I. MULTIPARTY TRANSACTIONSA. Manifesting Assent through an Agent: Types of Authority 1) Definitions a. Principal=person/party on whose behalf the agent is acting, has the authority to bind the agent b. Agent=person/party who is acting on behalf of principal and is subject to the control of principal 2) The agent has the power to bind the principal to K made if agent has appropriate authority: a. Inherent Authority=authority arising from the agency relationship b. Apparent Authority=third party reasonably believes an agent has, based on third partys dealings w/the principal, even though principal did not confer or intend to confer the authority. Apparent authority can be created by law even when no actual authority has been transferred. Also called ostensible authority or authority by estoppel. c. Actual Authority=Authority that a principal intentionally confers on an agent or authority that the agent reasonably believes he or she has as a result of the agent's dealings with the principal. Actual authority can be either express or implied. i. Express=given to the agent by explicit agreement, either orally or in writing. Also termed stipulated authority. ii. Implied=intentionally given by the principal to the agent as a result of the principal's conduct, such as the principal's earlier acquiescence to the agent's actions. Also termed presumptive authority. 3) Elements of agency relationship= a. Mutual consent to a relationship b. Agent acts on behalf of the principal c. Agent is subject to control of principal A principal is bound by the acts of their agent within the apparent authority which they knowingly or negligently permit the agent to assume or which the principal held out the agent to possess. pp. 563567 Sauber v. Northland Insurance Co. Apparent authority emanates from the actions of the principal such that an agent cannot, simply by his own words, invest himself with apparent authority. Jennings v. Pittsburgh Mercantile Co. (Page 567) B. Third-Party Beneficiaries Privity=doctrine provides that a K cannot confer rights or impose obligations arising from that K on any person/agent who is not a party to that K. Intended beneficiaries and incidental beneficiaries Intended beneficiaries are those who is the recipient of the benefit of the K, they can sue on the contract despite not being in privity in the K Incidental beneficiaries cannot sue on a K , pp. 581-582 Specht v. Netscape Comms Types of intended beneficiaries: donee beneficiary=3rd party, not a party to K, but for whose benefit the K is entered with the intention that the benefits derived therefrom be bestowed upon the person as a gift. pp. 570-574 Seavor v. Ransom creditor beneficiary= they arent really intended, but can still sue on K, creditor who receives the benefit of K between a debtor and another party, pursuant to which the other party is obligated to tender payment to the creditor. pp. 575-581 Sisters of St. Joseph of Peace, Health and Hospital Serv. v. Russell A and B have a KA has performed but B has yet to pay AA owes C money (C is a creditor of A) B promises A that B will pay C instead of AB breaches promiseC sues B as a creditor beneficiary Once the 3rd partys rights have vested, the original parties cannot modify or rescind a K in such a manner that would derogate the 3rd party beneficiarys rights, without the 3rd partys consent. Jurisdictions differ as to whether the 3rd partys rights vest: At the time the K is made At the time the 3rd party learns of the K and agrees to accept the benefit flowing from it (if the 3rd party does not expressly reject the benefits, he is deemed to have accepted them)

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Upon a change in position, even if only slight, by the 3rd party beneficiary in reliance upon the K (this is the majority approach set forth in Rest. 311 (3)). Restatement Sections 1: (1) agency is fiduciary relation which results from manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act (2) one for whom action is to be taken is principal (3) one who is to act is agent. 302 Intended and Incidental Beneficiaries pp. 574 (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary. 315 Incidental Benefit p.582 An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee.

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II. DOCTRINE OF CONSIDERATIONPrinciples of Enforceability What is the promisor asking for in exchange for the promise? 1) A performance ($10 if you wash my car) 2) A promise to perform ($10 if you promise to wash my car) 3) A forbearance (dont drink/smoke/gamble until 21) 4) Promise to forebear A. Six Core Principles of Enforceability Pg 586 Party Based Theories 1) Will Principle= commitments are enforceable because the promisor has willed/freely chosen to be bound by their commitment. Subjective because it inquires as to the promisors actual state of mind at the time of K formation. parties consent to be bound voluntarily meeting of the minds, therefore enforceable exception: objective manifestation of consent unless subjective intent can be proven to be contrary 2) Reliance Principle=K enforcement is an effort to protect promisees reliance on the promises of others. Not all cases of injury resulting from reliance on the word or act of another are actionable. Liable for harm caused by verbal behavior (oral or written) 3) Restitution Principle= to prevent unjust enrichment of promisor (one of benefited and now wants out) Problems w/Party Based Theories=each principle must implicitly rest on unarticulated considerations apart from will, reliance, or restitution to distinguish enforceable from unenforceable commitments. Theories of K obligation based solely on any one of these principles will fail in their basic mission to distinguish adequately between those commitments that are worthy of legal protection and those that are not. Party-based theories are also one-sided, respecting the intentions on only one party and cannot assess inter-relational quality of making a K. Standards Based Theories 4) Efficiency Principle= if benefits of enforcement exceed benefit of unenforcement (max. of social wealth) 5) Principle of Substantive Fairness= only enforce contracts that are fair just prices and terms ALL STANDARDS BASED PRINCIPLES FACE 2 PROBLEMS=(1) IDENTIFYING AND DEFENDING THE APPROPRIATE STANDARD BY WHICH ENFORCEABLE COMMITMENTS CAN BE DISTINGUISHED FROM THOSE THAT ARE NOT (2) STANDARDS BASED PRINCIPLES ARE TYPES OF PATTERNED PRINCIPLES OF DISTRIBUTIVE JUSTICE AND CONSTANTLY INTERFERE WITH INDIVIDUAL PREFERENCES. Process-Based Theory 6) Bargain Principle= mutuality of inducement (also look at fairness of bargain, look for consideration) exception: I promise to take out the trash =no bargain, not enforceable. THE BARGAIN PRINCIPLE IS THE PREDOMINANT THEORY OF ENFORCEABILITY IN MODERN Ks. Problem w/Process Principle=Process principles cannot explain why certain kinds of commitments are not and should not be enforceable. B. Enforceability Basics 1) W/o expressed K, court should inquire whether conduct demonstrates implied K, agreement of partnership/joint venture, or some other tacit understanding. Court may employ doctrine of quantum meruit or equitable remedies when warranted by facts. pp. 585-614 Marvin v. Marvin 2) Domestic services are assumed to be gratuitous, Pg. 585 Morone v. Morone 3) Expressed Contracts promise said in words, acceptance by oral, silent, written acceptance 4) Implied Contracts contract inferred from acts in light of surrounding circumstances (fear: holding people to agreements they never agreed to make) Quantum meruit="as much as he has deserved". In the context of K, means "reasonable value of services". While promissory estoppel allows recovery when consideration is lacking, unjust enrichment or quantum meruit relaxes even further Ps burden of showing that D made a promise. Quantum meruit properly applies to mistake in law contracts and provides a distinct theory of recovery.

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An implied in fact contract must have (1) mutual agreement and (2) intent to promise, both of which are not oral but implied from the facts . An implied in law contract, or a quasi-contract, neither promise nor privity must exist, either real or imagined. Obligation arises from the law of natural immutable justice and equity, and not from the facts or consent. The acts of the parties, however, must be voluntary. An implied in law contract requires: no offer and acceptance (i.e. not a contract), no express promise benefit conferred upon x by y, appreciation by y of such benefit, and retention by D of such benefit in a way that results in unjust enrichment History of the Doctrine of Consideration pp. 615-619 Consideration the inducement to a contract. The cause, motive, price, or impelling influence which induces a contracting party to enter into a contract. (Blacks) Unilateral Contract promise for performance Bilateral Contract promise for promise The Bargain Theory of Consideration Pg 618 Consideration=K will not be enforceable unless it is supported by consideration. Consideration=value given by one party in exchange for performance, or a promise to perform by another party. A promise is supported by consideration if It causes a legal detriment, promise gives up something of value Forbearance of an action that the person is legally entitled to pp. 622 Hamer v. Sidway Promise must be bargained for, i.e. promise motivated by the legal detriment suffered by the promisee Distinguishing Bargains from Gratuitous Promises Conditioned gift vs. something being bargained for in regards to consideration. Conditioned gifts need to have a real condition to be enforceable In order for there to be consideration the one promise or performance has to induce the performance or promise of the other person, has to be a circular thing. A conditioned gift is only of the circle Consideration is needed to enforce a contract but not a promise. Not bound to give a gift until you get it but once you give it you cant get it back. In order for a contract to be enforceable, there must be mutual consideration between the two parties. This means that there must be an exchange of a promise or benefit between both parties. If there is not mutual consideration and only one party is receiving a benefit, the agreement is not enforceable at law. pp. 620 Johnson v. Otterbein University. Exception is when you make promises to charitable institutions, cant back out of a pledge to PBS when you call and make it and stuff like that. Not something that we want to enforce societally, it is a policy decision. *Johnson was decided prior to the charity exception* For promises to be enforceable, detriment must have been bargained for Chief reason for this criteria is to distinguish between a bargain reciprocal nature of thing promised and a gratuitous promise getting something for nothing, no consideration Gifts are generally unenforceable because the promise if not bargained for and the promisee suffers no detriment Courts generally refuse to police promises to give gifts because of Judicial administration, i.e. people make promises all the time that they break; and Personal context gives you more trust and because trust is lacking in commercial arena need more formal mechanisms Past Consideration: Is not enforceable If service is rendered prior to the making of a K it is past consideration & not enforceable. Pg. 639 Moore v. Elmer, promise to pay her mortgage if clairvoyant prediction is true Where the detriment has been suffered before the promise is made, it is not bargained for and therefore it is not consideration There are instances in which courts will enforce without finding consideration based on a moral obligation There are exceptions to the notion that past consideration is no consideration at all when a benefit has been conferred in the past Other exceptions to the notion that past consideration is no consideration are in cases of statute limitations, infancy, or bankruptcy

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Moral Consideration Pg 640: Moral obligation may support a promise in the absence of traditional consideration, but only if the promisor has been personally benefited or enriched by the promisees sacrifice and there is, as a consequence, a just and reasonable claim for compensation No benefit promise + moral obligation + material benefit = valid consideration. p. 652-655 Webb v McGowan, sacrifice of self to save bosss life It is only when the party making the promise gains something, or he to whom it is made loses something, that the law gives the promise validity.... nothing more than moral obligation. Mills v. Wyman, promise to pay for nurse's prior care of deceased son. Contract Modification and the Preexisting Duty Rule Pg 656 Preexisting Duty Rule: a common-law rule of contracts: a party's offer of a performance already required under an existing contract is insufficient consideration for modification of the contract. This rule is not applicable to sales contracts in jurisdictions that have enacted the Uniform Commercial Code. It is also not applicable where there has been a rescission of the contract followed by a new contract. A modification to an existing contract is only binding if there is consideration for the modification, for good faith, the validity of contract modification is going to come down to whether it is a change necessitated by a change in circumstances or if it is one party exploiting another If a party is legally obligated to perform a certain duty and seeks to modify contract to receive additional compensation for same duty, the modification fails for lack of consideration. Pg. 656 Stilk v. Myrick, due to desertion, captain promises to increase wages of existing crew, pp. 658-665 Alaska Packers Assn. v. Domenico Exception to preexisting duty rule the subsequent agreement imposes upon the one seeking greater compensation an additional obligation, therefore there is new consideration because there were unforeseeable circumstances that both parties were aware of, so the modification is binding. Pg. 666 Brian Construction v. Brighenti, excavation underestimate, recontracted Adequacy of Consideration Pg 672 Want of consideration Nudum Pactum (Nude Agreement) (Lack of Consideration, Insufficient Consideration, Absent Consideration)Want (or lack) of consideration nothing whatsoever given in exchange for the promise There was no consideration intended to pass, lacks sufficient consideration Not a defense against a sealed instrument, nothing to enforce it or back it up Failure of consideration Pactum Vestitum (Clothed Agreement) Testing for PROCESS PROBLEM (even sealing the instrument here will not cure this problem). Failure of consideration person did not get what they bargained for Inadequate consideration thing not worth as much as you thought, an inadequate consideration A defense upon a sealed instrument Courts will not examine adequacy but they will examine the sufficiency, i.e. nominal considerations So long as promisee suffers some detriment or something is found to be bargained for, courts are not concerned with the adequacy. Once consideration found, look no further for evidence concerning values exchanged except when there is gross disparity in value and may be presumptive evidence of fraud Items need value to be exchanged and for there to be consideration. Needs to have real (not sentimental) value for item to count as consideration. Newman & Snells State Bank v. Hunter pg. 672 UCC & Restatement Sections 17: requirement of a bargain (1) formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration, except for (2) special conditions in 82-94 18: manifestation of mutual assent: manifestation of mutual assent means that each party either makes a promise or renders a performance 71. Requirement for Exchange; Types of Exchange (1) To constitute consideration, a performance or a return promise must be bargained for.

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(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for this promise and is given by the promisee in exchange for that promise. (3) The performance may consist of (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation. (4) The performance or return promise may be given to the promisor or some other person. It may be given by the promisee or by some other person. 81. Consideration as a Motive for Inducing Cause (1) The fact that was bargained for does not of itself induce the making of a promise does not prevent it from being consideration for that promise. (2) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise. 86: promise for a benefit received (minority view) (1) a promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice; (2) a promise is not binding if: (a) the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; (b) to the extent that its value is disproportionate to the benefit. 79: adequacy of consideration (mutuality of obligation) if the requirement of consideration is met there is no additional requirement of: (1) a gain, advantage or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or (2) equivalence in values exchanged, or; (3) "mutuality of obligation" 364: Effect of unfairness where specific performance would be unfair because the exchange is grossly inadequate, court will deny SP. Permits court to refuse equitable relief on grounds of unfairness, even in situations where they would not necessarily refuse to award damages 89 modification of an executory contract a promise modifying a duty under a contract not fully performed on either side is binding: (a) if the modification is fair and equitable in view of the circumstances not anticipated by the parties when the contract was made; or (b) to the extent provided by statute; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise. a circumstance can be considered unanticipated even though it was considered - provided that the contract did not price it accordingly 2-209(U) modification, rescission and waiver (1) modification needs no consideration (2) a signed document with a clause excluding modification or rescission except by signed writing cannot be changed, but except as between merchants such a requirement on a form contract must be signed by the other party (3) requirements of Statute of .Frauds must be satisfied if the contract is within it (4) although an attempt at modification or rescission does not satisfy (2) or (3), it can operate as a waiver (5) a party who has made a waiver....[not important]

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III. INTENTION TO BE LEGALLY BOUND (Page 681)Formalities to Manifest Intention to be Bound Pg 684 Formality something that is done to symbolize or convey a certain message another way to express an intention to be bound Functions of formalities include: Evidentiary Compliance with formalities provides reliable evidence that a given transaction took place. Cautionary The ceremony of melting sealing was onto parchment followed by impressing the melted wax with a signet ring was imposing. Before performing the required ritual the promisor had ample opportunity to reflect and deliberate on the wisdom of his act. Therefore the document can be accepted by the legal system as a serious act of volition. Kind of like the Will Principle. Channeling Everyone is made aware that the use of a given device will attain a desired result. The judicial task of determining the parties intentions is facilitated. The seal means there is an intent to be bound, everyone knows what that means, like a wedding ring, everyone knows what the ring represents. Clarification When the parties write everything out (have to in situations of a seal) they are more likely to work out details not contained in their oral agreements. The Seal (Page 686) Serves its function through the formality. Prior to the rise of assumpsit (meaning contract), the seal dominated the English common law of contract. In the past, it was used for formal agreements (in writing and sealed) It is well settled that a seal imports consideration. In saying that the seal imports consideration, means we dont need to find a bargain, no need to look for the bargain, because the seal imports the consideration. But actually what it really does, through formality, is it shows an intent to be bound. The seal makes it an enforceable promise. Pg. 681 Aller v. Aller, Wagner v. Lectrox Formalities show an intent to be bound (ex. The seal, The Uniform Written Act is also an example of showing intent to be bound outside of using the bargain theory). Nominal Consideration Page 693 a. Consideration need to be sufficient to be found to support a promise b. Nominal considerations are binding with respect to options contracts, 87 pg 696, but are not recognized in attempts to make gifts enforceable, 71, pg 696, A contract will be vitiated for lack of consideration where the consideration given by one party is only nominal and intended to be so. Has to be a real bargain, cannot be a pretense of a bargain pp. 693695 Schnell v. Nell, Acceptance of recital of nominal consideration ($1 paid in hand plus other good and valuable consideration) is adequate to bind the offeror It is the existence of a bargain that matters, not whether the bargain is equal or unequal from the standpoint of an objective observer False Recitals Pg 698 False Recital is a nominal exchange that is not actually exchanged; those dont work under Section 71, exception being Section 87. False Recital is the token but it is not actually exchanged. The recital of a one dollar consideration for an option contract gives rise to an implied promise to pay which can be enforced by the other party. Option Ks can be held open with a nominal or false recital, like $1, a recital is evidence that consideration is given in an option K pp. 698 Smith v. Wheeler, 87 Written Expression of Intention to be Bound Pg 700 Written Obligations Act=A written release or promise hereafter made and signed by the person releasing or promising shat not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound. a. Even though Modern view says enforceable contracts need mutual assent and consideration, this acts purpose is to enforce non-bargained for promises. b. Uniform Written Obligations Act does not apply to Commercial Transactions, just to familial type transactions. Cannot use Lack of Consideration as a defense in Written Obligation cases, operates just like a sealed instrument.

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c. This essentially says that the contract can still be enforced even though there is noconsideration as long as in the actual contract the person makes the written promise and also explicitly states in writing that they intend to be legally bound. pp.700 Thomas v. First National Bank of Scranton, pp. 712 Federal Deposit Insur. Corp. v. Barness, d. The absence of consideration does not render a separation agreement unenforceable where the agreement provides that the promisor intends to be legally bound. p. 711 Kay v. Kay e. The Uniform Written Obligations Act was intended to replace the seal that is why to fall under that act, the terms must specifically say the signer intends to be legally bound. If it does not then it will not fall under this Act. p. 713 First Federal Savings and Loan Assn v. Reggie Concerns about the Uniform Written Obligations Act It will be used as a defense against bargained for exchange. Concerns about Form over Substance (just sign here, dont look at the restsame problem with seal) Does not address process problems (bargain-for theory does) Lack of Intention to be Legally Bound Pg 713 If there is no intention to be legally bound then the K is not enforceable, there has to be a reasonal belief that the party intended to be bound Can infer intent to be bound if no disclaimer or if not prominently displayed (inconspicuous) if you dont want to be bound you need to explicitly state that. A disclaimer can overcome an intent to be bound An employee handbook does not constitute a valid contract if the employer has clearly and conspicuously disclaimed intent to enter into a contract limiting the right to discharge employees. pp. 713-715 Ferrera c. A.C. Nielsen With Formalities, you can try to show your intent but these formalities may not always be recognized

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Restatement & UCC SectionsUCC 2-205 - FIRM OFFERS (Page 685) An offer by a merchant to buy or sell goods in signed writing which by its terms gives assurances that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such a period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separatenly signed by the offeror. 88 Guarantee (Page 700) A promise to be a surety is binding if the promise is in writing and signed by the promisor and recites a purported consideration. 87: option contract (i.e., bilateral promise) Page 700 an offer is binding as an option contract if it: (1) is in writing and is signed; recites the purported consideration, and proposes an exchange on fair terms within a reasonable time; (2) an offer which the offeror should reasonably expect to induce action or forbearance of a substantial character by the offeror before acceptance and which does induce such action or forbearance is binding as an option contract tot he extent necessary to avoid injustice. 95: Requirement for sealed contract or written contract or instrument (1) In the absence of statute a promise is binding without consideration if (a) it is in writing and sealed; and (b) the document containing the promise is delivered; and (c) the promisor and promisee are named in the document or so described as to be capable of identification when it is delivered. (2) When a statute provides in effect that a written contract or instrument is binding without consideration or that lack of consideration is an affirmative defense to an action on a written contract or instrument, in order to be subject to the statute a promise must either (a) be expressed in a document signed or otherwise assented to by the promisor and delivered; or (b) be expressed in a writing or writings to which both promisor and promisee manifest assent.

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IV. THE DOCTRINE OF PROMISSORY ESTOPPELThe Development of Promissory Estoppel as a Substitute for Consideration Promissory estoppel serves as a consideration substitute in contract law that renders certain promises otherwise lacking in consideration binding and enforceable. In such cases, the promisees reliance is treated as an independent and sufficient basis for enforcing the promise. Promissory estoppel can be viewed as a legal device that prohibits the promissor from denying the existence of a contract for lack of consideration. 1) Basics a. an offensive action of asking for compensation for detrimental reliance on a promise even if there was no consideration b. When there is a promise on one side and a cost but not a return promise or a performance on the other c. Treats the promisees reliance as an independent and sufficient basis for enforcement d. Remedy is usually limited than the customary amount of expectation damages 2) Equitable Estoppel a. A Doctrine that precludes a person from asserting a right to which he or she was entitled due to his or her action, conduct or failing to act, causing another party to justifiably rely on such conduct to his or her detriment b. Patent example you have a patent and notice a competitor is infringing upon it but isnt eating up a lot of your market share so you allow them to continue but then years later when they become a very big company you try to sue them, the court will Estop you from continuing because you should have stopped the small competitor when you were first aware they were infringing as you had grounds. c. Promissory estoppel requires a promise, equitable estoppel requires a misrepresentation of material facts 3) Measure of damages a. according to doctrine, court can only give reliance damages because PE is built around notion of reliance b. restitution may be available if he has conferred something of value to D c. modern trend towards awarding expectation damages unless lost profits involved are too speculative pr uncertain d. expectation damages more likely in cases where promisor acted in bad faith 4) Essential elements a. there is an inducement by promisor reasonably expected to produce an action or reliance (reasonably foreseeable to the promisor that promisee would rely on the promise); and b. action or reliance actually takes place (actual reliance in a reasonable way); and c. that action leads to some detriment on the part of the promisee; and d. injustice cannot be avoided without enforcement of the promise. 5) Family promises a. inducement is a value conferred in return for promise b. inducement is a step in the bargaining process c. When the payee changes her position to her disadvantage, in reliance on a promise, a right of action on the promise arises. Rickets v. Scothorn (Page 721) 6) Promises to Convey Land: a. Where the promisee takes possession of the land and makes improvements upon it, with the knowledge and assent of the promisor b. A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the promise. Greiner v. Greiner (Page 728) c. If reliance is serious enough dont need formality; if formality is serious enough dont need reliance, dont need consideration if either of the two are there.

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d. Promises to convey land may be subject to specific performance. Since each piece of land is unique, equity demands that a conveyance be treated as if the decedent had made a gift. 7) Charitable Subscriptions: cannot revoke charitable donations because the charity relies on having the funds a. The only way to avoid paying charitable subscriptions is giving specific conditions and then if the party does not meet that specific conditions 8) Promises to Pension a. Pensions given by companies or gratuitious promises will be enforceable without consideration as long as detrimental reliance can be shown. pp. 736-742 Feinberg v. Pfeiffer Co., b. A promise that the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and that does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. 9) Construction Bids Pg 742 a. By virtue of the reasonably foreseeable inducement of an action or forbearance of a substantial character on the part of the offeree before acceptance [Restatement 87(2)], e.g., where a general contractor receives bids from a subcontractor and relies on such bid in preparing its own bid for a project b. The doctrine of promissory estoppel shall not be applied in cases where there is an offer for exchange as the offer is not intended to become a promise until a consideration is received. James Baird Co. v. Gimbel Bros., Inc., (Page 742) c. An offer that the promissor should reasonably expect to induce action or forbearance of a definite and substantial character by the promisee, and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcing the promise. d. Reasonable reliance on a promise binds an offeror even if there is no other consideration. Drennan v. Star Paving Co. (Page 745) e. Firm offers can sometimes be implied promises to hold an offer open and have received criticism on the grounds that one party (the subcontractor) is bound while the other party (the general contractor) is not. Nonetheless, the modern trend is to enforce such promises. 10) Extensive contract negotiations in which one party gradually increasingly commits itself in reliance on the negotiations resulting in a binding contract, the other party negotiates through a low ranking representative who lacks full authority to seal the agreement Promissory Estoppel as an Alternative to Breach of Contract Not trying to enforce the contract, they are trying to amend the wrong done to the harmed party, no contract, but trying to find a way to enforce the promise Preliminary contract negotiations where one party encourages the other to engage in activities that would facilitate entering into a contract but which would be detrimental to such party if the transaction is not in fact consummated, e.g., relocation, purchase of property, or borrowing money [see, e.g.,pg 752 Hoffman v. Red Owl Stores] A promise that the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee, and which does induce such action, is binding if injustice can be avoided only by enforcement of the promise. Even if the court finds that there is no contract, they can still award damages through promissory estopell or they can estop a party from denying a promise. The development of the law of promissory estoppels is an attempt by the courts to keep remedies abreast of increased moral consciousness of honesty and fair representations in all business dealings. Justice and fair dealing require that one who by his language or conduct leads another to do what he would not otherwise have done, shall not subject such person to loss or injury by disappointing the expectations upon which he acted. Goodman v. Dicker (Page 749) Usually awarded expectation, but can be awarded the other 2 forms of damages. Limits of Promissory Estoppel Promise Pg 772

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The action or forbearance induced by the promisor must be definite and substantial in character in order to invoke the doctrine of promissory estoppel to enforce a promise. There needs to be an actual promise, not just an option that a person will be eligible for through their performance. pp. 772-775 Blatt v. Univ. of Southern California Action in reliance upon a supposed promise creates no obligation on an individual or corporation whose only promise is wholly illusory. pp. 775-778 Spooner v. Reserve Life Insur. Co., There also needs to be a real detriment faced, if the action taken to fulfill the alleged promise benefited the party then there is no detriment to the reliance. pp. 775-778 Spooner v. Reserve Life Insur. Co., Needs to be an actual promise, not puffery. pp. 779- 787 Ypsilanti v. General Motors Reasonable Reliance Pg 792 In order for the court to enforce a promise made under the Doctrine of Promissory Estoppel, the plaintiff must demonstrate that the injury suffered was substantial economically, that such loss was foreseeable to the promisor, and that the plaintiff reasonably and justifiably relied to his detriment.. pp. 792-795 Alden v. Presley

Restatement Sections 90 Promise Reasonably Inducing Action or Forbearance (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. Remedy: The available remedy is usually limited to only that which is necessary to avoid injustice. 75: Consideration for a promise Consideration for a promise is: An act other than a promise, or A forbearance, or The creation, modification or destruction of a legal relation, or A return promise, 87 OPTION CONTRACT (Page 749) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

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V. CONDITIONSThe Effect of a Condition 1) Condition=an event which must occur before a particular performance is due is called a condition of that performance. a. Express Condition A certain fact may operate as a condition, because the parties intended that it should and said so in words. b. Implied in Fact Condition The parties intended that it should, such intention being reasonably inferable from conduct other than words. c. Constructive Condition (Implied in law) Court believes that the parties would have intended it to operate as such if they had thought about it at all, or because the court believes that by reason of the mores of the time justice requires that it should so operate. 2) Condition precedent=the happening of an uncertain occurrence, which is necessary before a particular right or interest may be obtained or an action performed. 3) A condition which is an act or event other than a lapse of time must be literally complied with. pp. 857 Internatio-Rotterdam v. River Brand Rice Mills 4) Some general guidelines for conditions: a. Forfeitures are frowned upon as a matter of law. b. Insurance policies are construed against the insurer. c. Contract provisions will not be construed as conditions precedent unless the contract explicitly says so. What Events are Conditions? Is the event a condition or a promise, or both? Where it is doubtful whether words create a promise or an express condition, they are usually interpreted as creating a promise, thereby avoiding a forfeiture. pp. 862 Howard v. Federal Crop Insur. Corp. A condition is distinguished from a promise in that it creates no right or duty in and of itself but is merely a limiting or modifying factor, if the condition is not fulfilled, the right to enforce the contract does not come into existence. A condition is an act or event, other than a lapse of time, which affects a duty to render a promised performance that is specified in a contract. A condition may be viewed as a qualification placed upon a promise. It discharges a duty and makes is not an absolute requirement by allowing for the condition to be waived A promise or duty is absolute or unconditional when it does not depend on any external events. Nothing but a lapse of time is necessary to make its performance due. When the time for performance of an unconditional promise arrives, immediate performance is due. A dependent or conditional promise is not effective until the occurrence of some external event that the parties have specified. An implied condition is one that the parties should have reasonably comprehended to be part of the contract because of its presence by implication. Is the event a condition or a promise, or neither? Pg 866 Time can never be a condition A condition means an event not certain to occur; the only thing that is certain to occur is the passage of time The question whether a stipulation in K constitutes a condition precedent is one of construction dependent on the intent of the parties. pp. 866 Chirichella v. Erwin A condition precedent has been defined as a fact, other than mere lapse of time, which, unless excused, must exist or occur before a duty of immediate performance of a promise arises. Although no particular form of words is necessary to create an express condition, words or phrases like if and provided that, are commonly used to indicate that performance has expressly been made conditional. Time can be an essential term in the agreement which can result in breach if not met but it is not a condition. Ex: 30 day notice, notice is the condition not 30 days Avoiding Conditions: The operation of a condition is sometimes harsh, therefore the courts have developed doctrines to avoid the effect of a condition:

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Waiver and Estoppel Waiver is often inexactly defined as the voluntary relinquishment of a known right. When the waiver is reinforced by reliance, enforcement is often said to rest on estoppel. A condition in a contract may be waived, but no waiver is implied by mere acceptance of the proffered performance. pp. 868 Clark v. West No formal agreement or additional consideration is required to waive a condition precedent to performance. Modification of a promise typically requires a new consideration, while the waiver of a condition does not The doctrine of waiver is to relieve against forfeiture. It requires no consideration for a waiver, nor any prejudice or injury to the other party. Estoppel requires reliance, both in equitable and promissory estoppel there is reliance. Waiver doesnt require reliance, it is unilateral, but Estoppel requires both parties to do something. Waiver is when there is a condition that is supposed to be met, but the person imposing the waiver can voluntarily waive the condition. To waive the condition, it does not require a modification. The doctrine of waiver is distinct from doctrine of equitable estoppel A waiver is the voluntary abandonment or relinquishment by a party of some right or advantage. The doctrine of equitable estoppel, or estoppel in pais, is that a party may be precluded by his acts from asserting a right to the detriment of another party who, entitled to rely on such conduct, has acted upon it. Excuse to prevent forfeiture Court may excuse the nonoccurrence of a non-material condition where forfeiture would otherwise result, unless the conditioning event was a matter of the parties exchange. Court tries to prevent forfeiture of rights as much as possible.

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Restatement Sections 227 Standards Governing Conditions p. 866 (1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk. (2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or (c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control. (3) In case of doubt, an interpretation under which an event is a condition of an obligor's duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it has become a duty to perform. 229 Excuse of a Condition to Avoid Forfeiture p. 871 To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange. 261. Interpretation of Doubtful Words as Promise or Condition (Page 864) Where it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise; but the same words may sometimes mean that one party promises a performance and that the other partys promise is conditional on that promise. 84 PROMISE TO PERFORM A DUTY IN SPITE OF NON-OCCURRENCE OF A CONDITION (Page 871) 1. Except as stated in Subsection (2), a promise to perform all or part of a conditional duty under an antecedent contract in spite of the non-occurrence of the condition is binding, whether the promise is made before or after the time for the condition to occur, unless a. Occurrence of the condition was a material part of the agreed exchange for the performance of the duty and the promisee was under no duty that it occur; or b. Uncertainty of the occurrence of the condition was an element of the risk assumed by the promisor. 2. If such a promise is made before the time for the occurrence of the condition has expired and the condition is within the control of the promisee or a beneficiary, the promisor can make his duty again subject to the condition by notifying the promisee or beneficiary of his intention to do so if a. The notification is received while there is still a reasonable time to cause the condition to occur under the antecedent terms or an extension given by the promisor; and b. Reinstatement of the requirement of the condition is not unjust because of a material change of position by the promisee or beneficiary; and c. The promise is not binding apart from the rule stated in Subsection (1). UCC 2-209 MODIFICATION, RESCISSION AND WAIVER (Page 872) 1. An agreement modifying a contract within this Article needs no consideration to be binding. 2. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. 3. The requirements of the statute of Frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions. 4. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. 5. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term

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waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

VI. BREACH (Pg. 879)In the absence of an express condition, courts have developed a number of doctrines that may justify one party unilaterally putting an end to the contract: Constructive Conditions (conditions that are implied in law) Anticipatory Repudiation Material Breach Constructive Conditions Pg. 879 Condition Precedent The happening of an uncertain occurrence, which is necessary before a particular right or interest may be obtained or an action performed. Constructive Conditions: Condition not expressly stated that is imposed by the court when filling gaps, the breach of which can relieve the other party of its duties. See 226. Is backward-looking inquiry into presumed intentions at time of formation, as distinguished from material breach, which is forward-looking inquiry into the likelihood of performance occurring in the future. Breach of a covenant by one party to a contract relieves the other partys obligation to perform another covenant which is dependent thereon, the performance of the first covenant being an implied condition precedent to the duty to perform the second covenant. Kingston v. Preston (Page 879) 1) There are three kinds of covenants: a. Mutual and independent either party may recover damages from the other, for the injury he may have received by a breach of the covenants in his favor, and where it is no excuse for the defendant, to allege a breach of the covenants on the part of the plaintiff. Either party can sue for failure to perform and it is no excuse to say the other party did not perform. The plaintiff here is trying to assert this. b. Conditions and dependent the performance of one depends on the prior performance of another, and, therefore, till this prior condition is performed, the other party is not liable to an action on his covenant. One partys performance is conditioned on the prior performance of the other party. The other party is not liable until the condition is met. c. Mutual Conditions to be performed at the same time if one party is ready, and offered, to perform his part, and the other neglected, or refused to perform his, he who was ready, and offered, has fulfilled his engagement, and may maintain an action for the default of the other. Usually for sales of goods and land. Where two concurrent acts are to be done, the party who sues the other for non-performance must aver that he had performed, or was ready to perform, his part of the contract. Morton v. Lamb (Page 882) Constructive conditions are allowing one party not to perform, rather than suing for damages, they can just not perform. (Car for sale, $25k, and buyer does not bring the money, so the seller rather than giving the car and suing for damages, just doesnt perform, just doesnt give the car). Where there is substantial performance with defects of trivial or inappreciable importance, the measure of damage is not the cost of replacement but the difference in value. pp. 873 J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc., Prospective Nonperformance Anticipatory Repudiation Pg 892 Anticipatory repudiation occurs when one party cancels a contract if, before the time of performance arrives, the other party indicates that they do not intend to perform and intends to repudiate contract. A party has 2 interests in having a contract performed: Future Performance more like anticipatory repudiation, questioning if the other party to the contract really will perform due to things recently discovered about the party and their situation, can demand adequate assurances (in writing) in this situation. The interest in future performance has been harmed, can sue immediately and mitigate. But there must be some type of manifestation that they will not perform to rise to the level of anticipatory repudiation. Present Performance more related to material breach, the current performance is not necessarily what you thought it would be, can also require adequate assurances (in writing) in this situation.

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Allows the injured party to go ahead and mitigate before the due date of performance with the original party that already advised in advance they will not perform. This is just like constructive condition, allowing a party not to have to perform but further because it further allows the party to mitigate also and sell to someone else. If you have already performed and all you are waiting for is the cash for your delivery then you have to wait for the date specified in the K to sue for breach. If it is an exchange of goods or services and there is anticipation of repudiation then you can mitigate. When either party repudiates a contract with respect to performance not yet due..., the aggrieved party may: await performance; resort to remedy for breach; in either case, suspend his own performance. (immediate action, no need to wait for date of performance to arrive, unless only money left in exchange) The doctrine of anticipatory repudiation gives rise to two dangers: Concerns the vulnerability of the party who accuses the other of repudiation concerns the potential misuse of the doctrine by a party seeking to justify its breach. (Harrell v. Sea Colony) A mere request to cancel a contract does not constitute anticipatory breach thereof. Harrell v. Sea Colony, Inc. (Page 895) Adequate Assurances of Performance Pg. 901 Adequate assurance occurs when one party wishes to withhold performance because he suspects, for some reason, which the other party may not perform. When reasonable grounds for insecurity arise with respect to the performance of a party under a commercial K, the other party may in writing demand adequate assurance of due performance and if commercially reasonable may suspend any performance for which he has not received the agreed return. Scott v. Crown (Page 901) If a party is warranted in demanding adequate assurances of performance, therefore, and none is forthcoming, the requesting party may treat the failure to respond as a repudiation of the contract. The rule is closely related to the duty of good faith and fair dealing present in every contract. Whether a party has a reasonable belief that the other party cannot perform is determined by the totality of the circumstances surrounding the agreement. When you ask for assurance, you cant modify the contract or its terms at all UCC 2-609(1) states that a failure to provide adequate assurances within a reasonable time not exceeding thirty days after receipt of a justified demand for such assurances constitutes repudiation. Material Breach Pg 905 In deciding whether the promisee can unilaterally put an end to the contract, instead of seeking to find a constructive condition, courts sometimes try to determine whether a particular breach by the promisor was material. Only if breach is material does it relieve the non-breaching party of its duty to perform under the contract. (i.e. if you have substantially performed, theres no material breach, if you have materially breached, you have not substantially performed) In determining whether a breach is material, a court is no longer interested solely in the parties presumed intentions at the time of formation. It is now also concerned with whether the nature of the breach jeopardized the promisees confidence in receiving additional performances in the future. If the breach is not material, the non-breaching party still has to perform but they can sue for damages. If its not a material breach, than it is substantial performance and you can get damages (cost of completion or loss of value). Is forward-looking inquiry into the likelihood of performance occurring in the future, as distinguished from constructive condition, which is a backward-looking inquiry into presumed intentions at time of formation. A rescission of a contract for breach by the other party must relate to a vital provision going to the very substance or root of the agreement, and cannot relate to a subordinate or incidental matter. B & B Equipment Co. v. Bowen (Page 907) The ratio of the part performed to the part to be performed is an important question in determining material breach. Lane Enterprises, Inc. v. L.B. Foster Co. (Page 910) The Perfect Tender Rule

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Definition: qualified in that the UCC preserves the perfect tender rule to the extent of permitting a buyer to reject goods for any non-conformity. But that rejection does not automatically terminate the contract. Seller may still effect a cure and preclude unfair rejection and cancellation by the buyer. See UCC 2-608. When there is a material breach, party in breach can cure within a specific time period (insignificant delay) If a seller delivers nonconforming goods, buyer can (2-601): Reject goods, within a reasonable time with notification (2-602) if time of performance has not expired, seller may cure (2-508(1)) if seller had reason to believe goods were acceptable, he may have a reasonable time to substitute a conforming tender Accept, thereby signifying that he would retain despite non-conformity, by not rejecting or by acting in a way inconsistent with sellers ownership (2-606) buyer can no longer reject (2-607(2)) but buyer may revoke his acceptance within a reasonable time after discovery of non-conformity if it substantially impairs its value but goods must have been accepted (2-608) on the reasonable assumption that its non-conformity would be cured, and it has not been seasonally cured or without discovery of the non-conformity if the acceptance was induced either by the difficulty of discovery before acceptance or by the sellers assurances. revocation must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods Cost of Completion v. Diminuiation in Value Pg. 929 Cost of performance and diminution of value are both ways of calculating expectation damages, i.e. both put injured party where they would have been had contract been performed Where a contract provision breached is merely incidental to the main purpose, and where the economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, the damages which lessor may recover are limited to the diminution in value resulting to the premises because of the nonperformance. Peevyhouse v. Garland Coal Mining Co. (Page 934) Owner entitled to money which will permit him to complete, unless cost of completion is grossly and unfairly out of proportion to good to be attained when that is true, the measure is the difference in value. When there is a breach, cost of completion is normal measure of damages but when substantial performance and cost of performance exceeds loss in market value, thats when must determine what we are going to pay out. Triggers Economic/commercial intent diminution of value Premium on performance cost of performance Bad faith cost of performance Economic waste diminution of value Contract for sale of goods diminution of value Disproportionate to injury 348(2)(b) diminution of value Where a contractor willfully and fraudulently varies from the terms of a construction contract, he cannot sue and have the benefit of the equitable doctrine of substantial performance. Groves v. John Wunder Co. (Page 929) Restatement & UCC Sections 348 Alternatives to Loss in Value of Performance p. 940 (2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on (a) the diminution in the market price of the property caused by the breach, or (b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him

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[Comment c: in construction cost of completion usually less than loss in value, which is hard to prove even if greater, better to give a small windfall than undercompensate, but if much greater, should use difference in market price and property value] 2-601: Buyers rights on improper delivery ... if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole (b) accept the whole (c) accept any commercial unit or units and reject the rest ties into 1-106, which defines conforming goods to be in compliance with contract obligations 2-508: Cure by seller of improper tender or delivery, replacement (1) where any tender ... is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. comment 2 - reasonable grounds for belief required to avoid surprise to seller comment 2 - form contract - if term out of line with normal usage or prior course of dealing is not called to sellers attention, then seller might have reasonable grounds to believe that goods tendered would have been accepted 2-601. BUYER'S RIGHTS ON IMPROPER DELIVERY (Page 925-928) Subject to Sections 2-504 and 2-612, and unless otherwise agreed under Sections 2-718 and 2719, if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may: (a) reject the whole; (b) accept the whole; or (c) accept any commercial unit or units and reject the rest. 2-609: Right to adequate assurance of performance Pg. 904 (1) with reasonable grounds for insecurity arise party demands adequate assurance in writing and may, if commercially reasonable, suspend performance for which he has not received agreed upon returns (2) reasonableness for grounds of insecurity determined according to commercial standards (3) acceptance of improper delivery doesnt waive right to demand adequate assurance in future (4) if no assurance after 30 days, contract is repudiated. UCC 2-610 ANTICIPATORY REPUDIATION (Page 900) When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other (interest in future performance), the aggrieved party may For a commercially reasonable time await performance by the repudiating party; or Resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latters performance and has urged retraction; and In either case suspend his own performance or proceed in accordance with the provisions of the Article on the sellers right to identify goods to the contract notwithstanding breach or to salvage unfinished goods. (2-704) UCC 2-611 RETRACTION OF ANTICIPATORY REPUDIATION (Page 900) Until the repudiating partys next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (2-609 Adequate Assurances). Retracting reinstates the repudiating partys rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

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VII. LACK OF CONTRACTUAL CAPACITYRebutting the Prima Facie Case of Contract Certain classes of people have only a limited power to contract Those who have limited power to contract (e.g. infants, mentally incapacitated people) can enforce contracts they enter into, but cannot have those contracts enforced against them The legal and physical ability to enter into a contractual agreement, typically characterized by the ability to understand the consequences of ones actions. Deficiencies in Contractual Capacity Incompetence Contracts of mentally incompetent people are voidable. Normally the question is whether the mind is so affected as to render the person wholly and absolutely incompetent to comprehend and understand the nature of the transaction. However, these standards fail to take into account those people who are unable to control their conduct due to mental illness even though their cognitive ability seems unimpaired, as in the case of Mrs. Ortelere. pp. 958--966 Ortelere v. Teachers Retirement Board of New York Infancy Public policy issue: we do not want adults taking advantage of minors;we want kids to go home if they can and if no one will contract w/them they will go home Contracts for necessities are enforceable but recipients can be forced to pay restitution. Minors must give back what was received (physical objects, regardless of if it is a necessity); precludes recovery for services. Necessaries are those things that are requisite for the maintenance of existence, and depend on the social position and situation in life of the infant and his parents. The usual rule is that the other parties knowledge is irrelevant. Childs misrepresentation of age is usually irrelevant (but varies), but many of the states will allow tort case against the child for the misrepresentation pp. 967-974 Webster Street Partnership, Ltd. v. Sheridan, 368 N.W.2d 439 (1985) Emancipated minors Emancipated Minors do not have the capacity to K; they still need a guardian to K on their behalf because they are still a minor, still underage. However, they are responsible for necessities. If a minor willingly misrepresents age, court may: Require greater restitution Allow party who was lied to to bring a tort action of misrepresentation against infant who is still allowed to disaffirm; or Allow contract avoidance on grounds of fraud

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Restatements Sections 12. Capacity to Contract 1. No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contact may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances. 2. A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is a. Under guardianship, or b. An infant, or c. Mentally ill or defective, or d. Intoxicated 15. Mental Illness or Defect 1. A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect a. He is unable to understand in a reasonable manner the nature and consequences of the transaction, or b. He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. 2. Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires. 14. Infants Unless a statue provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the persons eighteenth birthday.

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VII. OBTAINING ASSENT BY IMPROPER MEANSA. Misrepresentation Fraud: If one party induces another to rely on a promise based on false information that is considered fraud. A party is prohibited by law to supply false information if he/she has reason to believe the other party will rely on it. an assertion that is not in accord with the facts that induces assent an innocent misrepresentation can constitute voidable contract - 162 Where one party has superior knowledge, statements made within the area of such knowledge may be treated as statements of fact. Vokes v. Arthur Murray, Inc. (Page 991) This is a three part test: A misrepresentation that is fraudulent/material (intentional, known to be false, not confident in truth, no basis for assertion) that is reasonably relied upon and induces assent and reliance is justified under this court only dishonest opinions are fraudulent misrepresentations pp. 988-991 Byers v. Federal Land Co Usually, opinions are not actionable except in cases where: there is a fiduciary relationship between parties or where there has been some artifice or trick employed by representor or where parties do not in general deal @ arms length or where the representee does not have equal opportunity to become apprised of the truth or falsity of the fact represented Voidable a statement of a party having superior knowledge may be regarded as a statement of fact although it would be considered as opinion if parties were dealing on equal terms. equitable fraud does not have the knowledge requirement, material misrepresentation defense in contracts not torts legal fraud fraudulent misrepresentation defense in both torts and contracts B. Duress fear of loss of life, loss of family member, mayhem, imprisonment duress and pre-existing duty rule do much the same work in the area of contract modification and whether they will be enforced a contract is voidable on the grounds of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will issues regarding free will and wrongful threat A transaction is voidable because of duress only when one of the parties thereto is forced to act in a manner inconsistent with his own free will. Hackley v. Headley - Page 999 A contract modification is voidable on the ground of duress when the party claiming duress establishes that its agreement to the modification was obtained by means of a wrongful threat from the other party which precluded the first partys exercise of free will. Austin Instrument v. Loral Corp. (Page 1004) absence of free will in practical terms means an inadequate market or inadequate legal remedy if there is a market and the party claiming duress had an option to turn to the market and did not, the duress claim is going to fail e.g. a threat, even if improper, does not amount to duress so long as the victim has a reasonable alternative to succumbing and fails to take advantage of it UCC 2-209 provides that an agreement modifying a contract for the sale of goods does not require additional consideration in order to be enforceable as long as it is executed in good faith. United States v. Progressive Enterprises (Page 1008) most frequently alleged form of duress in contract litigation occurs when one part threatens to breach the contract unless it is modified in his favor, or a new one drawn up remedy for contract voided on claim of duress is restitution

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Test for duress is: Threat made or pressure exerted that deprives V of free will such that V acts contrary to his inclination and best interest and threat is wrongful (illegal, immoral, or exerted in bad faith) If duress exists, V is relieved of duty to perform. C. Undue Influence if case doesnt fit all the requirements of duress, it may still be argued as voidable under undue influence or unconscionability Can be grounds for voiding a contract where a non-mentally ill partys capacity to negotiate is diminished and the other party with knowledge of this diminished capacity takes advantage of it. Indicators of undue influence: pp. 1012-1023 Odorizzi v. Bloomfield School District Discussion of the deal at an unusual or inappropriate time Consummation of the transaction in an unusual place Insistent demand that the business be finished at once Extreme emphasis on untoward consequences of delay Use of multiple persuaders by dominant party on one servient party Absence of third party advisors to the servient party Statements that there is no time to consult financial or legal advisors. Distinguished from duress because in undue influence, changes persons will, whereas in duress, someone is forced to do something against their will D. Unconscionability Pg 1024 1) Fallback position when contract seems unfair and no other doctrine gets the unduly burdened party out from under their obligation 2) The defense of unconscionability to action on a contract is judicially recognized. Williams v. WalkerThomas Furniture Co. (Page 1024) 3) Where, in light of the general commercial background of a particular case, it appears that gross inequality of bargaining power between the parties has led to the formation of a contract on terms to which one party has had no meaningful choice, a court should refuse to enforce such a contract on the ground that is unconscionable. Wille v. Southwestern Bell Telephone Company (Page 1033) 4) A licensing agreement is not procedurally unconscionable, nor does it fail to provide fair notice of its contents, merely because it is contained as part of a license in a pop-up window on an Internet site. In re RealNetworks (Page 1035) 5) Not a well defined doctrine by any stretch of the imagination 6) Unconscionability is measured from the time of the contracting 7) Virtually the only successful use of unconscionability has been by consumers in contracts of adhesion, as the sophistication of the parties often plays a major role in the judges determination as to whether there was unconscionability 8) Two elements of unconsionability: a. Procedural refers to situations in which one party was induced to enter into the contract without having any meaningful choice i) : when a party of little bargaining power, and hence of little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms. Unequal bargaining power procedural unconscionability Comment d to 208, p1137 lists factors that point to procedural unconscionability Belief by the stronger party that there is no reasonable probability that the weaker party will fully perform the contract Knowledge of the stronger party that the weaker party will be unable to receive substantial benefit from the contract Knowledge of the stronger party that the weaker party is unable reasonably to protect his interests by reason of physical or mental infirmities, ignorance, illiteracy, or inability to understand the language of the agreement factors:

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did party know what they were getting into unfair surprise fine print, complex convoluted language lack of opportunity to study contract lack of understanding of particular party disparity of sophistication language difficulties voluntariness of the deal are terms negotiable? Different kinds of market pressures/timing requirements b. Substantive oppression, a clause is substantively unconscionable if it is unduly unfair and one-sided. Most often excessive price, or an unfair modification of either the sellers or buyers remedies. i) In determining reasonableness of fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. Terms unreasonably favorable to one party substantive unconscionability an exception to the rule that courts do not look at the adequacy of consideration factors: commercials terms reasonable or one sided price/costs profits to one party typical commercial practices 9) Be aware of the fundamental tension between unconscionability doctrine and the basic principal of freedom of contract Factors to consider: gross inequality of bargaining power terms unreasonably favoring the stronger party no meaningful choice for the weaker party no real alternative so one-sided at the time the contract was made highly technical language does the case also raise/allude to issues of duress or fraud?

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UCC & Restatement Sections 2-302: Unconscionable contract or clause if court finds contract is unconscionable, it may: 2) refuse to enforce the contract; 3) enforce the remainder of the contract w/o the unconscionable clause; 4) limit the application of the unconscionable clause. 174: when duress by physical compulsion prevents formation of a contract: If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent. 175: when duress by threat makes a contract voidable (1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. (2) If a party's manifestation of assent in induced by the one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction. 176: when a threat is improper (1) a threat is improper if (a) what is threatened is a crime or tort, or the threat itself is such if it got the property (b) what is threatened is a criminal prosecution (c) what is threatened is the use of the civil process in bad faith (d) the threat is a breach of duty of good faith and fair dealing under a contract (2) a threat is improper if the resulting exchange is not and fair terms, and (a) the threatened act would harm the recipient and would not significantly benefit the actor (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by party making the threat (c) what is threatened is otherwise a use of power for illegitimate ends 177, p.1129: When undue influence makes a contract voidable (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare (2) If a partys manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim (3) If a partys manifestation of assent is induced by a 3rd party, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.

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IX FAILURE OF BASIC ASSUMPTIONMistakes of Present Existing Facts 1) Mutual Mistake Pg 1049: The adversely affected party may void a contract based on mutual mistake made at the time of the contract formation where: a. the mistake concerned a basic assumption on which the contract made; b. the mistake materially affects the agreement; and c. the adversely affected party does not bear the risk of the mistake. [Restatement 152] 2) Means that both parties are wrong about the same fact 3) Mistake Defined: 151 a mistake is a belief that is not in accord with the facts as they exist at the time the K was made 4) Rescission The cancelling of an agreement and the return of the parties to their positions prior to the formation of the contract. 5) Mistakes in integration the remedy is reformation, they go back and make the contract what it was supposed to be in the first place. a. Mistake: both said or thought the same thing but it was wrong, this is a contract defense, but there is still a K, the parties did agree. b. With lack of capacity it is only that singular party that can get out based on the situation, with mutual mistake both could potentially get out just need to figure out who. 6) Misunderstanding: objectively ambiguous term, like the Peirless ships case, this is a mutual assent issue it means that there is no K 7) Where the parties to a contract for the sale of personal property are mutually mistaken as to a material fact which affects the substance of the whole consideration, the contract is unenforceable. Sherwood v. Walker (Page 1049) 8) A party may not seek to modify an agreement based on mutual mistake as to the quantity or quality of the goods being exchanged, absent a guaranty in the contracts provisions assuring their acceptability. Nester v. Michigan Land & Iron Co. (Page 1059) 9) In the absence of evidence of fraud on the part of the vendee, a mutual mistake as to the nature and value of a thing sold will not afford a basis for rescission of the contract for sale. Wood v. Boynton (Page 1062) 10) Where both parties to a contract are mutually mistaken as to a basic supposition upon which the agreement was predicated, thereby affecting the parties obligations pursuant to the contract, the court may grant the equitable remedy of rescission where the particular circumstances warrant. Lenawee County Board of Health v. Messerly (Page 1065) 11) Risk can be allocated contractually, but you cant do it with undue influence, or duress or lack of capacity. Cant contract around default rules of contracts. With mutual mistake you can contract around it. Can contract around extent of liability/ Failure of basic assumption is like Rose of Aberlone: contracting for something that is at the substance of the agreement, that isnt what they thought it was, mutual mistake and unilaterial mistake are a kind of failure of assumption. 12) Court will not grant rescission once contract is already performed (unlike Sherwood). In absence of fraud or warranty, the value of the property sold, as compared with the price paid, is no ground for a rescission of a sale. Wood v. Boynton, uncut diamond sold for $1. pp. 1062 13) Who bears the risk a. Ct, in mistake of two innocent parties, determines who should bear the risk based on 154. Existence of assumption of risk clauses in contracts determines who bears risk. Pg. 1065 : Lenawee County Board of Health v. Messerly, condo is actually worthless but sold with as is clause Unilateral Mistake and the Duty to Disclose Circumstances where contract is voidable is much narrower, most unilateral cases are subcontracting cases Where a party knows that a mistake has occurred with the other party then they cannot accept, because there is no meeting of the minds. pp. 1074-1076 Tyra v. Cheney, 152 N.W. 835 (1915) Where a party has no knowledge of a mistake and relies on the bid or contract price, then the contract is not void. See promissory estoppel. p. 1076-1077 Drennan v. Star Paving Co., 333 P.2d 757 (Cal. 1958)

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A party is under no obligation to say anything at all, but if they do it cannot be false. If the knowledge is readily available then there is no duty to disclose. pp. 1077-1081 Laidlaw v. Organ, 15 U.S. (2. Wheat.) 178 (1817): Changed Circumstances Impossibility and Impracticability Different from mistake in that the false assumption is about an event in the future from the time of contract. But decision on how to treat silence is essentially identical: discern an implicit term; or impute the best possible term. Impossibility of performance voids contract and excuses both parties from performing, provided that one party is not at fault, or that the risk is not assumed by one party. pp. 1087-1091 Taylor v. Caldwell If, after a contract is formed, circumstances arise which make a party's performance impossible or impracticable, his duty to render that performance is discharged. In order to prove impracticability: an event must have occurred that makes performance, or performance in the contemplated sense, impossible or impracticable; the party seeking relief must not have been at fault in causing the event to occur; non-occurrence of the event must have been a basic assumption upon which the contract was made; and the party seeking relief must not have assumed the risk of the event occurring. [Restatement 261] Applying the same criteria, UCC 2-615 provides that a seller's delayed delivery or non-delivery of goods based on impracticability is not a breach. The proposed revision expands the availability of the impracticability excuse to "performance" and "non-performance" of any and all sellers' contractual duties. The defense of impossibility of performance due to death applies even when the death is the fault of the person obligated to perform the personal services contract. CNA & American Casualty v. Arlyn Phoenix (Page 1092) Events that may make performance of the contract impossible include death or disability of a person indispensable to performance of the contract. pp. 1092-1094 CAN & American Casualty v. Arlyn Phoenix destruction of the subject matter of the contract or other thing necessary for the performance of the contract, provided the destruction is not the fault of the party asserting impossibility failure of a specific thing necessary for performance to come into existence supervening governmental action that makes performance of the contract illegal where performance would subject the party to potential harm shortages or significant price increases in materials due to embargo or war other circumstances that would involve "extreme or unreasonable difficulty, expenses, injury or loss." [Restatement 261, comment d] Frustration of Purposes a. Not directly covered by the UCC Whole purpose of why you bargained is gone, the consideration is gone The change in event must be the purpose of the contract in order to claim frustration of purpose pp. 1099-1104 Krell v. Henry b. Supposed to pay for something but dont want it anymore (not due to market conditions) but it is because something unforeseeable changed. Both parties had the same assumption, but only one party is harmed by it c. If it is the fault of a party then that party bears the risk, and it is breach not frustration of purpose d. Less sympathy for this than impracticability Unanticipated events that reduce the value of performance to the promisee If, after the contract is formed, circumstances arise which substantially frustrate a party's purpose in entering into the contract, the party's remaining duties are discharged, provided: the party seeking discharge was not at fault the nonoccurrence of such event was a basic assumption on which the contract was made; and[ 262-263], the language or the circumstances do not prohibit excuse based on frustration of purpose. [Restatement 265] This principle does relieve a party for mere "economic" or "commercial" frustration, where all that is frustrated is the party's ability to make a profit but not the actual purpose of the contract

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Remedies: if court determines that the promisor is not entitled to relief based on frustration of purpose, than promiser is liable for damages for breach of contract. If successful claim, duty of promisor claiming frustration is discharged. Neither party can recover damages for breach. If either party has partially performed and the contract is divisible, can allow recovery by contract rate If either party has performed and contract is not divisible, can collect via restitution. RESTATEMENT SECTIONS 151 a mistake is a belief that is not in accord with the facts as they exist at the time the K was made 152: when mistake of both parties makes a contract voidable (MUTUAL / BI-LATERAL) (1) if both parties made a faulty assumption which has a material effect on the agreed exchange of performances, the contract is voidable by the affected party unless he bears the risk of the mistake under the rule of 154; (2) to determine whether a mistake has had a material effect on the exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise. 154: when a party bears the risk of a mistake a party bears the risk of a mistake when: (1) the risk is allocated to him by agreement of the parties; (2) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient; (3) the risk is allocated to him by the court on the grounds that it is reasonable to do so. 153. When Mistake of One Party Makes a Contract Voidable (Unilaterial Mistake) Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him IF he does NOT bear the risk of the mistake stated in 154 AND the effect of the mistake is such that enforcement of the contract would be unconscionable, OR the other party had reason to know of the mistake or his fault caused the mistake. 161. When Non-Disclosure is Equivalent to an Assertion A persons non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only: where he knows that the disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material. where he knows that the disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing. where he knows that the disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part. where the other person is entitled to know the fact because of a relation of trust and confidence between them. 160. When Action is Equivalent to an Assertion (Concealment) Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist. 261. Discharge by Supervening Impracticability Where, after a contract is made, a partys performance is made impracticable without his fault by the occurrence of an event, the non-occurrence of which was the basic assumption on which the contract was made, his duty to render that performance is discharged, UNLESS the language or the circumstances indicate to the contrary.

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263. Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for Performance. If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event, the non-occurrence of which was a basic assumption on which the contract was made. UCC 2-613. Casualty to Identified Goods Where the contract requires for its performance goods identified when either party when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buy