Second half contracts

By Jason Bennett,2014-09-30 04:46
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Second half contracts

Second half contracts.

    Duty to readfactors to consider: 1)education of person 2)totality of circumstances 3)placement of fine print 4)hidden terms.

    ; A term is ambiguous if subject to two or more meanings.

Abuse of Bargaining Process

    1. physical duressif manifestation of assent is induced by improper threat and leaves victim w/no

    reasonable alternative. Voidable by the victim.

    2. improper threatsone threatened by crime, tort, criminal prosecution, threat made in bad faith, or

    threat as a breach of duty of good faith. Improper if exchange is not on fair terms.

    3. Fraudfraud is always misrepresentation. Knowingly or recklessly disregard a known fact.

    4. Misrepresentationassertion not in accord with the facts. Can be a)fraudulent misrep b)material

    misrep c)or just misrepresentation. Its affected by nondisclosure and concealment. It can prevent

    formation of k if it goes to a material term. It can make k voidable if assent induced by fraud or rdmisrep. (can apply to 3 pty, i.e. beneficiary).

    5. undue influence

    6. unconscionablesee below.

    7. bad faith

    8. illegal bargains/public policy

Reasonable expectations doctrine/ Contracts of Adhesion

     Look to the writing to determine what is reasonable under the circumstances.

    ; contract of adhesiontake it or leave itno bargaining involveddisparity in bargaining power.

    ; Expectations/intent of party will prevail over language.

    ; abuse of the bargaining power shifts the material risk or burden.

     Is adhesion still enforceable? Cts look at 1) reasonable expectations and 2) Is it unconscionable to


    Spoon thinks small businessmen deserve protection from sophisticated legal mumbo jumbo.

    Misrepresentationrestatement 159, assertion not in accord w/the facts. If you don’t know its wrong, but it is, it is a plain old misrep, BUT, if you know its wrong, you have…

     Fraudulent misrepif you know its wrong, but you say or do it anyway. OR it is a suggestion

    represented as based on knowledge, but its only based on opinion.

     A misrep is a material misrep if it induces the other pty into doing or signing something they

    wouldn’t have otherwise. A representation becomes material when its objectively reasonable or the

    maker knows its likely to cause assent.

     Nondisclosureneeds no affirmative act, may have the same effect as a misrepresentation.

     ConcealmentIs an affirmative act


     An absence of meaningful choice on the part of one of the parties together with k terms which are

    unreasonably favorable to the other.

     Ucc2-302a heightened standard for merchants. is a matter of law (judge decides), and the ucc

    doesn’t define a test.

     TWO types of uncon: unfair surprise OR apparent but not genuine assent.

    o Restatment 211. If party not aware of terms, you can’t be bound by them.

    1. Substantive

    ; concerns the actual terms of the k and examines the relative fairness of the obligations assumed. ; Is the provision so unfair that its outside reasonable expectations of party?substantive.

    ; One sided contract.

    ; Unfair allocation of risk.

    ; Was the term reasonably anticipated. Ex: adr resolution, would a reasonable person anticipate the


    2. Procedural

    ; examines whether bargaining proceeded as it should have (fine print clauses, mistakes, ignorance). Did bargaining process proceed as it should have?

    o mistakes, ignorant, fine print, did person read, was it explained, was it signed, manner in which

    k entered, hidden terms?

    o For merchants, consider trade and usage.

    ; Usually need a little of both—otherwise you’re not even faced w/the question.

Good faith

     Honesty and fact in the conduct or k concerned.

     UCC: 1-203every k has implied obligation of good faith (honesty and fact).

     UCC: 2-103 1bdefines merchant distinctionwhich is h and f AND observance of reasonable

    commercial standards.

     Hard to deal w/as it is fairly subjective.—(spoon says you’ll know it when you see it).

     Cant sue on good faith requirement, NOT a separate cause of action, only a factor of abuse.

Illegal Bargain

     All of the second half categories are in reference to a k already made. They identify reasons the k

    should not be enforced. This category’s reason for not enforcing is when a k is in violation of a

    statute, regulation, or ct annunciated judgment.

     Only a problem when text of act, etc, is silent as to what the consequences arethat is, ct needs to

    see if the violation is significant enough to not enforce the k.


    o Agreement to commit a crime

    o tort

    o violation of a fiduciary duty

Public policy in legislationregulatory v. nonregulatory

     Each policy case is different, you need to look at the circumstances surrounding each one. Ask if the circumstances matter when a violation of law has happened in the agreement, that is, *** Balancing test: Do circumstances clearly outweigh the public policy issue that is being violated?

    If yes, then it may be overruled as still enforceable. Kidney hospital was for non-regulatory


Restatement sections: 175if assent manifested through threat, no good, 176defines threat.

     Agreements or restrictions on marriage frowned on by cts.

     Wagering, etc, anything in conflict w/public policy will impact whether contract considered binding. In pari delicto: when parties are equally wrong.

     Restatement 181if a party prohibited from performing for failure to comply w/liscencing, its

    unenforceable on grounds of public policy IF: 1)requirement has regulatory purpose AND

    2)enforcement outweighs public policy.

Contracts in restraint of tradeCovenant not to compete. What is the ucc section??

     look to what circumstances are necessary to protect the business (legitimate business interests) to

    determine what is acceptable. IF there are legitimate interests to protect, then the covenant is

    usually valid.

     Two elements examined to determine if k is fair:

    o 1) time limit

    o 2)geographic limit.

    ; Rule: restrictive agreements will be enforce unless contrary to public policy, OR unnecessary for

    protection of employer, OR unnecessarily restrictive of employees rights.

     Cts will balance legitimate interests of employer w/those of employee

     There are 2 main legit business interests:

    1. will employee take customers w/him by leaving. Good will?

    2. Are there trade secrets he would give away.

     However, cts won’t even balance the interests if the competition in question would be fair.

    Ordinary v. unfair competition.

     Cts generally don’t like these.

     Blue pencil ruleeither eliminate questionable portions, or not good.

Marriage K’s

     Is agreement in consideration of sexual favors? If yes, courts won’t enforce.

     Not same rights as married couples, but still able to contract regarding prop and financial matters.

    HOWEVER, if parties eventually marry, any previous agreements in consideration of cohabitation


     Are upheld if ancillary to a legitimate purpose and reasonable in duration.

     Restatement 175 and 176 = duress stuff.


     In pari delicto = parties leave themselves to the plight they have left themselves.

     Restatement 178 = unenforceable on grounds of public policy.

     Sister state must give full faith and credit to judgment but not to cause of action if cause of action

    contrary to pub pol.

Facilitating an illegal purpose

     The bare knowledge of the purpose for which property is sold is not enough for defense of illegality. There must be some form of active participation by seller in order to use the defense. Partial illegalityif any part of consideration is illegal, k won’t be enforced. If k illegal at time made,

    its not enforceable via change in law. Cts have discretion on whether to partially enforce or chuck it. Problems pg. 612.

Chapter 6conditions, breach, and repudiation

A. Nature and effect of condition

Ultimately it comes down to intent.

     Difference between promise and condition (table 624): if you break a promise, it’s a breach. Not so



     Conditionan event not certain to occur, which must occur, unless its non occurrence is excused. Non occurrence of condition is not a breach unless party is under a duty that the condition occur. A condition can either be one of these three (think of selling 100 widgets, w/30 day warning)

    1. a conditionno need to sell.

    2. A promise—buyer has breached and seller can sue for damages b/c didn’t get 30 days warning as


    3. Both a condition and a promise (promissory condition)seller has no obligation to sell AND buyer

    is liable for damages. Need to look at this one in context.

Interpretationpromise or condition

     Courts don’t like to grant condition unless language very explicit.

     Conditions go towards when duty begins or terminates and is guided by intent of parties and tools

    of interpretation.

     Non occurrence of a condition can have drastic effect on rights and duties of parties. Breach may

    have less significant effect.

     Spoon said good exam question would be written vs. oral k issues, re: main electric v. printz

    services. That’s the one w/pay when paid clause.

     Cts disfavor conditions if they cause a forfeiture.


     Always made by one party.

     Creates a duty in promisor.

     Performance of promise discharges duty

     Failure to perform promise is a breach of k.


     Parties must agree.

     Postpones a duty in promisor.

     Occurrence of condition activates duty.

     Nonoccurrence of condition leaves duty dormant and duty is discharged.

Promissory condition

     A condition that is both a duty and a promise.

     A promise that results from happening of condition. (rudolph example). When unclear as to promise or condition, cts go w/promise.

     B/c cts abhor forfeiture, and cond missing means forfeiture.

     If one party promises to give notice by a certain time and fails to do so, he has

    breached his promise. If that failure is not a material breach, the duty of the non-

    breaching party is not discharged though that party has a claim for any loss

    occasioned by the immaterial breach.

     Seller has no obligation to sell if breach, and buyer liable for damages. HOWEVER,

    if only a technical (non material) breach, you still have to perform.

Condition precedent—must be stated in clear and unequivocal language. And cts don’t favor forfeitures.

     Its occurrence will give rise to an absolute duty of performance.

     Must occur before liability arises. Duty on p to avert all conditions where performed or excused.

     Cond sub—It’s failure to be met will cancel an already absolute duty of performance. Burden of

    proof for cond subsequent is on the defendant. However, burden of proof to show that condition

    has been met is usually on the party who would benefit.

     Terminates a duty, these are matters of avoidance

     Common law view of subsequent cond (common law is basically a formation issue): we promise to

    do something, w/a condition that comes after the original promise. Its mostly in formation.

     Restatement analysis of sub/pre cond:

    o Precedentduty not activated until thing (condition) happens

    o Subsequentduty exists, and condition occurs that eliminates that duty

    ; Both of these are governed by intent and other basics of k law.

    ; Key distinction is whether condition is regarding performance (sub)of the k, or

    formation (pre).

    Restatement 224precedent, now just called condition.

    Restatement 230subsequent, action that terminates a duty.

     Duty not discharged if as a result of breach of duty of good faith OR could not have been

    prevented b/c of impractibility.

    Concurrent condition—when both duties occur at the moment of performance. If k isn’t clear then it assumes concurrent performances. Therefore to claim a breach, you must at least tender your part.

Condition of personal satisfaction

     When some part of k is conditioned on the personal standards of somebody. Ex: architect, painter,


     If k is for something mechanical, commercial quality, operative fitness, mechanical utility, etc. in

    nature, then an objective standard is used. IF it is something artistic, personal asthetics, taste, or

    fancy, etc, then the subjective standard of person is used. Law prefers objective.

     Can be negated by fraud or gross mistake (2-305 ucc).

     Restatement 228can be unreasonable as long as its honest. (2-326 1a ucc)

     Why isn’t it an illusory promise? = b/c here, it depends on an actual standard which is not met,

    where as an illusory promise has no condition to meet.

Express Condition = parties agree that there is a condition…?

    Constructive Condition = is no condition agreed to by parties, but court imposes one in the interest of justice.

Constructive conditions

     Constructed by court in pursuit of equity and justice. It is a situation not forseen and not provided for

    by the parties.

     Instances might be: if order in which promises must be performed is not provided for. 2) effect of

    partial failure or delaying performance. 3) inability or unwillingness of one party to perform. Restatement 234talks about order of performances.when performance can be due simultaneously,

    it is due simultaneously.

     Problems on handout and on pg. 655.

     Ucc 2-307 for some stuff or another.

Divisible v. Entire Contractsbreach of part of k does not always void the entire thing.

     Restatement 184when rest.of agreement is enforceable.when part unenforceable, courts may

    enforce rest of k in favor of party not engaged in misconduct IF performance as to which agreement is

    unenforceable is not an essential part of agreed exchange.

     Restatement 240part performances as agreed equivilants.

     Ucc 2-612 part 3when non-conformity or default to one or more installments impairs value of the

    whole k, there is a breach of the whole. BUT, aggrieved party can reinstate k if he accepts non

    conforming installment w/out seasonably notifying of cancellation OR if he brings action w/respect to

    only past or future installments.

Precedent v. subsequent conditionoriginal formula

     Under common law, sub condition was a formation thing: party promises to do something, with a

    condition that comes afterwards to prevent a duty if breached.

     Restatement analysis-- ? 224 and 230 (termination of a dutysubsequent).

    o Condition Precedentduty not activated until thing (cond) happens.

    o Condition Subsequentduty exists, and condition occurs that eliminates that duty.

    ; Both of these are governed by intent, and other basic elements of this class.

Express, Implied, and Constructive Condition distinguished

    1. Express conditionparties agree that there is a condition.

    2. Constructive Conditionis no condition agreed to by parties, but court imposes, or creates one in

    the interest of justice.

Here’s where I miss a day.

     If buyer rejects good, and seller notifies of intention to cure, and does so under contractual time

    limits, there’s no breach.

Materiality of Breach

     it’s a breach when you don’t follow terms, but is it material? ?241

     for any breach, there is possibility of damages

    1. Material breach is either a:

    o Total materialduty terminated and may sue for damages. ? 242.

    o Partial materialstill obligated, but duty suspended, can get damages.

    2. Non-material breachmust perform, but can sue for damages.

    o For non material, cts will examine interests and burdens.

     ?237 to establish no material failure to render performancesthen ?241 to

    show it??? (how to characterize breach?)I think this is for partial perf.

    restatement 241 analysis for significant factors in determining whether breach is material:

    a. extent to which injured party deprived of expected benefit.

    b. Extent to which injured party can be adequately compensated.

    c. Extent to which party failing to perform will suffer forfeiture.

    d. Likelihood that failing party will cure the failure, taking into account all factors including

    reasonable assurances.

    e. Extent to which behavior of party failing to perform comports will good faith and fair dealings.

a dispute is a basis to show consideration

     ex: late payment is non material breach, a slight delay that caused no detriment or prejudice. Can waive a breach by accepting late payment, or performance, etc.

     if you breach an accordyou can enforce either original agreement or accord.

     Its difficult to get an entirely total material breach, so if you want it, make sure its explicit in

    wording. Ex; “time is of the essence”. Cardozo says willful transgressor must accept the penalty of

    his transgression.

    Substantial performance and materiality of breach

     when someone part performs, how does it affect duties…

     cts will examine good faith dealings, willful breach, and existence of express cond. Doctrine of substantial performance--Substantial performance and NO material breach are same

    thing in spoons world.

     ?229even if its express, if forfeiture is not proportionate then it can be excused. Cts may excuse express conditions if it determines that the nonoccurance of the condition was so

    relatively unimportant to the owner that the resulting forfeiture to the builder would be extreme. cts don’t favor express conditions precedent when cond is unrelated to subject matter of k and

    results in one party enjoying benefits w/out giving equivilant exchange.

    The willful preclusioncts will treat a willful breach as material, but you look at other factors in restatement 241 as well.

When a seller sends goods to a buyer, these major things can occur:

    1. acceptance (2-606)—“what constitutes acceptance—

    a. after a reasonable opportunity to inspect, you can signify conforming, or take in spite of


    b. Can’t accept until after reasonable opportunity to inspect.

    c. Doesn’t act inconsistent w/seller’s ownership.

    d. Acceptance of any commercial unit is acceptance of the entire unit.

    2. 2-609demand for adequate assurance—. before buyer accepts goods, he can “demand

    assurance” (2-609) which can lead to a possible repudiation. You need:

    a. reasonable grounds, it must be in writing, can suspend performance until you receive such


    b. Between merchants grounds for insecurity are according to commercial standards.

    c. Acceptance of improper delivery or payment doesn’t prejudice right to demand adequate


    d. Failure to provide w/in reasonable time not exceeding 30 days is repudiation of k.

    repudiation 2-610, can trump right to cure.

    3. revoke acceptance(2-608)needs to be substantially impaired value of goods and either

    a. buyer accepted on reasonable assumption that problem was cured and problem wasn’t


    b. buyer reasonable inspection didn’t disclose nonconformity

    c. must happen w/in reasonable time and revocation isn’t effective until one side notifies

    the other.

    4. rejection (2-602)manner and effect..

    a. need reasonable time, seasonable notification.

    b. Buyer has no obligations or rights once goods rejected.

    5. cure (2-508)once rejected above, seller can use this. Here, two possibilities

    a. can cure before time to perform (must notify buyer). OR

    b. if time for performance has passedallows more time if seller reasonably believes

    shipment is acceptable.


     definition: manifestation (words or conduct) by party to a k that he will not perform duties of k. (2-

    610). Can they underetake breach actions?

     A suggestion for modification does not amount to a repudiation.

     Insolvency is not a repudiation b/c it is not voluntary, BUT the other party then has an unqualified

    power to suspend his performance and can’t be discharged from his duties until demanding

    adequate assurances.

     No notice required for the repudiating party if aggrieved party changes its position.

     Restatement 253 says a repudiation alone gives rise to a claim for damages for total breach.

     if you can fix the breach before time of performance due, you can still perform and fix repudiation,

    but note the following below:

     Two ways you can set repudiation so it can’t be fixed. (2-611)

    1. act in reliance

    2. notify offending party that you treat manifestation as repudiation.

a. Restatement 250—“when a statement or act is repudiation”—a voluntary affirmative act makes it

    unableto perform.

    b. 251—“failure to give assurance treated as repudiation”—1) if you demand reasonable assurance and you

    don’t get em, you can suspend duty. 2) failure to provide assurance w/in a reasonable time is repudiation.

    c. 253—“effective repudiation and other party’s duties”—1)if you repudiate, its treated as a present breach.

    2) if a repudiates, it discharge’s b’s duties.

Anticipatory repudiation / Retraction of repudiation

     ucc and restatement only require that it be reasonably interpreted as a repudiation, need not be explicit. ucc 2-611retraction of anticipatory repudiationyou can retract up until performance due UNLESS

    the other party materially changes position or indicated considers repudiation final. It can be in any

    method which clearly indicates repudiation. Retraction reinstates repudiating parties rights w/due

    excuse for any delay.)

     ? 256 says that repudiation nullified by a retraction of the statement before materially changing position

    of injured party or indicates to repudiating party that its considered final.

     Need to inform repudiator in writing that you consider it a repudiationrepudiator needs to know.

     Spoon last second noterestatement 243 (3)—odd, you can’t get damages for repudiation and breach

    in some aspects.

Repudiation by good faith mistake

     If you hold back duty, even in good faith, you can still be held to have repudiated if you’re in the

    wrong. 2-609.

     Ucc 2-609—Right to Adequate Assurance of Performance. Here’s how spoon’s brain flowed

    through this section: or as he termed it—“steps for a worried buyer”.

    1. Grounds must be reasonable—you shouldn’t rely on competitor for information—demand must

    be in writing.

    o What is adequate assurance? A sample probably is. A writing probably isn’t. BUT, if

    you are wrong under 2-609, it is repudiation, AND, still responsible for performance

    already rendered.

    o Need to stick to requirementsmake sure demand is in writing and follow 2-609.

These things excuse the non-occurrence of a condition

    1. Repudiation

    2. If one of the parties acts in bad faith.

    3. forfeiture

    4. if party waives occurrence of a condition.(you can sometimes avoid waiving through

    unknown events by including a nonwaiver clause, pg. 714).

    ; A nonwaiver, or anti-waiver clause, will automatically restore conditions to future

    performance even though there has been earlier waiver.

     Restatement 84Promise to perform duty in spite of non occurrence of condition.

    1. 84(1)--if person promises to perform even though condition not occurred, it’s a waiver of

    condition and promise is binding. UNLESS the condition was a material part of

    exchange(this is because you can’t waive consideration) and promisee was under no duty

    that the condition occur OR uncertainty of the occurrence was an element of the risk

    assumed by the promisor.

    ; If the condition usually is a technical one.

    ; You can undo waiver if there is still time for condition to occur and it is not unjust

    because of a material change.

    2. 84(2)reinstating the conditionif promise made before occurrence of condition and is

    w/in control of promisee, the promisor can reinstate by notifying promisee IF”

    ; reasonable time left

    ; not unjust because of a material change of position

    ; the promise is not binding apart from rule stated in part 1 of 84.(above)

    Risk Allocation: Ch. 7Impossibility, impracticability, frustration of


    ; The rule that performance of failure not excused is contingent upon express or implied conditions.

UCC 2-615Excuse by Failure of Pre-supposed conditions. YOU NEED:

    1. contingency that non occurrence is a basic assumption

    2. occurrence of the event

    3. performance made impracticable

    2-614“substitute performance”—allowed if reasonable, so obligation would still exist, and not relieved.

    ; If risk allocated, then you do NOT need the above section, i.e., there is no excuse through impossibility. Knowledge of risk isn’t allocating it.

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