to not pay, similar to impracticability
G. Wolftrap case—power outage after D had agreed to provide electricity, D refused to pay P for
no performance b/c K was not completed due to impossibility
1. Are power outages common? Of course, they’re foreseeable
2. General Rule for Foreseeability—relief only granted for unforeseeable events making it
impossible to perform
3. Why did law only give relief from unforeseeable events? gives incentive for people to
plan for foreseeable events in K
4. Wolftrap had the lower information costs here, but court doesn’t see it that way b/c it
analyzes under the factual impossibility of K
5. Can take economic analysis approach of allocation of risks (third party insurance) or use
non-economic criterion (fair, reasonable, and just) of impracticability
5. Impossibility doctrine of §265 states that where party’s principal purpose is substantially
frustrated without his fault by occurrence of event, the non-occurrence of which was
basic assumption on which the K was made, his remaining duties to render performance
is excused unless language states otherwise

V. Impracticability (Restatement § 261)

A. Elements of Impracticability: UNEXPECTED OCCURRENCE, NON-OCCURRENC,
OCCURRENCE CAUSES IMPRACTICABILITY (must be objective)
B. Requires that a party encounter extreme and unreasonable difficulty or expense that was not
anticipated
1. A mere change (not extreme) in cost will not be enough to allow impracticability.
2. Exception: Alcoa case
a. ALCOA K’d to buy aluminum shipped by X and price was to increase
proportionally to increased in price index.
b. Court agreed to let ALCOA out of the K as they would lose a bunch of money if
not; same lines as the other case
c. Argue ALCOA accepted risk—chose Greenspan and the formulas; agreed to the
price under the formula, now trying to back out
d. Alternatives: Put in a negotiation clause and series of renewal K

VI. Frustration of purpose (Restatement § 265)

A. Where, after a K is made, a party’s principal purpose is substantially frustrated w/o 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
circumstances indicate the contrary.
1. Basically means that in a supervening event the very reason a party entered into the K in
the first place can’t happen anymore.
2. Distinguished from impossibility in that the K can be performed but the purpose is no
longer there.
a. Ex. Coronation cases: P rents a room along the coronation route of King Edward,
Ed falls ill and can’t go on parade, P’s purpose of getting the room is frustrated
b/c the reason for getting it is gone, if hotel had burnt down, then there might be
impossibility.

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 B. Requirements
1. A supervening event (something that happens after K is entered into)
2. Event not reasonably foreseeable at the time of entering into the K
3. Completely or almost completely destroys the purpose of entering the K.
4. Purpose was understood by both parties.
C. Basic argument against frustration
1. K is risky business and we take risks all the time
2. K planning represents allocation f risk and possibility that there will be frustration, not
relief for it.
3. Does frustration try to make all winners and no losers?
D. How to plan for impossibility, impracticability, or frustration
1. Contingency Clause
2. Cost Plus
3. Third Party Insurance
4. Renegotiation for long contracts
E. Remedies for impossibility, impracticability, or frustration
1. GR courts generally leave parties where they find them and just rescind K
2. Exceptions:
a. May give dollar damages—R 272 (Shipping/ Suez case), but is a rare exception
b. If there’s been partial performance (Carroll v. Bowersock)
1) must prove performance by P
2) must also prove benefit to the other side (a practical benefit)
F. It can’t be done = IMPOSSIBILITY; IMPRACTICABILITY’S normal relief is restructuring
rather than rescission; FRUSTRATION (USE ON EXAM)
G. When dealing with the remedy of impossibility or frustration, you look at how the party who
can no longer perform BENEFITTED the other party and compensate them according to the
VALUE OF THOSE BENEFITS (still a very rare remedy because of the rarity of impossibility
use by courts)

§7 Fraud and the Other Common Law Policemen

I. Fraud and Misrepresentation

A. Introduction
1. Misrepresentation similar to fraud but it’s innocent, an error made in good faith
2. Effect of misrepresentation is rescission
3. Effect of fraud is damages or even punies
4. Fraud is more serious b/c it’s intentional misrepresentation
B. Fraud and misrepresentation can lead to warranty claims and then to unconscionability
C. 5 common law elements of fraud
1. False material representation, can be either false or non-disclosure where there is a duty
a. Concealment of truth, series of representations, silence in the face of duty
2. Of a past or existing fact
a. Parties are not held to prophecy, opinions don’t count b/c they’re not facts unless
coming from an expert
3. Scienter – knowing intent to defraud

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 a. Knowledge of falsity, reckless mistake or disregard for truth
4. Justifiable reliance by the victim.
a. One who knows the truth or could discover the truth after reasonable inquiry
can’t recover
5. Must be injury caused by the first four elements.
a. Not just upset, must be property injuries
D. Fraud in the Inducement—enter into K by fraud or induce someone to enter through known
misrepresentations
E. Fraud in the Execution—get someone to sign a K that they don’t know is a K
a. Ex—a pro football star is signing autographs, one of the documents is actually a K. No
intent to be bound, so no K
F. Fraud is hard to prove but some courts let P’s by w/ “almost fraud” (Club Med case).
G. Review 624-628

II. Fraud and Bal Fel v. Boyd

A. Fraud or almost fraud when little old dancing lady gets to recovery for her contract?
1. Fraudulent inducement renders a K void.
a. Fraud is an investment in misinformation.
b. No clarity w/ fraud, no meeting of minds so we have no problem w/ excusing
when all elements are met (supra).
2. Court in this case cites a breach of confidential relationship to be a basis for fraud
a. Isn’t that just almost fraud?
b. Doesn’t meet all elements but could argue some are met.
c. Fraud is one of the most difficult things in law to prove, and it shouldn’t have
been proven here
B. Equitable result?
1. Equity done when woman got all her money back plus the benefits of the dance lessons
she actually went to.
2. She didn’t understand and evaluate her risks and now wants to externalize her costs.
3. Was she injured?
a. She got what she paid for and what about her benefits received.
b. Benefits do come w/ costs.
C. Terms of K should rule unless one of the big 8 will excuse performance
1. Incapacity (R 15) – probably not b/c no evidence of incapacity.
2. Duress (R 175) – Unlawful or coercive? Threats of force or suit? Not here.
a. Econ. Duress – could be if there was a monopoly position.
3. K is voidable for undue influence (Rest 177)
a. Gentle persuasion and abuse of close confidential personal relationship
b. Use age discrepancy and vulnerable status as widow to argue yes.
1) Maybe she wasn’t all that vulnerable: 56 years old, teacher, educated,
world experience – should have known better.
4. Where is the line?
a. What if woman buys a bunch of expensive dresses – would court set that aside if
the salesman played upon the woman’s loneliness and insecurities?

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III. Warranty Claims (2-312 to 2-319)
A. How much warranty do consumers want?
1. As much as they can get and sellers want to give as little as possible while still being
able to compete.
2. Warranty is a device used to satisfy a buyer of goods.
3. Compromise allocates the risks under 2-316 of UCC.
a. (1) Words or conduct in creation of express warranty and those that limit
warranty will be construed together.
b. (2) Exclusion or modification of implied warranty of merchantability doesn’t
have to be written, but limitation of implied warranty of fitness must be in
writing and conspicuous.
c. (3) Language like “as is” or “with all faults” must be called to B’s attention
4. State Lemon Laws—attempted modification of warranty law designed to protect
consumers but really just provide false sense of security for a premium price. Defects
are rarely due to one specific problem and few people take advantage of the law but
everyone pays for it.
5. Hahn v. Ford – seller limited warranty on new auto.
a. Limit was on the time or mileage of auto and limited to consequential damages.
b. Sellers are allowed to do this under 2-314
c. Statutes require the limitations to be
1) In writing and
2) Conspicuous – dispute over exactly what is conspicuous (in hindsight or
foresight).
d. 2-316(3)(c) – Buyer may be able to know about implied warranty b/c of course
of dealing which would bring it to buyer’s attn.
1) In Hahn buyer testified that he knew of the warranty
2) Seller offered extended warranty so impliedly buyer should have asked
about what was included w/ standard warranty.
e. 2-316(2) provides attempt to exclude/modify implied warranty of
merchantability must mention merchantability and if WRITTEN be conspicuous
1) Any limit of warranty of fitness must be in writing AND conspicuous
(Fitness = particular purpose)

IV. Unconscionability
A. If terms of K are so grossly unfair, sometimes the court will allow the excusal of one party.
B. A & M Produce – Machine doesn’t work and mfr disclaims all warranties (can do that under 2-
316 “as is” stmt) but court finds disclaimer as unconscionable under 2-719(3)
1. 719 does not define unconscionable
3. Unconsciousability has generally been recognized to include absence of meaningful
choice on part of one of the parties together with K terms which are unreasonably
favorable to the other party
C. Cali defines it w/ a multi part test
1. Procedural Unconscionability (manner and process which terms become part of the K)
a. Oppression – arises from inequality of bargaining power resulting in no real
negotiation and absence of meaningful choice
1) Not real negotiation involved w/ K

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 2) Absence of meaningful choice.
b. Surprise – extent to which the agreed on terms are hidden the form drafted by
party seeking to enforce the disputed terms (often called ADHESION
Ks)
2. Substantive Unconscionability (oppressively 1 sided and harsh K terms)
a. Commercially unreasonable or objectively unexpected manner
D. No real negotiation
1. Why not in produce case?
a. Court: b/c of sophistication of parties (big v. small), and one has more economic
muscle; also buyer had no access to legal advice.
b. Argue against the court: Businesses take risks and produce company was not that
small and could have obtained counsel.
E. Absence of meaningful choice
1. Form K that big firm throws out for other party to agree to (adhesion K?); take it or
leave it no meaningful negotiation
2. Argue other side: plenty of competition, P could go higher up in authority to negotiate
K, not necessarily higher transaction costs for negotiation b/c of technology.
F. Always tested at the time the K was made, not when it was breached or performed
1. Means that the K must have been unfair when entered into.
2. Greatest indicator is the superior bargaining power of one party over another.

V. Products Liability (Relationship w/ Unconscionability)

A. Long March to liability:
Contract-> Fraud-> Misrepresentation-> Warranty-> Unconscionability -> Products Liability
B. Short march to liability: provides insurance rather than allocation of risk
InjuryFaultLiability
1. Problem is that prod liability gives damages for all and warranty is more limited.
C. Possibilities for determining liability
1. R. 402(a) of Torts- Products liability- not applied when the only loss is economic
damages. Is product defective or unreasonably dangerous in design or manufacture
Form of “contort” that provides no fault insurance instead of allocating risk.
2. Reasonable Alternative Design- not a feasible alternative because there is always going
to be a more expensive, safer way to make any product. Since resources are scarce,
there can never be this nirvana. Amounts to a no fault insurance policy for everyone
that is a consumer
3. Risk/Utility Test- What is the risk of accident or injury compared to the cost of
alternative design. If the benefit in safety is even slightly higher than the cost to provide
the safety, the product should be redesigned to meet the benefit.
a. The cost of making the product safer must be less than the gravity of the injury
multiplied by the probability of its occurrence for liability to be imposed
(Cost<Gravity x Probability)
b. Considerations
1) The nature of product
2) Probability of occurrence
3) Cost of manufacturer to achieve safety (Hand formula)
4) Magnitude of injury to the consumer

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 5) Precautions that could be taken by consumer
6) The impact corrective measures taken by manufacturer would have on
the consumer
c. Absolute liability is proper when:
1) The product is simple
2) There is a low incidence of the accident’s occurrence
3) Cost to manufacturer is high to achieve a small increase in level of safety
4) The injury is minor
5 ) Nothing consumer could do to prevent injury
6) Slight increase in cost that won’t prevent future sales
4. Consumer Expectations Test- failure because all consumers will never be satisfied,
especially if the product has caused them harm. Manufacturers do not agree to uniform
expectations so planning ahead is impossible

VI. Exculpatory Clauses

A. Two-part test
1. Must be unambiguous
2. Must be free from blocking defendant from intentional or wanton acts
B. Consider public policy w/ essential services like utilities
C. Exculpatory clauses are valid unless wanton or intentional conduct but they aren’t favored in
the law and strictly construed against the maker
o Must be unambiguous and limited to no more than negligence

VII. Exorbitant Prices

A. Based on some type of fraud. Usually courts don’t get into the adequacy of consideration.
B. Slum stores
1. Courts are reluctant to declare contracts void that come from slum stores. These stores
assume risks that require prices to be higher.
a. Most customers have no cash and are poor credit risks
b. Stores are often in high crime areas and have higher security costs

VIII. Incapacity
A. Certain classes of people have limited ability to contract.
1. Person must be 18 to K legally (R 14)
a. Infants – until majority any contract which an infant enters into is voidable at her
option. (Majority set by statute)
1) Only voidable – so minor may still go through w/ it but can always
rescind it.
2) Even reaches out and touches third parties to the transaction if minor
voids the K.
2. Mentally incompetent (R 15) – insane, mentally ill, senile, mentally retarded, or drunk
(high).
a. Lacks capacity to K if either
1) Is unable to understand in a reasonable manner the nature and
consequences of the transaction

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 2) Is unable to act in a reasonable manner in relation to the transaction and
the other party has reason to know of his condition.
b. Intoxication
1) If person is intoxicated so that she can’t understand the nature of
transaction and
2) The other party has reason to know that this is the case.
c. Avoidance
1) K’s made by incompetents are voidable, not void so K may be ratified if
maker regains capacity or has guardian appointed who acts in maker’s
interest.
2) If K was made on fair terms and the other party is without knowledge of
the mental illness, the power of avoidance is terminated to the extent that
the K has been performed

IX. Illegality
A. Neither party to an illegal K may enforce it
1. Applies even where only one party’s performance is illegal
2. Parties may get partial remedy on a partially performed K and also the K is divisible
from the illegal part (courts effort to salvage K).
B. Types of illegal K’s
1. Gambling K
2. Those calling for bribes or those procured by a bribe.
3. Licensing requirements where one party to the K should be licensed but isn’t.

X. Duress
A. Available if D can show that he was unfairly coerced into entering into the K or into modifying
it.
1. Any wrongful act that overcomes the free will of a party.
2. Prevents meeting of minds.
B. Methods of committing duress
1. Violence or threats of it
2. Imprisonment or threats of it
3. Wrongful taking or keeping of a party’s property or threats to do so.
4. Threats to breach a K or to commit other wrongful acts.
C. Typically requires something more than charging a high price for something.

§ 9 Performance and Conditions

I. Nonperformance and Performance

A. Goal of rules of performance is to protect the expectation that the other party will perform
against a possible failure of the other party to perform. Rules seek to make remedies other than
a lawsuit.
1. Conditions- an event that must occur before performance of a contractual duty becomes
due.

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 2. Constructive conditions- court supplies terms under which a party’s duties are
conditioned on the performance to be given in return. For example, a house painter
promises to paint a house for $1000. Although the language of the contract doesn’t
make the owner’s promise to pay conditional on the painter’s performance, when the
painter is finished, payment is due.
3. Impracticability or Frustration are bases for failure to perform.

II. Conditions
A. Definition of a condition
1. A condition is an event the occurrence or nonoccurrence of which will create, limit, or
extinguish the absolute duty to perform; is a promise modifier.
2. Distinguish from a promise: A promise is a commitment to do or not do something, can
be based on a condition or not.
a. Whether a promise or condition is based on the “intent of the parties”
b. Use of words such as “if” “on condition that” “unless” usually indicate a
condition.
3. Importance of distinction
a. Failure of a promise = a right to recover damages and a breach of the K.
b. Failure of a condition = relieves a party of the obligation to perform.
4. The fact that an act is a condition does not by itself make it a promise.
5. Courts prefer to interpret as a promise rather than a condition.
B. Classification of Conditions
1. Classification as to time
a. Condition precedent (before) – Trigger to a K obligation, what happens that
will trigger A’s performance if B meets the condition.
1) Ex. A agrees to sell his house to B if B gets financing.
b. Condition subsequent (After) – After the K a condition that if not met will blow
up the K. (Cuts off an already existing duty of performance)
1) Ex. Football player K that is voidable if player gets injured after season
starts and K is in effect.
c. Concurrent conditions – Mutually dependant conditions, to be performed at the
same point in time
1) Most car sales, give salesman the money, he gives you the car.
2. Classification as to form
a. Express conditions – usually require strict compliance
1) Includes satisfactory performance as a condition to performance –
obligee must be satisfied w/ work b-4 he pays.
2) Measured w/ an objective standard to keep the obligee from being
too over stringent. (K may provide for subjective terms)
3) Standard is: Work that a reasonable skillful worker would have
performed in a like manner w/ standards of the industry.
b. Implied / Inherent / Constructive – Implied conditions are found w/in the
K and circumstances surrounding it, constructive conditions are supplied
by the court to ensure that the parties get what they bargain for.
1) Constructive conditions may relate to who performs first.
C. Implications of whether a condition is met or excused

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 1. A duty of performance becomes absolute when conditions are either performed or
excused.
2. Performed is obvious; excusal can come in a variety of ways.
a. Failure to cooperate – a party who wrongfully prevents a condition from
occurring will no longer be given the benefit of that condition.
b. Actual material breach – the breach of one party excuses the other from
performing his condition or performance (breach has to be material to extinguish
duty, a minor breach will only suspend it).
c. Anticipatory repudiation – must be unequivocal and applies only if there are
unperformed duties on both sides of the bargain; leaves the non-repudiating party
w/ options to wait or sue now. Repudiation may be retracted until the non-
repudiating party has accepted the repudiation or detrimentally relied upon it.
d. Prospective inability to perform – serious doubts by one party that the other will
be able to perform judged by a RPP standard. Doubting party may suspend her
own performance until she gets some meaningful assurance.
e. Substantial performance – if party has substantially performed but breaches in
some minor way then the other may not completely be excused.
f. Divisibility – when a K is divisible so are the conditions.
3. Conditions, if satisfied, result in duties. A party wishing to avoid performance must have
the duty discharged by one of the “big 8” above.

III. Nonperformance
A. Nonperformance- nothing less than full performance operates as a discharge. However,
nonperformance is not necessarily a breach; it can be justified. When performance is due, any
failure to render it is a breach.
B. Constructive conditions of Exchange- if the only consequence for a party’s nonperformance
were breach, a party of a bilateral contract would have little assurance of receiving the promised
return performance. In a bilateral contract, the promises are the stock of the contract. No
mention is made of the conditions required for one party to satisfy his portion of the contract so
the court will insert the condition.
C. Concurrent Conditions- where parties are to perform at the same time rather than one after
another. Tender of the goods by the seller and tender of the payment by the buyer are
concurrent conditions (UCC § 2-507)
1. Tender- an offer coupled with the present ability to fulfill all the conditions resting on
the tendering party (UCC § 2-503)
2. A party that requires concurrent performance must still make an effort to perform before
bringing an action for breach. Mutual abandonment will be considered an agreement of
rescission.
D. Order of Performance- determines the amount of security that the concept of constructive
conditions of exchange can afford. How order is determined:
1. Language of the agreement (most common in transfers of goods sold on credit and
delivered before full payment)
2. Return performances are rendered simultaneously, they are due simultaneously
3. Sometimes a lapse of time is necessary (construction contracts- the buyer will not pay
until the house is finished)
4. Performance at one time rather than partial payment over a period of time

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 E. Methods the court has used to avoid the forfeiture that might otherwise result from the concept
of constructive conditions of exchange
1. Substantial performance as a means of avoiding forfeiture- a purchaser should not be
allowed to resist paying on the grounds of an insubstantial breach by the seller. Only
substantial performance (question of fact) is required of the first parry before that party
can recover under the contract. Look to the injured party to attempt to gauge the loss
suffered, then look to the breaching party to determine whether the performance has
been substantial.
a. Perfect Tender Rule- buyer is entitled to reject goods unless the seller made a
perfect tender, there is no room for substantial performance.
2. Divisibility as a Means of Avoiding Forfeiture- a contract can be severed to avoid
forfeiture. A contract can be severed if the performances to be exchanged can be
divided into corresponding pairs of part performances in such a way that the court will
treat the parts of pairs as if the parties had agreed that they were equivalents. It must be
proper to apportion the party’s performances into corresponding pairs of part
performances and it must be proper to regard the parts as agreed equivalents
a. Apportionment- met if the price for parts of performance can be determined.
b. Agreed equivalents- look to parties’ intention or language of the contract. Rare
for parties to intend for contract to be divided, so must look to see that the
portion of the contract to be separated is proportional to the value that that
portion of the contract provided.
3. Restitution as Means of Avoiding Forfeiture- party that cannot recover on the contract
for substantial performance can recover for any benefit conferred, less damage for which
that party is liable because of breach. More prevalent in employment or building
contracts than in sales for goods.

IV. Responses to Breach by Nonperformance

A. Power to suspend performance and to terminate the contract- does a breach justify the non-
breaching party in exercising a right to self-help by terminating the contract and refusing either
to render any remaining performance or to accept any further performance by the party in
breach. Liability is imposed on the first party in time to have committed the material breach.
1. Damages for Total breach- the injured party’s claim for damages for total breach takes
the place of its remaining substantive rights under the contract. Damages are calculated
based on assumption that neither party will render any remaining performance.
2. Damages for Partial Breach occurs if the injured party does not terminate the contract.
The injured party retains a right for damages flowing from the partial breach and the
remaining substantive rights under the contract. Damages are calculated on the
assumption that both parties will continue to perform despite the breach.
a. There is risk in splitting the action because if one portion of the breach is
litigated, the claim is precluded from being brought again.
3. Breach when conditions are concurrent- one party must tender their part of performance
to bring an action against the other party. On tender, the injured party is excused from
performing and has a claim for damages for total breach.
B. Material Breach and Suspension- converse of the substantial performance doctrine
1. Breach is material when it justifies the injured party’s suspension of performance and
amounts to the nonoccurrence of a constructive condition of exchange. The injured

44
 party doesn’t have to suspend, but may continue to perform and claim damages for
partial breach. By suspending for an immaterial breach, the suspending party is in
breach.
2. Determination whether breach is material is a question of fact and relates to the time of
breach, not the time the contract was made.
C. Cure- even though the breach is serious enough to justify the injured party’s suspending
performance, the party in breach can cure the breach by correcting the deficiency in
performance. Two situations in which cure is allowed:
1. The time for performance has not yet expired at the time the buyer rejects the seller (can
be cured within time for performance)
2. After the time for performance has expired and the seller had reasonable grounds to
believe that the goods would be acceptable (can be cured within a reasonable time to
tender acceptable goods as evidenced by prior dealings, usage of trade
D. Total breach and Termination- although material breach justifies the injured party in exercising
a right to self-help by suspending performance, the injured party cannot necessarily terminate
the contract. Usually, there must be a reasonable passage of time before contract can be
terminated (reasonable determined as a question of fact)
1. Courts tolerate more delay by the breaching party when the breach occurs after the party
has relied on the contract by performance.
2. Also, more lenient on the part of a seller of specially manufactured goods than the part
of a seller with readily resalable goods. Purpose is to give the breaching party a chance
to cure.
3. Time for cure also is determined by the nature of the contract. Sale of goods are treated
differently (less time) than the sale of land or for services (more time).

V. Prospective Nonperformance
A. Anticipatory Repudiation as breach- effects of party’s repudiation before the time for
performance has arrived. Anticipatory repudiation discharges any remaining duties of
performance of the injured party. They no longer have to be ready to perform. However,
repudiation of a duty does not operate as a breach if it occurs after the repudiating party has
received all of the agreed exchange for that duty. In this situation, the injured party must wait
until time for performance to sue for damages. Courts have refused to apply the doctrine when
a party repudiates a unilateral or bilateral contract that has been fully performed by the injured
party.
B. What constitutes repudiation?
1. A manifestation from one party to another that the first party will not perform at least
some of its obligations under the contract.
2. Statement made in words or conduct that the repudiating party cannot or will not
perform. Parties’ expression of doubt as to willingness or ability to perform is not
repudiation.
3. Good faith mistakes concerning rights under the contract are irrelevant.
C. Responses to repudiation
1. Treat contract as terminated and bring suit for damages for total breach
2. Urge the repudiating party to perform or urge that party to retract its repudiation
3. Ignore repudiation and await the time for the return performance

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§10 Assignment and Delegation, and Third Party Beneficiaries

I. Assignments
A. Obligee assigns her rights to the assignee, who is now the one who receives rights from the
obligor.
1. Assignment = Transfer of RIGHTS (benefits of K)
2. Delegation = Transfer of DUTIES (obligations to perform but usually the benefits
thereof).
B. C is obligated to perform for A, A assigns his rights under the K to B.
1. No consideration is needed for the tx of rights to B.
2. All of A’s (assignor) rights are extinguished under the K but he is not off the hook.
a. If A owes a return promise to C and B does not perform in A’s stead then C can
sue A.
C. Irrevocability of assignments
1. Assignments are irrevocable
2. However, if any consideration is given by B to A in order to get benefits from C then the
assignment is irrevocable.
D. Effect of notice on assignment
1. If obligor has notice he has to for sure pay $ to assignee, not the assignor.
2. Different Jrd go different ways: some say that if obligor pays the assignor then he must
still pay the assignee (as opposed to requiring the assignee to go against the assignor for
the payment he received from obligor).
E. Subsequent assignments
1. What if A assigns K to B but also to C, D and E?
2. 2 rules in differing jrd
a. The first assignee to give notice prevails
b. First to obtain assignment prevails.
3. Add’l thoughts
a. If assignment is made irrevocable (i.e. consideration paid) that subsequent
assignment will take precedence over previous gratuitous assignments as the
gratuitous assignments are revocable.

II. Delegations
A. Y (Obligor/delegator) promises to perform for X (the obligee). Then Y decides to tx her duty
to perform to Z (delegate).
B. What duties may be delegated
1. Generally all except:
a. Duties involving personal judgment and skill.
b. Delegations that would change the obligee’s expectancy.
c. Special trust reposed in delegator by the other party
d. Contractual restriction on delegation.
C. Effect of delegation
1. Delegator remains liable to obligee (b/c if not then a solvent delegator could regularly tx
his duties to an insolvent delegate).

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 a. BUT – obligee may agree (through novation) to accept the performance of the
delegate in place of the delegator. This releases delegator from all liability.
1) Requires the obligee to expressly accept the delegate’s perfomance in
lieu of the delegator, mere consent not enough
2) Novation – one of original parties is clearly released and new party takes
his place
2. Delegation agreement may be one of two forms:
a. Delegator may simply give the delegate the option to perform and the delegate
makes no promise that he will do so.
1) Delegate has no liability to either the delegator or the obligee if he does
not perform.
b. Delegate may promise that he will perform.
1) Is liable to delegator and possible the obligee, if the obligee is a3rd party
beneficiary of the K.
2) Promise may be made strictly for the benefit of the delegator, in which
situation no liability to obligee.

III. Third party Beneficiaries

A. A (the promisee) K’s w/ B (the promisor) that B will render some performance to C (the 3d
party beneficiary).
1. Issue is: who may sue? A who was to receive no benefit any way or C who was
shortchanged.
2. Classification of beneficiaries.
a. Intended beneficiaries – the class of benef who may sue and recover b/c they
were intended to receive some benefit from the deal.
b. Incidental beneficiaries – May not sue as a damaged party.
B. Intended beneficiaries – Creditors and donees
1. Creditors – a person to whom a debt is owed by the promisee
2. Donee – a gift was to be received from the promisee.
3. If performance runs directly from the promisor to the 3d party then the beneficiary is
probably intended, if not probably incidental.
4. Best test is the intent of the promisee, did she intend to benefit the 3d party?
C. Incidental beneficiaries – those who stand to profit from a deal but who were not intended to
do so in the making of the K.
1. Ex. Land next door to a hotel deal that fell through is a third party incidental beneficiary.
2. Although he may have gained from the deal he has not right to sue and collect as he
wasn’t intended to profit.
D. When does a beneficiary acquire K rights?
1. Only when those rights have vested.
a. Benef manifests assent to a promise in the manner requested by the parties.
b. Brings suit to enforce the promise
c. Materially changes position in justifiable reliance on the promise.
1. If the promisee in a K contemplates the present/future existence of duty to 3rd party and
enters into the K with the expressed intent that the performance K’d for is to satisfy and
discharge that duty, the 3rd party is a creditor beneficiary entitled to enforce the K

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 2. There must be a privity of K between the ∏ and ∆ in order to render the ∆ liable to an
action by the ∏ on the K
a. Privity between ∏ and ∆ is necessary to the maintenance of an action on the K
and consideration must be furnished by the party to whom the promise was made
2. Prior to vesting the promisee and promisor are entitled to modify or rescind the
beneficiary’s rights under the K.
3. If beneficiary has no idea of the K she obviously has no rights.
E. Who can sue whom?
1. Beneficiary may sue the promisor on the K
a. Promisor may use all defenses which he could have used against he promisee.
2. Beneficiary v. Promisee
a. ONLY in the creditor situation on the existing obligation b/w them.
b. A gratuitous beneficiary has no right to sue unless there is grounds for reliance
§90 damages.
3. Promisee v. promisor
a. Promisee may sue promisor both at law and in equity for spec perf if the
promisor is not performing for the third person.
F. §304 says where the promisee clearly manifests an intention to confer on the beneficiary a
legal right to enforce the K, recognition of the beneficiary’s right rests on the same grounds as
recognition of the promisee’s right
G. §313: applies to Ks with government/governmental agency
1. Promisor who Ks with a government to do an act for/render a service to the public isn’t
subject to contractual liability to member of the public for consequential damages
resulting from performance/failure to perform unless
a. Terms of promise provide for such liability, or
b. Promisee is subject to liability to member of the public for damages and direct
action against the promisor is consistent with the terms of the K and with the
policy of the law
H. §311 permits modification of the rights of a donee beneficiary prior to acceptance of or
reliance on the gift, unless the K specifically prohibits modification

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