Contracts Essay

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for Lon L Fuller and Melvin Aron Eisenberg (American Casebook Series) 5th edition.

A K is a promise or a set of promises for the breach of which the law gives a remedy

Except as otherwise provided, the formation of a K requires a bargain in which there isa consideration

To constitute consideration, a performance of a return promise must be bargained for

A promise which the promisor should reasonably expect to induce action or forbearance 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. The remedy granted for breach may be limited as justice requires

Precludes B from denying in court the truth of statement that B made to A and that A had forseeably relied upon

Consciously prevents the fact finder from determining the real truth about a certain fact, in order to reach a just result

Hetchler v. American Life Insurance Co.

Any event which a promisor (not as an exchange for the happening but as a mere coincidence in time) will perform a promise intended and understood to be gratuitous

The condition may or may not be consideration

R72: Exchange of Promise for Performance

Except as stated in 73(Performance of a legal duty) and 74 (Settlement of Claims) any performance which is bargained for is consideration.

R 79: Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is no additional requirement of:

a. A gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; OR

b. Equivalence in the values exchanged; OR

R175: When Duress by threat makes a K voidable

If a partys manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the K is voidable by the victim

a. What is threatened is a crime or a tort

2. A threat is improper if the resulting exchange is not on fair terms AND

a. the threatened act would harm the recipient and would not significantly benefit the party making the threat, OR

c. what is threatened is otherwise a use of power for illegitimate ends

implied threat not to make the contract unless his terms are accepted is common and not improper

Hard bargaining between experienced adversaries OK

If K dictated by general economic forces even if one party takes advantage of the others adversity

Where, however, one is induced into making the K by some power exercised by the other for illegitimate ends the xaction is suspect

Water CO wont supply water to developer unless he agrees to way out rates

Gross Disparity in the values exchangedmay be sufficient ground, without more, for denying specific performance

If a K or a term thereof is unconscionable at the time the K is made, a ct may refuse to enforce the K, or may enforce the remainder of the K without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result

Gross disparity in the values may corroborate indications of defects in the bargaining process


A bargain is not unconscionable merely because parties are unequal in bargaining position

nor because the inequality results in an allocation of risks to the weaker party

BUTgross inequality of bargaining power, plus terms unreasonably favorable to the stronger party may confirm elements of deception, compulsion, or show the weaker party had

OR did not in fact assent or appear to assent

UCC 2-302. Unconscionable contract or Clause.

(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

1. This section is intended to make it possible for the courts to police explicitly against the contracts or clauses which they find to be unconscionable. In the past such policing has been accomplished by adverse construction of language, by manipulation of the rules of offer and acceptance or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract. This section is intended to allow the court to pass directly on the unconscionability of the contract or particular clause therein and to make a conclusion of law as to its unconscionability. The basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. Subsection (2) makes it clear that it is proper for the court to hear evidence upon these questions. The principle is one of the prevention of oppression and unfair surprise (Cf. Campbell Soup Co. v. Wentz, 172 F.2d 80, 3d Cir. 1948) and not of disturbance of allocation of risks because of superior bargaining power.

Specific Performance or an injunction will be refused if such relief would be unfair because

a. The K was induced by unfair practices, OR

c. The exchange is GROSSLY INADEQUATE

1. Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration UNLESS:

a. The claim or defense is in fact doubtful because of uncertainty as to the facts or the law, OR

b. The forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid

2. The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists

Ex: Executing a quitclaim deed when you are under no duty to do so

Claim with doubtful validityClaim clearly invalid

Honest BeliefEnforceableEnforceable

Dishonest Claim; OR honest claim but A wants guarantee that honest guy B wont claimEnforceable74 (1) Not enforceable74(2) Enforceable if in WRITINGORAL=NOT ENFORCEABLEWRITTEN=ENFORCEABLE

A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless each of the alternative performances would have been consideration if it alone had been bargained for.

UCC 2-306 (2): Output, Requirements and Exclusive Dealings.

(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

2. Under this Article, a contract for output or requirements DOES NOT lack mutuality of obligation since, under this section, the party who will determine quantity is required to operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the trade so that his output or requirements will approximate a reasonably foreseeable figure. Reasonable elasticity in the requirements is expressly envisaged by this section and good faith variations from prior requirements are permitted even when the variation may be such as to result in discontinuance. A shut-down by a requirements buyer for lack of orders might be permissible when a shut-down merely to curtail losses would not. The essential test is whether the party is acting in good faith. Similarly, a sudden expansion of the plant by which requirements are to be measured would not be included within the scope of the contract as made but normal expansion undertaken in good faith would be within the scope of this section. One of the factors in an expansion situation would be whether the market price had risen greatly in a case in which the requirements contract contained a fixed price. Reasonable variation of an extreme sort is exemplified in Southwest Natural Gas Co. v. Oklahoma Portland Cement Co., 102 F.2d 630 (C.C.A.10, 1939). This Article takes no position as to whether a requirements contract is a provable claim in bankruptcy.

3. If an estimate of output or requirements is included in the agreement, no quantity unreasonably disproportionate to it may be tendered or demanded. Any minimum or maximum set by the agreement shows a clear limit on the intended elasticity. In similar fashion, the agreed estimate is to be regarded as a center around which the parties intend the variation to occur.

5. Subsection (2), on exclusive dealing, makes explicit the commercial rule embodied in this Act under which the parties to such contracts are held to have impliedly, even when not expressly, bound themselves to use reasonable diligence as well as good faith in their performance of the contract. Under such contracts the exclusive agent is required, although no express commitment has been made, to use reasonable effort and due diligence in the expansion of the market or the promotion of the product, as the case may be. The principal is expected under such a contract to refrain from supplying any other dealer or agent within the exclusive territory. An exclusive dealing agreement brings into play all of the good faith aspects of the output and requirement problems of subsection (1). It also raises questions of insecurity and right to adequate assurance under this Article.

UCC 2-306 (1): Output, Requirements and Exclusive Dealings.

(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; BUT a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of a bargain

R89: Modification of Executory K p118

A promise modifying a duty under a K not fully performed on either side is binding

a. if the modification is fair and equitable in vie of circumstances not anticipated by the parties when the K was made; OR

b. to the extent provided b statute; OR

c. to the extent that justice requires enforcement in view of material change of position in reliance on the promise

R 89: Modification of Executory K (again)

UCC 2-209 (1): Modification, Rescission and Waiver.

(1) An agreement modifying a contract within this Article needs no consideration to be binding

1. This section seeks to protect and make effective all necessary and desirable modifications of sales contracts without regard to the technicalities which at present hamper such adjustments.

2. Subsection (1) provides that an agreement modifying a sales contract needs no consideration to be binding.

However, modifications made thereunder must meet the test of good faith imposed by this Act. The effective use of bad faith to escape performance on the original contract terms is barred, and the extortion of a “modification” without legitimate commercial reason is ineffective as a violation of the duty of good faith. Nor can a mere technical consideration support a modification made in bad faith.

The test of “good faith” between merchants or as against merchants includes “observance of reasonable commercial standards of fair dealing in the trade” (Section 2-103), and may in some situations require an objectively demonstrable reason for seeking a modification. But such matters as a market shift which makes performance come to involve a loss may provide such a reason even though there is no such unforeseen difficulty as would make out a legal excuse from performance under Sections 2-615 and 2-616.

Central London Property trust v. High Trees

R84: Promise to perform a duty in spite of non occurrence of a condition

1. Except as stated in subsection (2), a promise to perform all or part of a conditional duty under an antecedent K 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 as 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 1-107: Waiver or Renunciation of Claim or Right After Breach.

Any claim or right arising out of an alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party.

This section makes consideration unnecessary to the effective renunciation or waiver of rights or claims arising out of an alleged breach of a commercial contract where such renunciation is in writing and signed and delivered by the aggrieved party. Its provisions, however, must be read in conjunction with the section imposing an obligation of good faith. (Section 1-203). There may, of course, also be an oral renunciation or waiver sustained by consideration but subject to Statute of Frauds provisions and to the section of Article 2 on Sales dealing with the modification of signed writings (Section 2-209). As is made express in the latter section this Act fully recognizes the effectiveness of waiver and estoppel.

UCC 2-209 (5): Modification, Rescission and 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 waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

recall R73: performance of a legal duty

UCC 1-207: Performance or Acceptance Under Reservation of Rights.

(1) A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as “without prejudice”, “under protest” or the like are sufficient.

R82: Promise to Pay Indebtedness; Effect on the SOL

1. A promise to pay all or part of an antecedent contractual or quasi contractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except for the effect of the SOL

2. The following facts operate as such a promise unless other facts indicate a different intention:

a. a voluntary acknowledgment to the obligee, admitting the present existence of the antecedent indebtedness; OR

b. a voluntary xfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as interest on or part payment of or collateral security for the antecedent indebtedness; OR

c. a statement to the obligee that the SOL will not be pleaded as a defense

Promise Not binding unless in writing unless

if in the form of 2b (part payment, neg. instr, etc.)

Statutes requiring a writing inapplicable when

promise is supported by consideration

promise made enforceable by reliance

R83: Promise to pay indebtedness discharged in BK

An express promise to pay all or part of an indebtedness of the promisor, discharged or dischargeable in BK proceedings begun BEFORE the promise is made, is binding

Bankruptcy Reform Act of 1978, 11 USC 524 (P. 171)

R85: Promise to perform a voidable obligation (RATIFICATION)

Promise to perform voidable obligations (e.g. by fraud, infancy, or within the statute of frauds is enforceable despite absence of new consideration as long as new promise (RATIFICATION) is not subject to the same privilege or defense as the original obligation

R86: Promise for a Benefit Received

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 under subsection 1:

a. if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; OR

b. to the extent that its value is disproportionate to the benefit

Judicial remedies serve to protect one or more of the following interests of a promisee

having the benefit of his bargain by being put in as good a position as he would have been had the K been performed

being reimbursed for loss caused by reliance on the K by being put in as good a position as he would have been had the K NOT been made

restored to him any benefit that he has conferred on the other party

UCC 2-711: Buyer’s Remedies in General.

(1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Section 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid

(a) “cover” and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or

(b) recover damages for non-delivery as provided in this Article (Section 2-713).

(2) Where the seller fails to deliver or repudiates the buyer may also

(a) if the goods have been identified recover them as provided in this Article (Section 2-502); or

(b) in a proper case obtain specific performance or replevy the goods as provided in this Article (Section 2-716).

(3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (Section 2-706).

1. The purpose of this section is to index the buyer’s remedies, subsection (1) covering those remedies permitting the recovery of money damages, and subsection (2) covering those which permit reaching the goods themselves. The remedies listed here are those available to a buyer who has not accepted the goods or who has justifiably revoked his acceptance. The remedies available to a buyer with regard to goods finally accepted appear in the section dealing with breach in regard to accepted goods. The buyer’s right to proceed as to all goods when the breach is as to only some of the goods is determined by the section on breach in installment contracts and by the section on partial acceptance.

UCC 2-712. “Cover”; Buyer’s Procurement of Substitute Goods.

(1) After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.

(2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller’s breach.

(3) Failure of the buyer to effect cover within this section does not bar him from any other remedy.

1. This section provides the buyer with a remedy aimed at enabling him to obtain the goods he needs thus meeting his essential need. This remedy is the buyer’s equivalent of the seller’s right to resell.

2. The definition of “cover” under subsection (1) envisages goods not identical with those involved but commercially usable as reasonable substitutes under the circumstances of the particular case. The test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective.

The requirement that the buyer must cover “without unreasonable delay” is not intended to limit the time necessary for him to look around and decide as to how he may best effect cover.

3. Subsection (3) expresses the policy that cover is not a mandatory remedy for the buyer. The buyer is always free to choose between cover and damages for non-delivery under the next section.

However, this subsection must be read in conjunction with the section which limits the recovery of consequential damages to such as could not have been obviated by cover.

UCC 2-713. Buyer’s Damages for Non-delivery or Repudiation.

(1) Subject to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller’s breach.

(2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

5. The present section provides a remedy which is completely alternative to cover under the preceding section and applies only when and to the extent that the buyer has not covered.

2. Subsection (2) operates to allow the buyer, in an appropriate case, any consequential damages which are the result of the seller’s breach. The “tacit agreement” test for the recovery of consequential damages is rejected. Although the older rule at common law which made the seller liable for all consequential damages of which he had “reason to know” in advance is followed, the liberality of that rule is modified by refusing to permit recovery unless the buyer could not reasonably have prevented the loss by cover or otherwise. Subparagraph (2) carries forward the provisions of the prior uniform statutory provision as to consequential damages resulting from breach of warranty, but modifies the rule by requiring first that the buyer attempt to minimize his damages in good faith, either by cover or otherwise.

UCC 2-716: Buyer’s Right to Specific Performance or Replevin.

(1) Specific performance may be decreed where the goods are unique or in other proper circumstances.

(2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just.

(3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered.

1. The present section continues in general prior policy as to specific performance and injunction against breach. However, without intending to impair in any way the exercise of the court’s sound discretion in the matter, this Article seeks to further a more liberal attitude than some courts have shown in connection with the specific performance of contracts of sale.

2. In view of this Article’s emphasis on the commercial feasibility of replacement, a new concept of what are “unique” goods is introduced under this section. Specific performance is no longer limited to goods which are already specific or ascertained at the time of contracting. The test of uniqueness under this section must be made in terms of the total situation which characterizes the contract. Output and requirements contracts involving a particular or peculiarly available source or market present today the typical commercial specific performance situation, as contrasted with contracts for the sale of heirlooms or priceless works of art which were usually involved in the older cases. However, uniqueness is not the sole basis of the remedy under this section for the relief may also be granted “in other proper circumstances” and inability to cover is strong evidence of “other proper circumstances”.

3. The legal remedy of replevin is given the buyer in cases in which cover is reasonably unavailable and goods have been identified to the contract. This is in addition to the buyer’s right to recover identified goods on the seller’s insolvency (Section 2-502).

4. This section is intended to give the buyer rights to the goods comparable to the seller’s rights to the price.

UCC 2-703: Seller’s Remedies in General.

Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (Section 2-612), then also with respect to the whole undelivered balance, the aggrieved seller may

(a) withhold delivery of such goods;

(b) stop delivery by any bailee as hereafter provided (Section 2-705);

(c) proceed under the next section respecting goods still unidentified to the contract;

(d) resell and recover damages as hereafter provided (Section 2-706);

(e) recover damages for non-acceptance (Section 2-708) or in a proper case the price (Section 2-709);

1. This section is an index section which gathers together in one convenient place all of the various remedies open to a seller for any breach by the buyer. This Article rejects any doctrine of election of remedy as a fundamental policy and thus the remedies are essentially cumulative in nature and include all of the available remedies for breach. Whether the pursuit of one remedy bars another depends entirely on the facts of the individual case.

UCC 2-706. Seller’s Resale Including Contract for Resale.

(1) Under the conditions stated in Section 2-703 on seller’s remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyer’s breach.

(2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be at public or private sale including sale by way of one or more contracts to sell or of identification to an existing cont


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